Item 7. Management’s Discussion and Analysis
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-50 reverse stock split of our
common stock that became effective on November 5, 2024, 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), one preclinical therapeutic program (Pan-RAS), and a co-development agreement
with Marizyme, Inc (“Marizyme”).
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.
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.
Recent
Developments
On
April 11, 2024, the Company entered into a Co-Development Agreement (the “Co-Development Agreement”) with Marizyme. Under
the Co-Development Agreement (as amended), we agreed to pay Marizyme a Funding Payment of up to $1,750,000 and an Exclusivity Fee of
$200,000. The Exclusivity Fee of $200,000 and a Funding Payment of $500,000 was paid to Marizyme on April 12, 2024. The Exclusivity Fee
entitled us to an exclusivity period until May 31, 2024 for purposes of proposing and outlining a broader strategic relationship with
Marizyme with regard to Marizyme’s DuraGraft business. The Funding Payment is designed to provide financial support for commercialization
of Marizyme’s DuraGraft™ vascular conduit solution, which is indicated for adult patients undergoing coronary artery bypass
grafting surgeries and is intended for the flushing and storage of the saphenous vein grafts used in coronary artery bypass grafting
surgery. In return for the Funding Payment, we will receive quarterly a 33% payment in the nature of royalties on any Net Sales (as defined
with a meaning tantamount to gross profit on net sales) of DuraGraft, capped at double the amount of the Funding Payment cash provided.
No such payments-in-the-nature-of-royalties would accrue until after DuraGraft has been launched in the United States and a cumulative
total of $500,000 of DuraGraft Net Sales have been made in the United States.
In
addition, during the year ended December 31, 2024, the Company advanced a total of $2,257,400 to Marizyme, against which Marizyme had
previously delivered demand promissory notes to the Company of like principal amounts (the “Marizyme Notes”). The Marizyme
Notes bear interest the rate of eighteen percent (18%) per annum. Marizyme may pre-pay all or any part of the outstanding principal or
interest of the Marizyme Notes at any time and from time to time, in whole or in part, without premium or penalty.
On
November 5, 2024, the Company effected a 1-for-50, 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. Given our financial situation, the company slowed
the development of the aforementioned therapeutic products beginning in the second quarter 2024. We have also implemented dramatic expense
controls in an effort to stem the rate of losses. Management and the board are strategically reviewing plans on how to best advance our
therapeutics pipeline, and will ramp up development when properly funded through either the capital markets or strategic partnerships.
23
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 6 - Discontinued Operations).
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 the determination of
the allowance for credit losses, fair value of derivative financial instruments and 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
●
Reverse Stock Splits
●
Derivative Financial Instruments and Warrant Liabilities
●
Stock-Based Compensation
●
Income Taxes
Warrant
Liabilities
From
time to time the Company has issued certain warrants with terms that give rise to warrant liabilities (see Note 8 – Warrant Liabilities).
Accounting principles generally accepted in the United States of America (“U.S. GAAP”) require us to recognize the fair value
of these warrants as warrant liabilities on our 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
$0.3 million, and $0.1 million at December 31, 2024 and 2023, respectively. There were liability classified warrants outstanding for
68,712 shares with a weighted average price of $2.00 (of which 52,693 were exercisable with a weighted average price of $0.23) at December
31, 2024 and liability classified warrants outstanding for 9,113 shares (of which all were exercisable) with a weighted average price
of $36.50 at December 31, 2023.
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 warrant liabilities.
During
the year ended December 31, 2024, the Company issued liability classified warrants for 52,474 shares, at a weighted average price of
$8.64, reclassified warrants for 71,026 shares with a weighted average price of $2.14 from equity to liabilities, and warrants for 38,315
shares with a weighted average price of $6.50 from liabilities to equity. Liability classified warrants for 25,586 shares expired with
a weighted average price of $13.00. No liability classified warrants were exercised during the year ended December 31, 2024.
During
the year ended December 31, 2023, the Company issued liability classified warrants for 9,113 shares, at a weighted average price of
$36.50, reclassified warrants for 50,000 shares with a weighted average price of $82.50 from liabilities to equity. Liability
classified warrants for 21,952 shares with a weighted average price of $66.00 expired, and liability classified warrants for 5,040
shares with a weighted average price of $66.00 were forfeited. No liability classified warrants were exercised during the year ended
December 31, 2023.
Short-Term
Notes Receivable
During
the year ended December 31, 2024, the Company advanced to Marizyme, Inc., $2,257,400, against which Marizyme delivered demand promissory
notes to the Company of like principal amounts (the “Marizyme Notes”). As of December 31, 2024, accrued interest related
to the Marizyme Notes was $113,292 and interest income of this amount was recognized in other income in the consolidated statement of
operations. As of December 31, 2023 there were no amounts due to the Company under the Marizyme Notes.
The
Marizyme Notes bear at interest the rate of eighteen percent (18%) per annum. Marizyme may pre-pay all or any part of the outstanding
principal or interest at any time and from time to time, in whole or in part, without premium or penalty.
Under
ASC 326-20, known as the current expected credit loss (“CECL”) model, the Company was required to estimate credit losses
expected over the life of an exposure (or pool of exposures) based on historical information, current information, and reasonable and
supportable forecasts. The Company is unable to use its historical data to estimate losses as it has no relevant loss history to
date. To determine the estimate of expected credit losses, the Company used a probability-weighted approach that incorporates multiple
settlement scenarios, including recovery of amounts due upon an acquisition of the debtor, and recovery in different liquidation scenarios,
and determines the expected recoverable amount of the loan in each scenario. This model requires management to make certain assumptions
including the likelihood of each outcome, the estimated value of the debtor’s assets, and the Company’s expected claim and
recovery rate on the debtor’s assets in the event of an insolvency or a liquidation proceeding. As of December 31, 2024, the estimate
for expected credit losses on the Marizyme Notes is $360,000. Given the inherently uncertain nature of the debtor’s financial condition
and future outcomes, actual credit losses may differ materially from this estimate. The Company will continue to monitor relevant events
and conditions and update its assumptions and allowance as necessary.
24
Results
of Operations
Comparison
of the Years Ended December 31, 2024 and 2023:
For the Years Ended
December 31,
2024
2023
EXPENSES
General and administrative
$ 4,204,558
$ 6,095,607
Research and development
1,197,162
5,209,250
Credit loss expense - short-term note receivable
360,000
-
Total expenses
5,761,720
11,304,857
LOSS FROM OPERATIONS
(5,761,720 )
(11,304,857 )
OTHER EXPENSE (INCOME), NET
Gain on change in fair value of warrant liabilities
(415,810 )
(2,035,469 )
Gain on change in fair value of derivative liabilities
(191,068 )
—
Interest income
(128,795
1,524,722
Interest expense
908,943
1,524,722
Loss on issuance of convertible debt
358,279
—
(Gain) loss on voluntary conversion of convertible debt into common stock
(56,010 )
1,077,287
Loss on debt extinguishment
56,997
625,653
Loss on monthly redemptions of convertible debt into common stock
208,852
—
Gain on settlements of accounts payable
(348,305 )
—
Loss on fixed asset disposal
—
21,747
Other income, net
(1,946 )
(38,994 )
Total other expense (income), net
391,137
1,174,946
LOSS BEFORE PROVISION FOR INCOME TAXES
(6,152,857 )
(12,479,803 )
PROVISION (BENEFIT) FOR INCOME TAXES
6,334
(4,793 )
NET LOSS FROM CONTINUING OPERATIONS
(6,159,191 )
(12,475,010 )
DISCONTINUED OPERATIONS
Loss from discontinued operations, net of tax
—
(683,008 )
Loss on disposal of discontinued operations, net of tax
(100,000 )
(602,232 )
LOSS FROM DISCONTINUED OPERATIONS
(100,000 )
(1,285,240 )
NET LOSS
(6,259,191 )
(13,760,250 )
Net loss attributable to non-controlling interest from discontinued operations
—
(343,038 )
Net loss available to Qualigen Therapeutics, Inc.
(6,259,191 )
(13,417,212 )
Deemed dividend arising from warrant down-round provision
(87,604 )
—
Net loss attributable to Qualigen Therapeutics, Inc.
$ (6,346,795 )
$ (13,417,212 )
Net loss per common share, basic and diluted - continuing operations
$ (17.27 )
$ (122.93 )
Net loss per common share, basic and diluted - discontinued operations
$ (0.28 )
$ (9.32 )
Total net loss per common share, basic and diluted
$ (17.55 )
$ (132.25 )
Weighted—average number of shares outstanding, basic and diluted
361,587
101,454
Other comprehensive loss, net of tax
Net loss
$ (6,259,191 )
$ (13,760,250 )
Foreign currency translation adjustment from discontinued operations
—
119,473
Other comprehensive loss
(6,259,191 )
(13,640,777 )
Comprehensive loss attributable to noncontrolling interest from discontinued operations
—
(304,735 )
Comprehensive loss attributable to Qualigen Therapeutics, Inc.
$ (6,259,191 )
$ (13,336,042 )
25
Expenses
General
and Administrative Expenses
General
and administrative expenses decreased from $6.1 million for the year ended December 31, 2023 to $4.2 million for the year ended December
31, 2024. This decrease was primarily due to a $0.8 million decrease in stock-based compensation expense, a $0.9 million decrease in
payroll related expenses due to a reduction in force, and a $0.3 million decrease in insurance expenses, offset by an increase of $0.1 million in professional fees.
Research
and Development Costs
Research
and development expenses decreased from $5.2 million for the year ended December 31, 2023 to $1.2 million for year ended December 31,
2024. This decrease was primarily due to a $2.9 million decrease in preclinical, clinical research, and licensing costs for QN-302, a
$1.0 million decrease in preclinical research, and licensing costs for Pan-RAS, a $0.6 million decrease in payroll related expenses due
to a reduction in force, a $0.1 million decrease in stock-based compensation expense, and a $0.1 million decrease in professional fees,
offset by a $0.7 increase in expenses related to the Marizyme Co-Development Agreement.
Credit
Loss Expense - Short Term Notes Receivable
There was a $0.4 million loss in the current year due to a charge for the Company’s estimate for expected credit
losses on the Marizyme Notes Receivable during the year ended December 31, 2024. There were no credit losses during the year ended December
31, 2023.
Other
Expense (Income), Net
Gain
on Change in Fair Value of Warrant Liabilities
During
the year ended December 31, 2024 we experienced a $0.4 million gain in other income due to the change in fair value of the warrant liabilities
described above. The estimated fair value of warrant liabilities increased to $0.3 million as of December 31, 2024 from $0.1 million
as of December 31, 2023 due to the issuance of new liability classified warrants with an initial fair value of $0.6 million, the reclassification
at fair value of equity classified warrants to warrant liabilities of $0.3 million, offset by the reclassification at fair value to equity
of liability classified warrants of $0.2 million, and the $0.4 million gain on the change in fair value of the warrant liabilities due
to an associated decrease in the market price of our common stock and the expiration of liability classified warrants during the year.
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. The estimated fair value of 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.
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. Because the fair value
of the warrant liabilities will be determined each quarter on a “mark-to-market” basis, this item is likely to continue to
result in variability in our future quarterly Consolidated Statements of Operations based on unpredictable changes in our public market
common stock price and the number of liability classified warrants outstanding at the end of each quarter.
Gain
on Change in Fair Value of Derivative Liabilities
During
the year ended December 31, 2024, we experienced a gain of approximately $0.2 million on change in fair value of derivative liabilities
due to the issuance and subsequent extinguishment of the 2024 Alpha Debenture and 2024 Chen Debenture during the year. Derivative liabilities
at December 31, 2023 had no fair value.
Interest
Income
There
was $0.1 million in interest income during the year ended December 31, 2024 compared to no interest income during the year ended December
31, 2023. The increase was due to interest accrued on the Marizyme Notes. There were no Marizyme notes outstanding during the year ended
December 31, 2023.
Interest
Expense, Net
There
was $0.9 million in net interest expense during the year ended December 31, 2024 compared to net interest expense of $1.5 million during
the year ended December 31, 2023. The decrease was due to lower outstanding balances on convertible debt during the current year compared
to the prior year.
Loss
on Issuance of Convertible Debt
During
the year ended December 31, 2024 we experienced a loss of approximately $358,000 due to the issuance of new convertible debt. There
was no loss on issuance of convertible debt during the year ended December 31, 2023.
26
(Gain)
Loss on Voluntary Conversion of Convertible Debt into Common Stock
During
the year ended December 31, 2024, we recognized a gain of approximately $56,000 on the voluntary conversion of convertible debt into
common stock, due to the issuance of 58,378 shares of common stock with a fair value of approximately $674,000 upon partial voluntary
conversion of the 2022 Alpha Debenture at a weighted average share price of $13.00, resulting in a gain of approximately $85,000, offset
by a loss of approximately $29,000 from the issuance of 7,842 shares of common stock with a fair value of approximately $61,000 upon
Alpha’s partial voluntary conversion of the 2024 Alpha Debenture at a weighted average share price of $6.50.
During
the year ended December 31, 2023 we issued 16,835 shares of common stock upon Alpha’s partial voluntary conversion of the 2022
Debenture at $66.00 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, 2024, we recognized a loss on debt extinguishment of approximately $57,000. In connection with the closing
of the Company’s private placement transaction and issuance of Series A-2 Preferred Stock, we used approximately $531,000 of the
proceeds to repay the outstanding principal and accrued interest on the 2024 Alpha Debenture, in full settlement of the obligation, resulting
in a debt extinguishment loss of approximately $68,000. This loss was offset by a debt extinguishment gain of approximately $13,000 from
the issuance of 1,154 shares of newly designated Series A-2 Preferred Stock, in full settlement of the obligation of $1,154,000 in outstanding
principal and interest on the 2024 Chen Debenture.
During
the year ended December 31, 2023, we issued 6,193 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 $35.52.
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 Monthly Redemptions of Convertible Debt into Common Stock
During
the year ended December 31, 2024, we issued 45,496 shares of common stock with a fair value of approximately $903,000, in lieu of cash
for monthly redemptions of $660,000 principal and approximately $34,000 accrued interest redeemed, pursuant to the terms of the 2022
Alpha Debenture at a weighted average share price of $14.51. Upon redemption in shares, we recognized a loss on monthly redemptions of
convertible debt into common stock of approximately $209,000.
Gain
on Settlements of Accounts Payable
During
the year ended December 31, 2024, we settled $395,000 of our outstanding accounts payable for a gain of approximately $348,000. There
were no such settlements during the year ended December 31, 2023.
Loss
on Fixed Asset Disposal
During
the year ended December 31, 2024 there was no 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.
Other
Income, Net
Other
income, net was immaterial during the years ended December 31, 2024 and 2023.
Discontinued
Operations
There
was no loss from discontinued operations during the year ended December 31, 2024, compared approximately $0.7 million during the year
ended December 31, 2023, which consisted of approximately $0.2 million from our former Qualigen, Inc. subsidiary and approximately $0.5
million from NanoSynex.
The
Company recorded a loss of approximately $0.1 million on disposal of discontinued operations during the year ended December 31, 2024,
which was generated due to the early settlement of an escrow account from the sale of Qualigen, Inc. During the year ended December 31,
2023, the Company recorded a loss of approximately $0.6 million on disposal of discontinued operations, consisting of a loss of approximately
$4.5 million from the deconsolidation of NanoSynex, offset by a gain of approximately $3.9 million from the sale of our former Qualigen,
Inc. subsidiary.
27
Liquidity
and Going Concern
Our
financial position is weak. As of December 31, 2024, we had approximately $1.2 million in cash and net accounts payable of over $1.6
million. We are in arrears on accounts payable to important partners. We have incurred recurring losses from operations and have an accumulated
deficit of $123.1 million at December 31, 2024. We expect to continue to incur losses subsequent to the consolidated balance sheet date
of December 31, 2024. For the years ended December 31, 2024 and 2023, we used cash of $6.5 million and $10.3 million, respectively, in
operations. We sold our Qualigen, Inc. FastPack® diagnostics products business in 2023.
Our current liabilities at December 31, 2024 include approximately $1.6
million of accounts payable, $170,000 of accrued expenses and other current liabilities, and $269,000 in warrant liabilities.
We
currently expect our cash balances to fund operations only into the third quarter of 2025. 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.
Historically,
our principal sources of cash have, in addition to previous revenue from product sales and license revenues from the FastPack product
of line of Qualigen, Inc. (which we divested in July 2023), included proceeds from the issuance of common and preferred equity and proceeds
from warrant exercises and the issuance of debt. 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.
During
the year ended December 31, 2024 we raised approximately $8.0 million in new equity consisting of $4.6 million from the sale of Preferred
Series A-2 Preferred Stock, $3.0 million from the sale of common stock and prefunded warrants in a public offering, and $0.4 million
from warrant exercises. We also raised $1.5 million in new convertible debt, and $2.0 million in short-term debt, of which $1.1 million
in convertible debt and accrued interest was exchanged for Preferred Series A-2 Preferred Stock, and $0.5 million was repaid in cash. The $2.0 million in short-term
debt was also repaid in cash during the year. These equity and debt capital raises resulted in approximately $9.0 million in cash provided
by financing activities during the year ended December 31, 2024, compared to no new equity or debt issued during the year ended December
31, 2023.
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.
Delisting
of our common stock from Nasdaq would have a serious negative effect on any future financing efforts. On April 24, 2025, the Company
received a notice from Nasdaq notifying the Company that, because the Company was delinquent in filing its 2024 Form 10-K, the Company
no longer complied with Nasdaq Listing Rule 5250(c), which requires companies with securities listed on Nasdaq to timely file all required
periodic reports with the SEC. Therefore, in line with the Panel Monitor’s decision, the Company’s securities will be delisted
from Nasdaq. If the Company did not request an appeal of this decision by May 1, 2025, trading of the Company’s common stock would
have been suspended at the start of business on May 5, 2025. The Company appealed this decision to Nasdaq on May 1, 2025 and has taken
the necessary steps to regain compliance with Nasdaq’s listing rules as soon as practicable. Notwithstanding the foregoing, there
can be no assurance that the Panel will grant the Company further extensions for other late filings, or that the Company will ultimately
regain compliance with all applicable requirements for continued listing.
The
accompanying financial statements have been prepared assuming that we will continue as a going concern. The financial statements do not
include any adjustments that would be necessary should we be unable to continue as a going concern, and therefore, be required to liquidate
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.
28
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 agreements to make future payments to third parties that become due and payable on the achievement
of certain development, regulatory and commercial milestones (such as the start of a clinical trial, filing for product approval with
the FDA or other regulatory agencies, product approval by the FDA or other regulatory agencies, product launch or product sales) or on
the sublicense of our rights to another party. We have not included these commitments on our balance sheet because the achievement and
timing of these events is not determinable. Certain milestones are in advance of receipt of revenue from the sale of products and, therefore,
we may require additional debt or equity capital to make such payments.
We
have multiple license and sponsored research agreements with University of Louisville Research Foundation 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. 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.
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 was paid in January 2024.
Marizyme
On
April 11, 2024, we entered into a Co-Development Agreement with Marizyme, Inc. (“Marizyme”). Under the Co-Development Agreement
(as amended on August 6, 2024), we agreed to pay Marizyme a Funding Payment of up to $1,750,000 and an Exclusivity Fee of $200,000. The
Exclusivity Fee of $200,000 and a Funding Payment of $500,000 was paid to Marizyme on April 12, 2024. The Exclusivity Fee entitled us
to an exclusivity period until May 31, 2024 for purposes of proposing and outlining a broader strategic relationship with Marizyme with
regard to Marizyme’s DuraGraft business. The Funding Payment is designed to provide financial support for commercialization of
Marizyme’s DuraGraft™ vascular conduit solution, which is indicated for adult patients undergoing coronary artery bypass
grafting surgeries and is intended for the flushing and storage of the saphenous vein grafts used in coronary artery bypass grafting
surgery. In return for the Funding Payment we will receive quarterly a 33% payment in the nature of royalties on any Net Sales (as defined
with a meaning tantamount to gross profit on net sales) of DuraGraft, capped at double the amount of the Funding Payment cash provided.
No such payments-in-the-nature-of-royalties would accrue until after DuraGraft has been launched in the United States and a cumulative
total of $500,000 of DuraGraft Net Sales have been made in the United States.
During
the year ended December 31, 2024, the Company advanced to Marizyme $2,257,400, against which Marizyme delivered demand promissory notes
to the Company of like principal amounts (the “Marizyme Notes”). As of December 31, 2024, accrued interest related to the
Marizyme Notes was $113,292 and interest income of this amount was recognized in other income in the consolidated statement of operations.
As of December 31, 2024, the estimate for expected credit losses on the
Marizyme Notes is $200,000, which was recognized in other income in the consolidated statement of operations. As of December 31, 2024, the estimate for expected credit losses on the Marizyme Notes is $360,000, which was recognized in the consolidated statement of operations.
The
Marizyme Notes bear interest the rate of eighteen percent (18%) per annum. Marizyme may pre-pay all or any part of the outstanding principal
or interest of the Marizyme Notes at any time and from time to time, in whole or in part, without premium or penalty.
From January through June 2025, an additional $1,518,500 was advanced to
Marizyme against which Marizyme delivered additional demand promissory notes.
29
Other
Service Agreements
We
enter into contracts in the normal course of business, including with clinical sites, contract research organizations, and other professional
service providers for the conduct of clinical trials, contract manufacturers for the production of our product candidates, contract research
service providers for preclinical research studies, professional consultants for expert advice and vendors for the sourcing of clinical
and laboratory supplies and materials. These contracts generally provide for termination on notice, and therefore are cancelable contracts.
Cash
Flows
The
following table sets forth the significant sources and uses of cash for the periods set forth below:
For the Years Ended
December 31,
2024
2023
Net cash (used in) provided by:
Operating activities
$ (6,327,503 )
$ (10,304,263 )
Investing activities
(1,907,400 )
4,215,943
Financing activities
9,007,708
(550,000 )
Net increase (decrease) in cash and restricted cash
$ 772,805
$ (6,638,320 )
Net
Cash Used in Operating Activities
During
the year ended December 31, 2024, operating activities used $6.3 million of cash, primarily resulting from a net loss of $6.3 million.
Cash flows from operating activities for the year ended December 31, 2024 were positively impacted by adjustments for accretion
of discount on convertible debt of $0.6 million, a non-cash loss on issuance of convertible debt of approximately $0.4 million, a non-cash
loss on debt extinguishment of approximately $57,000, change in provision for non-cash credit losses on short-term notes receivable of
$0.4 million, a non-cash loss on monthly redemptions of convertible debt into common stock of $0.2 million, and non-cash stock based
compensation of $0.1 million. Cash flows from operating activities for the year ended December 31, 2024 were negatively impacted
by adjustments for a non-cash gain on change in fair value of warrant liabilities of $0.4 million, a $0.3 million gain on settlement
of accounts payable, a $0.4 million decrease in accounts payable, a $0.2 million increase in prepaid expenses and other assets, a $0.2
million non-cash gain on change in fair value of derivative liabilities, a $0.1 million decrease in accrued expenses and other current
liabilities, accrued interest receivable on the Marizyme notes of $0.1 million, and a non-cash gain on voluntary conversion of convertible
debt of approximately $56,000.
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. There
was no charge for provision for credit losses on short-term notes receivable during the year ended December 31, 2023.
Net
Cash Provided By Investing Activities
During
the year ended December 31, 2024, net cash used by investing activities was approximately $1.9 million resulting from the
issuance of $2.3 million in notes receivable to Marizyme, offset by $0.4 million in proceeds from the disposal of discontinued operations,
due to the release of escrow from the sale of Qualigen, Inc.
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.
Net Cash Provided by
(Used in) Financing Activities
Net cash provided
by financing activities for the year ended December 31, 2024, was approximately $9.0 million, resulting from $4.6 million in proceeds
from the sale of Series A-2 Preferred Stock, approximately $3.1 million in proceeds from the sale of common stock and prefunded warrants,
$2.0 million in proceeds from the issuance of short term debt, $1.5 million from the issuance of convertible debt, $0.4 million in proceeds
from warrant exercises, offset by $2.0 million in short term debt repayments, and $0.5 million in convertible debt repayments.
Net cash
used in financing activities for the year ended December 31, 2023, was approximately $0.6 million, due to monthly redemption payments
on the 2022 Alpha Debenture.
Net
Cash Provided by Financing Activities
Net
cash provided by financing activities for the year ended December 31, 2024, was approximately $9.0 million, resulting from $4.6 million
in proceeds from the sale of Series A-2 Preferred Stock, $3.0 million in proceeds from the sale of common stock and prefunded warrants,
$2.0 million in proceeds from the issuance of short term debt, $1.5 million from the issuance of convertible debt, $0.4 million in proceeds
from warrant exercises, offset by $2.0 million in short term debt repayments, and $0.5 million in convertible debt repayments.
Net
cash provided by financing activities for the year ended December 31, 2023, was approximately $0.6 million, due to monthly redemption
payments on the 2022 Alpha Debenture.
30
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As
a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, we are not required to provide the information
in this Item.