QRONS INC.
CONDENSED BALANCE SHEETS
(Unaudited)
|
|
March 31, 2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
474,308
|
|
|
$
|
57,767
|
|
Prepaid expenses
|
|
|
31,893
|
|
|
|
15,812
|
|
Total current assets
|
|
|
506,201
|
|
|
|
73,579
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
506,201
|
|
|
$
|
73,579
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
25,986
|
|
|
$
|
14,141
|
|
Accounts payable and accrued liabilities – related party
|
|
|
1,906
|
|
|
|
1,410
|
|
Convertible note – related party, net of debt discount
|
|
|
13,027
|
|
|
|
6,665
|
|
Derivative liabilities
|
|
|
29,074
|
|
|
|
31,090
|
|
Total current liabilities
|
|
|
69,993
|
|
|
|
53,306
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
69,993
|
|
|
|
53,306
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
Series A Preferred Shares: $0.001 par value, authorized 10,000; 2,000 shares issued and outstanding
|
|
|
2
|
|
|
|
2
|
|
Common stock, $0.0001 par value: shares authorized 100,000,000;
12,729,125 and 12,404,910 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively
|
|
|
1,273
|
|
|
|
1,240
|
|
Additional Paid-in Capital
|
|
|
2,521,083
|
|
|
|
1,611,711
|
|
Accumulated deficit
|
|
|
(2,086,150
|
)
|
|
|
(1,592,680
|
)
|
Total stockholder's equity
|
|
|
436,208
|
|
|
|
20,273
|
|
TOTAL LIABILITIES & EQUITY
|
|
$
|
506,201
|
|
|
$
|
73,579
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
QRONS INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For the Three Months
ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Net sales
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
40,897
|
|
|
|
776
|
|
Professional fees
|
|
|
21,180
|
|
|
|
-
|
|
General and administrative expenses
|
|
|
426,551
|
|
|
|
305
|
|
Total operating expenses
|
|
|
488,628
|
|
|
|
1,081
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(488,628
|
)
|
|
|
(1,081
|
)
|
|
|
|
|
|
|
|
|
|
Other Income (expense)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(6,858
|
)
|
|
|
(2,700
|
)
|
Change in derivative liabilities
|
|
|
2,016
|
|
|
|
-
|
|
Other (expense)
|
|
|
(4,842
|
)
|
|
|
(2,700
|
)
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(493,470
|
)
|
|
$
|
(3,781
|
)
|
|
|
|
|
|
|
|
|
|
Net (loss) per common shares (basic and diluted)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
12,639,078
|
|
|
|
11,528,622
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
QRONS INC.
CONDENSED STATEMENTS
OF CASH FLOWS
(Unaudited)
|
|
For the Three Months ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
Net loss
|
|
$
|
(493,470
|
)
|
|
$
|
(3,781
|
)
|
Adjustments to reconcile net income to net cash provided from (used by) operating activities:
|
|
|
|
|
|
|
|
|
Stock awards recorded as advisory services
|
|
|
28,000
|
|
|
|
-
|
|
Stock options granted and recorded as administrative expenses and advisory services
|
|
|
381,405
|
|
|
|
-
|
|
Accretion of debt discount
|
|
|
6,362
|
|
|
|
2,500
|
|
Change in derivative liabilities
|
|
|
(2,016
|
)
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(16,081
|
)
|
|
|
-
|
|
Accounts payable and accrued liabilities
|
|
|
11,845
|
|
|
|
1,072
|
|
Accounts payable and accrued liabilities, related party
|
|
|
496
|
|
|
|
-
|
|
Net cash provided (used by) operating activities
|
|
|
(83,459
|
)
|
|
|
(209
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Net cash provided from (used by) investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from private placement
|
|
|
500,000
|
|
|
|
32,000
|
|
Financing costs
|
|
|
-
|
|
|
|
(19,590
|
)
|
Proceeds from convertible note
|
|
|
-
|
|
|
|
-
|
|
Net cash provided from financing activities
|
|
|
500,000
|
|
|
|
12,410
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
416,541
|
|
|
|
12,201
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
57,767
|
|
|
|
155,242
|
|
Cash at end of period
|
|
|
474,308
|
|
|
|
167,443
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 – Description of Business and Basis of Presentation
Organization and nature of business:
Qrons Inc. ("Qrons" and/or the "Company") was incorporated under the laws of the State of Wyoming on August 22, 2016 under the name BioLabMart Inc. Our headquarters are located at 777 Brickell Avenue, Suite 500, Miami, FL 33131.
The Company is a p
reclinical stage biotechnology company developing advanced cell-based solutions to combat neuronal injuries with a laser focus on traumatic brain injuries. The technology could
potentially treat a wide range of neurodegenerative diseases.
The Company's
treatment integrates proprietary, engineered mesenchymal stem cells, 3D printable scaffolding, smart materials and a novel delivery system
.
On July 6, 2017, the board of directors and a majority of the Company's shareholders approved an amendment to the Company's Articles of Incorporation to change the name of the Company from "BioLabMart Inc." to "Qrons Inc.". On August 8, 2017, the Company filed Amended Articles of Incorporation with the State of Wyoming to effectuate such name change.
The Company's common stock was approved by the Financial Industry Regulatory Authority ("FINRA") for quotation on the OTC pink sheets under the symbol "BLMB" as of July 3, 2017. FINRA announced the Company's name change to Qrons Inc. on its Daily List on August 9, 2017. The new name and symbol change to "QRON" for the OTC market was effective August 10, 2017.
Ariel Agreements
On December 14, 2016, the Company entered into a license and research funding agreement ("License Agreement") with Ariel Scientific Innovations Ltd., formerly known as Ariel University R&D Co., Ltd., ("Ariel"), a wholly owned subsidiary of Ariel University, based in Ariel, Israel. Under the terms of the License Agreement, Professor Danny Baranes, the principal investigator and his research team will carry out further research relating to cell treatment with conditioned medium for neuronal tissue regeneration and repair. In consideration for payments under the License Agreement, the Company received an exclusive worldwide royalty- bearing license in Ariel patents and know-how to develop and commercialize products based on or incorporating conditioned medium for neuronal tissue regeneration and/or repair, resulting from Ariel's research or technology or the Company's research funding (the "Products). Under the License Agreement, the Company is required to use its best efforts to develop and commercialize the Products in accordance with development milestones set forth in the Agreement.
In lieu of extending the research financing and research period under the License Agreement beyond the initial 12 months, on December 14, 2017, the Company entered into a 12-month services agreement with Ariel (the "Services Agreement") pursuant to which a team at Ariel under the direction of Prof. Danny Baranes will conduct molecular biology research activities involving the testing of scaffold materials for the Company. On April 12, 2018, the Services Agreement was amended to provide for additional services as the Company may request.
On March 6, 2018, the Company entered into an additional services agreement with Ariel for the services of Professor Gadi Turgeman and his neurobiology research team in their labs.
Dartmouth Agreements
On October 17, 2017, the Company entered into an option agreement with the Trustees of Dartmouth College which provides for, among other things, the grant to the Company of a one-year exclusive option to negotiate a worldwide, royalty bearing, exclusive license with Dartmouth for 3D printable materials in the field of human and animal health. During the option period, the Company agreed to use all commercially reasonable resources to evaluate the intellectual property and provide quarterly milestone reports and a commercialization plan upon exercise of the option. Pursuant to the agreement, the Company agreed to finance the prosecution of patents by Dartmouth to protect its intellectual property. Further, the agreement provides for the payment by the Company of an option fee and certain license fees and royalty payments based upon the Company's product sales, as part of a final negotiated license agreement. The Company exercised its option on March 26, 2018 to negotiate definitive license terms, as it continues further evaluation and research.
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 2 – Summary of Significant Accounting Policies
Financial Statement Presentation:
The unaudited condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").
Fiscal year end:
The Company has selected December 31 as its fiscal year end.
Use of Estimates:
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from these estimates.
Cash Equivalents:
The Company considers all highly liquid investments with maturities of 90 days or less from the date of purchase to be cash equivalents.
Research and Development Costs:
The Company charges research and development costs to expense when incurred in accordance with FASB ASC 730, "Research and Development". Research and development costs were $40,897 and $776 for the three months period ended March 31, 2018 and March 31, 2017, respectively.
Advertising and Marketing Costs:
Advertising and marketing costs are expensed as incurred. The Company incurred $5,000 in
advertising and marketing costs during the three months ended March 31, 2018 and incurred no advertising and marketing costs during the three months ended March 31, 2017.
Related parties:
For the purposes of these financial statements, parties are considered to be related if one party has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Company and the party are subject to common control or common significant influence. Related parties may be individuals or other entities.
Stock-Based Compensation and Other Share-Based Payments:
The expense attributable to the Company's Directors is recognized over the period the amounts are earned and vested, and the expense attributable to the Company's non-employees is recognized when vested, as described in Note 7,
Stock Plan
.
Fair Value of Financial Instruments
FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. FASB ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1
– Quoted prices in active markets for identical assets or liabilities.
Level 2
– Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3
– Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level of input that is significant to the fair value measurement of the instrument.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 2 – Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments (continued)
The following table provides a summary of the fair value of our derivative liabilities as of March 31, 2018 and December 31, 2017:
|
Fair value measurements on a recurring basis
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
As of March 31, 2018:
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
-
|
|
$
|
-
|
|
$
|
29,074
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017:
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
-
|
|
$
|
-
|
|
$
|
31,090
|
|
Warrants:
The Company accounts for common stock warrants in accordance with applicable accounting guidance provided in ASC Topic 815
"Derivatives and Hedging – Contracts in Entity's Own Equity"
(ASC Topic 815), as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement. For warrants classified as equity instruments we apply the Black Scholes model. Presently all warrants issued and outstanding are accounted for using the equity method.
Income taxes:
The Company has adopted ASC Topic 740 – "Income Taxes" ASC Topic 740 requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method of ASC Topic 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Basic and Diluted Loss Per Share
: In accordance with ASC Topic 280 – "Earnings Per Share", the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common stock outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential common stock had been issued and if the additional shares of common stock were dilutive.
Potential common stock consists of the incremental common stock issuable upon the exercise of common stock warrants (using the if-converted method), convertible notes, classes of shares with conversion features, and stock awards and stock options. The computation of basic loss per share for the three-month periods ended March 31, 2018 and 2017 excludes potentially dilutive securities of underlying share purchase warrants, convertible notes, stock options and preferred shares, because their inclusion would be antidilutive. As a result, the computations of net loss per share for each period presented is the same for both basic and fully diluted.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 2 – Summary of Significant Accounting Policies (
continued)
Basic and Diluted Loss Per Share
: (continued)
In The table below reflects the potentially dilutive securities at each reporting period which have been excluded from the computation of diluted net loss per share:
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
|
|
|
52,000
|
|
|
|
562,000
|
|
Research Warrants at 3% of issued and outstanding shares
|
|
|
381,874
|
|
|
|
-
|
|
Convertible Notes
|
|
|
26,906
|
|
|
|
-
|
|
Series A Preferred shares
|
|
|
700
|
|
|
|
-
|
|
|
|
|
13,334
|
|
|
|
-
|
|
Stock options, not yet vested
|
|
|
656,666
|
|
|
|
-
|
|
Stock awards, not yet vested
|
|
|
290,000
|
|
|
|
-
|
|
|
|
|
1,421,480
|
|
|
|
562,000
|
|
New Accounting Pronouncements:
There were various accounting standards and interpretations issued recently, none of which are expected to have a material effect on the Company's operations, financial position or cash flows.
The Company has experienced net losses to date, and it has not generated revenue from operations. While the Company has recently raised proceeds it does not believe its resources will be sufficient to meet its operating and capital needs beyond the fourth quarter of 2018. The Company expects it will require additional capital to fully implement the scope of its proposed business operations, which raises substantial doubt about its ability to continue as a going concern. The Company will have to continue to rely on equity and debt financing. There can be no assurance that financing, whether debt or equity, will always be available to the Company in the amount required at any particular time or for any particular period or, if available, that it can be obtained on favorable terms.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amount and classification of liabilities that might cause results from this uncertainty.
Note 4 – Convertible Note – Related Party and Derivative Liabilities
On September 1, 2016, the Company entered into a convertible debenture agreement with CubeSquare, LLC ("CubeSquare"), of which our Chief Executive Officer is the managing partner and our President is a 25% owner. The Company received proceeds of $10,000 during fiscal 2016 ("Note 1"). The note bears interest at 8% per annum and was due on September 1, 2017. Interest accrues from September 1, 2016 and is payable on maturity. Interest is payable, at the lender's option, in cash or common stock. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company
at a conversion price of the greater of (i) $0.0625 per share if the Company's shares are not trading on a public market and; (ii) in the event the Company's shares are listed for trading on a public market, the conversion price shall be equal to a 50% discount to the average of the five lowest trading prices during the previous twenty trading days prior to the date of the notice of conversion from the lender.
On September 28, 2017 the Company and CubeSquare amended Note 1 to extend the maturity date of the note from September 1, 2017 to September 1, 2018 under the same terms and conditions.
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 4 – Convertible Note – Related Party and Derivative Liabilities (continued)
On September 27, 2017, the Company entered into a second convertible debenture agreement with CubeSquare under which the Company received proceeds of $15,000 (Note 2). Note 2 bears interest at 8% per annum and is due on September 27, 2018. Interest shall accrue from September 27, 2017 and shall be payable on maturity. Any portion of the principal and unpaid interest under the note is convertible at any time at the option of CubeSquare into shares of common stock of the Company at a conversion price equal to a 50% discount to the average of the five lowest trading prices during the previous twenty trading days prior to the date of the notice of conversion from CubeSquare.
The Company analyzed the amendment to Note 1 and Note 2 under
ASC 815-10-15-83
and concluded that these two convertible debentures
meet the definition of a derivative.
We estimated the fair value of the derivative on the inception dates, and subsequently, using the Black-Scholes valuation technique, adjusted for the effect of dilution, because that technique embodies all of the assumptions (including, volatility, expected terms, and risk-free rates) that are necessary to fair value complex derivate instruments.
The carrying value of these convertible notes is as follows:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Face value of certain convertible notes
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
Less: unamortized discount
|
|
|
(11,973
|
)
|
|
|
(18,335
|
)
|
Carrying value
|
|
$
|
13,027
|
|
|
$
|
6,665
|
|
Amortization of the discount over the three months ended March 31, 2018 and 2017 totaled $6,362 and $2,500, respectively, which amounts have been recorded as interest expense.
As a result of the application of ASC No. 815 in the periods ended March 31, 2018 and December 31, 2017 the fair value of the conversion feature is summarized as follows:
Balance at December 31, 2017
|
|
$
|
31,090
|
|
Derivative addition associated with convertible notes
|
|
|
-
|
|
Loss on change in fair value
|
|
|
(2,016
|
)
|
Balance at March 31, 2018
|
|
$
|
29,074
|
|
The fair value at the commitment and re-measurement dates for the Company's derivative liabilities were based upon the following management assumptions as of March 31, 2018 and commitment date:
|
Commitment Date
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Expected dividends
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Expected volatility
|
101% ~103%
|
|
|
95% ~ 102%
|
|
|
110% ~ 115%
|
|
Expected term
|
0.92 ~ 1 year
|
|
|
0.42 ~0.49 year
|
|
|
0.67 ~0.74 year
|
|
Risk free interest rate
|
|
1.33%
|
|
|
|
1.93%
|
|
|
1.53% ~ 1.65%
|
|
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 5 – License and Research Funding Agreements
On December 14, 2016, the Company entered the License Agreement with Ariel. Under the terms of the License Agreement, Professor Danny Baranes, the principal investigator and his research team will carry out further research relating to cell treatment with conditioned medium for neuronal tissue regeneration and repair. The Company shall fund the research completed during the research period in the total amount of $100,000. In consideration for payments under the License Agreement, the Company received an exclusive worldwide royalty- bearing license in Ariel patents and know-how to develop and commercialize products based on or incorporating conditioned medium for neuronal tissue regeneration and/or repair, resulting from Ariel's research or technology or the Company's research funding (the "Products). Under the License Agreement, the Company is required to use its best efforts to develop and commercialize the Products in accordance with development milestones set forth in the Agreement.
In addition, upon the occurrence of an Exit Event (as defined in the License Agreement) of the Company or of any affiliate commercializing the products, the Company is obligated to issue to Ariel an immediately exercisable warrant for that number of shares equal to 4% of the issued and outstanding shares of the Company at the time of issuance.
The Company and Ariel entered into Addendum #1, effective December 13, 2017 (the "Addendum") to the License Agreement pursuant to which Ariel was permitted to exercise a portion of the warrant granted pursuant to the License Agreement. On December 13, 2017, the Company issued 119,950 shares of common stock to Ariel, representing 1% of the issued and outstanding shares of the Company on such date, and valued at $335,860. The right to the balance of the shares subject to the warrant remains subject to the terms of the License Agreement and the occurrence of an Exit Event (as described in the License Agreement). In addition, the Addendum provides that Ariel may not request a demand registration until the balance of the shares subject to the warrant is exercised.
In addition to the other payments, the Company will pay Ariel upon the occurrence of the following milestone events, additional payments which shall be due within 6 months of completion of the milestone:
-
|
Upon successful clinical FDA Phase II completion - $130,000; and
|
-
|
Upon successful clinical FDA Phase III completion - $390,000
|
Upon successful development and commercialization and in recognition of the rights and licenses granted to the Company pursuant to the License Agreement, the Company will be subject to certain royalty payments as specified in the License Agreement.
During the year ended December 31, 2017, the Company incurred total research and development costs of $1,179,777, which amount includes the aforementioned value of
119,950 shares of common stock at
$335,860 pursuant to the License Agreement, as well as $812,000 recorded as stock-based compensation in respect to certain stock awards discussed in Note 6 below granted to various members of the Company's scientific advisory board.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 5 – License and Research Funding Agreements (continued)
In lieu of extending the research financing and research period under the License Agreement with Ariel beyond the initial 12 months, on December 14, 2017, the Company entered into a 12-month services agreement with Ariel (the "Services Agreement") pursuant to which a team at Ariel University under the direction of Professor Danny Baranes will conduct molecular biology research activities involving the testing of scaffold materials for the Company. As compensation for such services, the Company paid Ariel (i) $17,250 on December 19, 2017 and an additional $17,250 on April 26, 2018. On April 12, 2018, the Services Agreement was amended to provide for the payment by the Company of an additional monthly fee, commencing March 2018, of up to 8,000 Israeli shekels as compensation for additional costs which the Company may request.
On March 6, 2018, the Company entered into an additional service agreement with Ariel for the services of Professor Gadi Turgeman and his neurobiology research team in their labs area of neurologics pursuant to which the Company paid Ariel $20,580 on March 19, 2018 and will be required to pay $20,580 by August 21, 2018.
Note 6 –
Commitments
|
Service Agreement with Ariel - Prof. Danny Baranes
|
On December 14, 2017, the Company entered into a 12-month services agreement pursuant to which a team at Ariel under the direction of Prof. Danny Baranes will conduct molecular biology research activities involving the testing of scaffold materials for the Company. As compensation for the services provided, the Company will pay Ariel (i) $17,250 within five business days of the execution of the Services Agreement, and (ii) $17,250 by May 1, 2018.
The Services Agreement may be terminated by the non-breaching party upon a material breach that is not cured within 30 days or by the Company upon thirty days' prior written notice to Ariel. Ariel must keep confidential information of the Company confidential for five years after the term of the Services Agreement.
During the year ended December 31, 2017, $17,250 was paid of which $1,438 was expensed in fiscal year 2017 and $8,625 was expensed for three months period ended March 31, 2018, and the remaining $7,187 will be expensed in a subsequent period.
On April 12, 2018, the Services Agreement was amended to provide for the payment by the Company of an additional monthly fee, commencing March 2018, of up to 8,000 Israeli shekels as compensation for additional costs which the Company may request. Further on April 26, 2018, the remaining installment of $17,250 was paid.
(2)
|
Service Agreement with Ariel - Dr. Gadi Turgeman
|
On March 6, 2018, the Company entered into a service agreement for the services of Professor Gadi Turgeman and his neurobiology research team in their labs. As compensation for the services provided, the Company will pay Ariel (i) $20,580 within five business days of the execution of the Services Agreement, and (ii) $20,580 by August 21, 2018.
The Services Agreement may be terminated by the non-breaching party upon a material breach that is not cured within 30 days or by the Company upon thirty days' prior written notice to Ariel. Ariel must keep confidential information of the Company confidential for six years after the term of the Services Agreement.
During the three months ended March 31, 2018, $20,580 was paid and recorded as prepaid expenses, of which $3,430 was expensed in three month period and the remaining $17,150 will be expensed in a subsequent period.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 6 –
Commitments (continued)
|
Science Advisory Board Member Consulting Agreements (the "Agreements")
|
As part of its ongoing program of research and development, the Company has retained distinguished scientists and other qualified individuals to advise the Company with respect to its technology and business strategy and to assist it in the research, development and analysis of the Company's technology and products. In furtherance thereof, the Company has retained certain Advisors as members of its Scientific Advisory Board as described below, and the Company and Advisors have entered into agreements with the following terms and conditions:
-
|
Scientific Advisory Board and Consulting Services - Advisor shall provide general consulting services to Company (the "Services") as a member of its Scientific Advisory Board ("SAB"). As a member of the SAB, Advisor agrees to provide the Services as follows: (a) attending meetings of the Company's SAB; (b) performing the duties of a SAB member at such meetings, as established from time to time by the mutual agreement of the Company and the SAB members, including without limitation meeting with Company employees, consultants and other SAB members, reviewing goals of the Company and assisting in developing strategies for achieving such goals, and providing advice, support, theories, techniques and improvements in the Company's scientific research and product development activities; and (c) providing consulting services to Company at its request, including a reasonable amount of informal consultation over the telephone or otherwise as requested by Company. Advisor's consultation with Company will involve services as scientific, technical and business advisor to the Company and its senior team as needed with respect to the field of neuronal injuries and neuro degenerative diseases ("the "Field") and requires the application of unique, special and extraordinary skills and knowledge that Advisor possesses in the Field.
|
-
|
SAB Consulting Compensation
- the Company shall grant to Advisor the option to purchase certain number of shares of the common stock of the Company as per the stock option award grant. The options are subject to terms and provisions of the Company's 2016 Stock Option and Stock Award Plan.
|
On November 15, 2017, the Company entered into Agreements with three Advisors under the terms of which two Advisors are granted the option under the 2016 Stock Option and Award Plan to purchase 20,000 shares of common stock under certain vesting terms and one Advisor under the 2016 Stock Option and Award Plan is granted an option to purchase 30,000 shares of common stock under certain vesting terms.
The Company recorded stock-based compensation in the amount of $29,000 in respect to these options grants during fiscal 2017 which amount has been allocated as advisory services as part of general and administrative expenses. ( Note 8 – Stock Plan)
(4)
|
Advisory Board Agreement
|
On January 23, 2018, the Company entered into a one-year advisory board member consulting agreement with Pavel Hilman, the controlling shareholder of Conventus Holdings SA, a BVI corporation ("Conventus"), under which Mr. Hilman will serve on the Company's Advisory Board as a business advisor. The Advisory Board Agreement will automatically renew for up to two additional one-year periods, unless earlier terminated by either party upon 30 days' prior written notice to the other party. In consideration for serving on the Advisory Board
, the Company awarded 10,000 shares of its common stock to Mr. Hilman under its 2016 Stock Option and Stock Award Plan.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 7 – Stock Plan
2016 Stock Option and Stock Award
On December 14, 2016, the Board adopted the Company's 2016 Stock Option and Stock Award Plan (the "Plan"). The Plan provides for the award of stock options (incentive and non-qualified), stock awards and stock appreciation rights to officers, directors, employees and consultants who provide services to the Company. The terms of awards under the Plan are made by the Administrator of the Plan appointed by the Company's Board of Directors (the "Board"), or in the absence of an Administrator, by the Board. The Company has reserved 10 million shares for issuance under the Plan.
Stock Award:
On December 14, 2016, the Board awarded to each of its Science Advisors, Prof. Danny Baranes and Dr. Liat Hammer, a total of 440,000 shares of common stock of which 150,000 shares vested on December 14, 2016, 145,000 shares vested on December 14, 2017, and 145,000 shares will vest on December 14, 2018, provided such advisors are still providing services to the Company.
The value of the vested awards had been recorded as research and development expenses in the respective periods. A total of 290,000 stock awards are expected to vest during fiscal 2018.
On January 23, 2018, the Company awarded 10,000 shares of its common stock to Mr. Hilman under its 2016 Stock Option and Stock Award Plan.
|
For the three months ended
March 31,
|
|
For years ended
December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
10,000
|
|
|
290,000
|
|
|
300,000
|
|
Fair market value per share
|
$
|
2.80
|
|
$
|
2.80
|
|
$
|
0.1867
|
|
Stock based compensation recognized
|
$
|
28,000
|
|
$
|
812,000
|
|
$
|
56,000
|
|
(a)
|
Stock Options granted to Science Advisors:
|
On November 15, 2017, under the 2016 Stock Option and Award Plan , the Board awarded two of its Science Advisors the following three-year stock options: (i) an immediately exercisable option to purchase 6,667 shares of common stock at an exercise price of $2.00 per share, (ii) an option to purchase 6,667 shares of common stock exercisable on November 15, 2018 at an exercise price of $2.00 per share and (iii) an option to purchase 6,666 shares of common stock exercisable on November 15, 2019 at an exercise price of $2.00 per share, provided the advisors are still providing services to the Company.
On November 15, 2017, under the 2016 Stock Option and Award Plan , the Board awarded a Science Advisor, the following three-year stock options: (i) an option to purchase 15,000 shares of common stock, exercisable on November 15, 2018 at an exercise price of $0.40 per share and (ii) an option to purchase 15,000 shares of common stock exercisable on November 15, 2019 at an exercise price of $0.40 per share, provided the advisor is still providing services to the Company.
During the year ended December 31, 2017, total recognized compensation in respect of the above stock option compensation was $29,000, which amount has been allocated as advisory services as part of general and administrative expenses.
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 7 – Stock Plan (continued)
Stock Options: (continued)
During the three months ended March 31, 2018, total recognized compensation in respect of the above stock option compensation was $27,975, which amount has been allocated as advisory services as part of general and administrative expenses.
As of March 31, 2018, total unrecognized compensation remaining to be recognized in future periods totaled $107,255.
(b)
|
Stock Options granted to Officers:
|
On December 4, 2017, the Board granted five-year option awards to each of its two officers
for the purchase of 300,000 shares of the common stock of the Company
. Option awards are granted with an exercise price of $2 at the date of grant; and vest on December 4, 2018, expiring on December 4, 2022.
During the year ended December 31, 2017, total recognized compensation of $106,029 was recorded as general and administrative expenses.
During the three months ended March 31, 2018, total recognized compensation of $353,430 was recorded as general and administrative expenses.
As of March 31, 2018, total unrecognized compensation remaining to be recognized in future periods totaled $954,261.
The fair value of each option award above is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions at the measurement date(s):
|
|
Measurement date
|
|
Dividend yield
|
|
|
0%
|
|
Expected volatility
|
|
|
114.69 ~ 126.34%
|
|
Risk-free interest rate
|
|
|
1.79% ~ 2.15%
|
|
Expected life (years)
|
|
|
3 ~ 5
|
|
Stock Price
|
|
$
|
2.80
|
|
Exercise Price
|
|
$
|
0.40 ~ 2.00
|
|
A summary of the activity for the Company's stock options for the period ended March 31, 2018 and for the year ended December 31, 2017, is as follows:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
Outstanding, beginning of period
|
|
|
670,000
|
|
|
$
|
1.93
|
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
670,000
|
|
|
$
|
1.93
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Canceled
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding, end of period
|
|
|
670,000
|
|
|
$
|
1.93
|
|
|
|
670,000
|
|
|
$
|
1.93
|
|
Options exercisable, end of period
|
|
|
13,334
|
|
|
$
|
2.00
|
|
|
|
13,334
|
|
|
$
|
2.00
|
|
Options expected to vest, end of period
|
|
|
656,666
|
|
|
$
|
1.89
|
|
|
|
656,666
|
|
|
$
|
1.89
|
|
Weighted average fair value of options granted
|
|
|
|
|
|
$
|
2.36
|
|
|
|
|
|
|
$
|
2.36
|
|
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 8 – Capital Stock
Authorized:
The Company has authorized 100,000,000 shares of common stock, $0.0001 par value and 10,000 shares of a class of preferred stock called the "Series A Preferred Stock", par value $0.001.
Series A Preferred Stock:
Each share of Series A Preferred Stock has a stated value of $1 per share and accrues 4% per annum for determination of liquidation, conversion or redemption. The shares convert at the option of the holder into shares of common stock at the market value of the common stock. The Series A Preferred Stock vote as a single class and maintain 66 2/3% of the total votes as long as any shares of Series A Preferred Stock remain outstanding. The Series A Preferred Stock contains liquidation preference (senior rank to all common) and are not to be amended without the holders' approval.
At inception on August 22, 2016, the Company approved the issuance of 1,000 shares of Series A Preferred Stock at par value to Jonah Meer, the Company's Chief Executive Officer, Chief Financial Officer and Secretary, for cash $1 was paid for the Series A Preferred Stock.
Common Stock issuances during the three months ended March 31, 2018:
On January 23, 2018 the Company sold 312,500 shares of its common stock to Conventus and raised $500,000 pursuant to a subscription agreement in a private placement offering. The proceeds of the offering will be used for research and general corporate purposes.
On January 23, 2018, the Company issued 10,000 shares for advisory services (Note 6(4)).
On February 6, 2018,
the Company
received a warrant exercise notice in respect of 2,000 warrants from a subscriber and issued 1,715
shares of common stock
on a cashless exercise basis as per the cashless exercise formula contained in the warrant.
Common Stock issuances as of December 31, 2017:
On December 13, 2017, 119,950 shares were issued to Ariel as an exercise of warrants pursuant to a License Agreement (Note 5 – License and Research Funding Agreement). These shares were valued at $335,860 or $2.80 per share, based on fair market value, and the associated cost was recorded as research and development expenses.
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 8 – Capital Stock (continued)
Common Stock issuances as of December 31, 2017 (continued):
On December 14, 2017, the Company issued 290,000 shares to
two Scientific Advisors as a stock award,
valued at $812,000, or $2.80 per share, based on fair market value, and recorded the associated cost as research and development expenses. (Note 8 – Stock Plan).
During the year ended December 31, 2017, the Company received aggregate proceeds of $32,000 in private placement subscriptions for a total of 128,000 shares.
During the year ended December 31, 2017 the Company
received warrant exercise notices in respect of 512,000 warrants from various subscribers and issued a total of 442,960
shares of common stock
on a cashless exercise basis as per the cashless exercise formula in the warrant.
Share Purchase Warrants
In accordance with authoritative accounting guidance,
the fair value of the aforementioned warrants was calculated
using the Black-Scholes option-pricing model with the following assumptions at the measurement date(s):
|
|
Measurement date
|
|
Dividend yield
|
|
|
0%
|
|
Expected volatility
|
|
|
97.90~119.33%
|
|
Risk-free interest rate
|
|
|
1.47~1.60%
|
|
Expected life (years)
|
|
|
2.71~2.92
|
|
Stock Price
|
|
$
|
0.25
|
|
Exercise Price
|
|
$
|
0.40
|
|
As of March 31, 2018, and December 31, 2017, the following common stock purchase warrants were outstanding:
|
|
Warrants (1)
|
|
|
Weighted Average Exercise Price
|
|
Outstanding – December 31, 2016
|
|
|
502,000
|
|
|
$
|
0.40
|
|
Granted
|
|
|
64,000
|
|
|
|
0.40
|
|
Forfeited/Canceled
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
512,000
|
(2)
|
|
|
0.40
|
|
Outstanding – December 31, 2017
|
|
|
54,000
|
|
|
|
0.40
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Canceled
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
2,000
|
(3)
|
|
|
0.40
|
|
Outstanding – March 31, 2018
|
|
|
52,000
|
|
|
$
|
0.40
|
|
(1) Each two shares of common stock purchased under the private placement provides for one warrant to acquire an additional share of common stock together with the payment of $0.40.
(2) During the year ended December 31, 2017, investors
exercised 512,000 share purchase warrants and received 442,960 underlying shares for exercise on a cashless basis.
(3) During the three-month period ended March 31, 2018, investors
exercised 2,000 share purchase warrants and received 1,715 underlying shares for exercise on a cashless basis.
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 9 – Subsequent Events
On April 12, 2018, the Company amended its services agreement, dated December 12, 2017 with Ariel Scientific Innovations Ltd. The Amendment provides for the payment of an additional monthly fee, commencing March 2018, of up to 8,000 Israeli shekels as compensation for additional costs which the Company may request. All other terms and conditions of the Services Agreement remain in effect.
On April 16, 2018, the Company entered into a one-year advisory board member consulting agreement with Chenfeng Ke, Assistant Professor of Chemistry at of Dartmouth College, pursuant to which Professor Ke will serve on the Company's Scientific Advisory Board. In consideration for serving on the Scientific Advisory Board, the Company granted an option to purchase 30,000 shares of its common stock to Professor Ke.
On April 23, 2018, the Company entered into a six-month investment relations agreement with an investor relations firm for a monthly consulting fee of $5,000 and issued 75,000 shares of its common stock as commitment shares for agreeing to enter into such agreement.