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COMMITMENTS AND CONTINGENCIES
 3 Months Ended
Mar. 31, 2023
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES

NOTE 13 — COMMITMENTS AND CONTINGENCIES

 

Leases

 

The Company leases its facilities under a long-term operating lease agreement. On December 15, 2021, the Company’s 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 is only $335,966. Additionally, under the Second Amendment to Lease Qualigen, Inc. is entitled to a $339,360 tenant improvement allowance.

 

The tables below show the operating lease right-of-use assets and operating lease liabilities and the balances as of March 31, 2023 and December 31, 2022, including the changes during the periods:

 

    Operating lease right-of-use assets
Net right-of-use assets at December 31, 2022   $1,422,538 
Less amortization of operating lease right-of-use assets    (57,637)
Operating lease right-of-use assets at March 31, 2023   $1,364,901 

 

 

    Operating lease liabilities
Lease liabilities at December 31, 2022   $1,542,564 
Less principal payments on operating lease liabilities    (57,731)
Lease liabilities at March 31, 2023    1,484,833 
Less non-current portion    (1,236,024)
Current portion at March 31, 2023   $248,809 

 

As of March 31, 2023, the Company’s operating leases have a weighted-average remaining lease term of 4.6 years and a weighted-average discount rate of 8.9%.

 

Year Ending December 31,  Amount 
2023 (nine months)   276,256 
2024   379,392 
2025   390,773 
2026   402,497 
2027   379,164 
Total   1,828,082 
Less present value discount   (343,249)
Operating lease liabilities  $1,484,833 

 

Total lease expense was approximately $116,000 and $114,000 for the three months ended March 31, 2023 and 2022, respectively. Lease expense was recorded in cost of product sales, general and administrative expenses, research and development and sales and marketing expenses.

 

Termination of Sekisui Distribution Agreement

 

Sekisui’s Distribution Agreement expired on March 31, 2022. As of March 31, 2023, the Company had a commitment to purchase leased FastPack rental systems back from Sekisui at Sekisui’s net book value in the amount of $154,000, which is included in equipment held for lease and accounts payable on the condensed consolidated balance sheet.

 

NanoSynex Funding Commitment

 

As a condition to the NanoSynex Acquisition, the Company agreed to provide NanoSynex with up to $10.4 million of future funding in the form of promissory notes to the Company based on NanoSynex’s achievement of certain future development milestones and subject to other terms and conditions described in the Funding Agreement entered into with NanoSynex. Of this amount approximately $2.4 million was funded during the year ended December 31, 2022, and an additional $0.5 million was funded in February 2023 (See Note 2 - Liquidity for further details regarding the terms and conditions of the Funding Agreement).

 

Litigation and Other Legal Proceedings

 

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