UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2018

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______ to ______

 

Commission File Number: 000-55800

 

QRONS INC.

 

(Exact name of registrant as specified in its charter)

 

Wyoming   81-3623646
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

50 Battery Place, #7T, New York, New York 10280

(Address of principal executive office)

 

Registrant's telephone number, including area code: (212)-945-2080

 

Securities registered pursuant to Section 12(b) of the Act:

None

 

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.0001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No ☐

 

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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☒
    Emerging growth company    ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes  ☐    No  ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No ☒

  

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was $6,955,773.

 

As of March 22, 2019, there were 12,942,309 shares of the registrant's common stock outstanding. 

 

 

 

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TABLE OF CONTENTS

 

Item No.       Page No.  
PART I
1   Business   4  
1A   Risk Factors   12  
1B   Unresolved Staff Comments   13  
2   Properties   13  
3   Legal Proceedings   13  
4   Mine Safety Disclosures   13  
           
PART II
5   Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.   13  
6   Selected Financial Data   15  
7   Management's Discussion and Analysis of Financial Condition and Results of Operations   15  
7A   Quantitative and Qualitative Disclosures About Market Risk   19  
8   Financial Statements and Supplementary Data   19  
9   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   20  
9A   Controls and Procedures   20  
9B   Other Information   21  
           
PART III
10   Directors, Executive Officers and Corporate Governance   21  
11   Executive Compensation   25  
12   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   26  
13   Certain Relationships and Related Transactions, and Director Independence   27  
14   Principal Accounting Fees and Services   28  
           
PART IV
15   Exhibits, Financial Statement Schedules   28  
           
    SIGNATURES   30  

 

 

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PART I

 

Item 1. Business

 

As used in this Annual Report on Form 10-K (this "Report"), references to the "Company," the "registrant," "we," "our" or "us" refer to BioLabMart Inc. prior to August 8, 2017 and Qrons Inc. since August 8, 2017, unless the context otherwise indicates.

 

Forward-Looking Statements

 

This Report contains predictions, estimates and other forward-looking statements that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue" or the negative of these terms or other comparable terminology.

 

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Forward-looking statements represent our management's beliefs and assumptions only as of the date of this Annual Report. You should read this Report and the documents that we have filed as exhibits to this Report completely and with the understanding that our actual future results may be materially different from what we expect.

 

All forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made, except as required by federal securities and any other applicable law.

 

Overview

 

We were incorporated under the laws of the State of Wyoming on August 22, 2016 as BioLabMart Inc. and changed our name to Qrons Inc. on August 8, 2017.

 

We are a preclinical stage biotechnology company developing advanced stem cell synthetic hydrogel-based solutions to combat neuronal injuries and achieve a breakthrough in the treatment of traumatic brain injuries ("TBIs") for both concussions and penetrating injuries, an unmet medical need. We believe that our approach is pushing the boundaries of science by using the latest advances in molecular biology and chemistry. The Company collaborates with universities and scientists in the fields of regenerative medicine, tissue engineering and 3D printable hydrogels to develop a treatment that integrates proprietary, engineered mesenchymal stem cells, 3D printable implant, smart materials and a novel delivery system.

 

To date, the Company has two products candidates for treating TBIs, both integrating proprietary, modified mesenchymal stem cells (“MSCs”) and smart synthetic material. QS100 TM is an injury specific, 3D printable, implantable MSCs-synthetic hydrogel, to treat penetrating brain injuries and QS200 TM is an injectable MSCs-synthetic hydrogel for the treatment of diffused injuries commonly referred to as concussions.

 

As described below, while continuing research under the Company’s sponsored research agreement (the “Sponsored Research Agreement”) with the Trustees of Dartmouth College (“Dartmouth”) to develop innovative 3D printable, biocompatible advanced materials, the Company is currently engaged in discussions with Dartmouth to finalize terms of a worldwide, royalty bearing, exclusive license for such 3D printable materials in the field of human and animal health. In addition, the Company is engaged in laboratory research relating to neuronal tissue regeneration and/or repair in Israel in connection with service agreements with Ariel University R&D Co., Ltd., now known as Ariel Scientific Innovations Ltd., a wholly owned subsidiary of Ariel University, in Ariel, Israel (“Ariel”).

 

Messrs. Meer and Merfeld, our Chief Executive Officer and President, respectively, as the holders of the Company's issued and outstanding shares of the Company's Class A Preferred Stock collectively have 66 2/3% of the voting rights of the Company. Acting together, they will be able to influence the outcome of all corporate actions requiring approval of our stockholders.

 

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. On July 6, 2017, the Company's board of directors and shareholders approved an amendment to the Company's Articles of Incorporation changing the name of the Company from "BioLabMart Inc." to "Qrons Inc. The Secretary of State of the State of Wyoming approved the Company's Amendment to its Articles of Amendment reflecting the change of the Company's name from BioLabMart Inc. to Qrons Inc., effective August 8, 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 became effective on August 10, 2017.

 

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Option Agreement with Dartmouth

 

On October 17, 2017, the Company entered into an option agreement (the "Option Agreement") with Dartmouth 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 Option 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. The Company and Dartmouth are engaged in discussions to finalize terms of the license.

 

Sponsored Research Agreement with Dartmouth

 

On July 12, 2018, the Company entered into a one-year sponsored research agreement (the "Sponsored Research Agreement"), with Dartmouth pursuant to which the Company will fund research conducted by Dartmouth of mutual interest to the parties in accordance with the Agreement. Intellectual property invented or developed solely by a party shall be owned by such party and intellectual property jointly invented or developed shall be jointly owned. Dartmouth shall retain an irrevocable worldwide right to use intellectual property owned by it resulting from its research under the Sponsored Research Agreement on a non-exclusive royalty-free basis for research and education purposes.

 

If either party desires to obtain patent and copyright protection for intellectual property created under the Sponsored Research Agreement, such party shall notify the other party and the parties shall agree upon intellectual property protection strategy and cost allocation. Each party shall have the right to grant licenses under jointly-owned patents to third parties, subject to the Company's option to the exclusive right to license Dartmouth intellectual property and/or Dartmouth's ownership in jointly-owned intellectual property upon notification to Dartmouth in accordance with the terms of the Agreement and at the Company's cost. If the Company exercises its option to license intellectual property, Dartmouth shall negotiate exclusively with the Company for 180 days (or such additional period as agreed upon by the parties) for such licenses. The Company will be required to reimburse Dartmouth for the costs of patent prosecution and maintenance in the United States and any foreign country and demonstrate reasonable efforts to commercialize the technology.

 

The Sponsored Research Agreement may be terminated earlier than one year upon written agreement of the parties, a material breach which is not cured within 30 days of notice thereof, if Professor Ke no longer conducts the research under the Agreement and a successor acceptable to both parties is not available, or in the event of an unauthorized assignment of the Company's rights and obligations under the Agreement.

 

License Agreement with Ariel

 

On December 14, 2016, the Company entered into a license and research funding agreement (the "License Agreement") with Ariel under which the Company paid Ariel $100,000 to fund research for 12 months (with an option to extend such research financing and research period). In consideration therefor, the Company received an exclusive worldwide royalty-bearing license in Ariel patents and know-how to develop and commercialize products based on or incorporating coral-based conditioned medium for neuronal tissue regeneration and/or repair, resulting from Ariel's research or technology or the Company's research funding in accordance with milestones set forth in the Agreement.

 

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The License Agreement provides that the Company make royalty payments of 4% of net sales (which may be increased if any patent is challenged by the Company or its affiliates or decreased if there is a valid patent claim) within 30 days of each calendar quarter for the later of (i) 15 years from the date of the first sale in a country and (ii) until the last to expire of Ariel's patents in a country. The Company may provide a sublicense for cash in a bonafide arm's length transaction. The Company agreed to pay Ariel 15% of any consideration received by the Company in connection with any such sublicense (except royalties on net sales) within 30 days of receipt. The Company is also required to make milestone payments of (i) $130,000 upon the successful completion of clinical U.S. Food and Drug Administration ("FDA") Phase II trials and (ii) $390,000 upon the successful completion of clinical FDA Phase III trials, within 6 months of completion. Any late payments under the License Agreement will bear interest at 3% plus LIBOR.

 

Patent expenses incurred by Ariel under the License Agreement will be reimbursed by the Company. Any infringement action instituted by a party to the License Agreement that results in a recovery in excess of such party's expenses will belong 85% to the party bringing such action and 15% to the other party.

 

Under the License Agreement, at the Company's discretion, Ariel will transfer its technology to the Company upon the earliest to occur of (i) a successful Phase II FDA trial of a product developed under the Agreement; (ii) the acquisition of the Company by a third party of at least 45% of the share capital of the Company in a bonafide transaction valued at least at $100 million and the assumption of the License Agreement by such third party, or (iii) Ariel's written consent.

 

The License Agreement provides that each of the Company and Ariel are required to keep the other party's proprietary information confidential for the longer of (i) the term of the License Agreement and seven years from the date of disclosure. The License Agreement shall continue in effect until all of the Company's payment obligations under the Agreement have been made. After the expiration of the License Agreement, the Company will have a non-exclusive worldwide license to the Ariel technology. The Company can terminate the License Agreement for any reason upon 60 days prior written notice in which event Ariel will be required to reimburse the Company for any unused research funds. The License Agreement will terminate upon a material breach of either party that is not cured in 30 days from notice thereof, or by bankruptcy, dissolution, liquidation or the discontinuance of business. Ariel may immediately terminate the License Agreement upon a challenge to its patent validity by the Company or an affiliate of the Company. Without Ariel's prior written consent, the Company may not assign the License Agreement except to an affiliate or to a successor entity in a merger or acquisition provided the assignee assumes the License Agreement obligations.

 

Upon the earliest occurrence of (i) an underwritten public offering with proceeds of at least $25 million, (ii) the consolidation, merger or reorganization, or (iii) the sale of all or substantially all of its shares or assets of the Company or its affiliates, the Company is required 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 “Ariel Warrant”). The License Agreement also provides that the Company register shares exercised pursuant to the warrant by Ariel within 6 months of a request by Ariel by either "piggyback" or a demand registration.

 

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 Ariel Warrant 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. The right to the balance of the shares subject to the Ariel 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 Ariel Warrant is exercised.

 

The issuance of shares upon exercise of the balance of the Ariel Warrant in the future will result in dilution to the interests of other stockholders.

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Services Agreement with Ariel

 

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 University under the direction of Prof. Danny Baranes will conduct molecular biology research activities involving the testing of implant materials for the Company. If Prof. Baranes ceases to provide services, the Company must be notified and a replacement acceptable to the Company must be found within 30 days or the Company may terminate the Services Agreement. As compensation for such services, the Company paid Ariel (i) $17,250 on December 19, 2017 and (ii) $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.

 

The Services Agreement may be terminated by a non-breaching party upon a material breach that is not cured within 30 days by the other party. The Services Agreement may also be terminated by the Company upon thirty days' written notice to Ariel. Ariel must keep confidential information of the Company confidential for five years after the term of the Services Agreement.

 

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 lab pursuant to which the Company paid Ariel $20,580 on each of March 19, 2018 and August 22, 2018.

 

Business Description

 

Traumatic brain injury ("TBI") is a severe form of neuronal damage caused by powerful head impacts. Patients can experience transient symptoms, profound disability or death. TBI is generally caused by violent acts, motor vehicle accidents, falls and sports-related concussions.

 

TBI can be caused by penetrating injuries, in which an object pierces the skull and directly damages the brain, or non-penetrating blows that push the brain against the skull, inflicting neuronal damage, commonly referred to as concussions.

Neuronal cells interconnect to create the gigantic network that drives core brain functions. Unfortunately, neurons rarely regenerate after an injury. As a result, following a severe brain injury, neural connectivity is lost and brain function compromised.

 

TBI patients can become blind, deaf, paralyzed and experience cognitive and psychological issues. There is also evidence that TBI patients may be more likely to develop Alzheimer's, Huntington's, Parkinson's and other neurodegenerative diseases.

 

There are no effective treatments to help patients regain function of which we are aware. Current treatments focus on reducing secondary injuries. They can partially reduce further damage but do little or nothing to heal the brain. Most strategies are rehabilitative, helping patients adjust to their impaired cognitive state by creating workarounds, such as taking notes to compensate for lost short-term memory.

 

Our Mission and Product Candidates

 

Our mission is to develop and license novel stem cell synthetic hydrogel-based solutions and systems to repair and regenerate neuronal damage. We are focused on finding a treatment for TBI. We believe that to repair TBIs, each injured site must receive a continuous flow of neuro-protective and neuro-regenerative agents in order to prevent further neuronal damage and have the potential to stimulate neurons to migrate to the injury site, regrow axonal processes and regenerate brain tissue.

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Research by the Company is currently on course with internally established timelines. The Company has also been conducting research under the Sponsored Research Agreement with Professor Chenfeng Ke of the Chemistry Department at Dartmouth to develop innovative 3D printable, biocompatible advanced materials. The Company is working to produce and deliver a proprietary modified stem cell system that would be implanted at the target site and will induce neuronal recovery and/or slowdown of degenerative damage. 

 

To date, we have identified two product candidates, QS100TM for treating penetrating brain injuries and QS200TM, for treating concussions and other diffused axonal injuries. Both QS100TM and QS200TM integrate proprietary, modified mesenchymal stem cells and smart synthetic material. QS100TM uses an injury specific, 3D printable, implantable MSCs-synthetic compound to treat penetrating brain injuries (such as gunshot wounds, motor vehicle accidents and falls) and QS200TM uses an injectable MSCs-synthetic compound to treat diffused injuries commonly referred to as concussions.

 

QS100TM has demonstrated astrogliosis inhibition and induction of neuronal differentiation in an in-vivo animal experiments penetrating injury animal model. QS200TM research is near completion with further pre-clinical experiments scheduled to determine its efficacy for concussions and diffused brain injuries.

 

We believe that our latest advances provide a superior stem cells/synthetic hydrogel integration which will enable the unleashing of a precise, effective and controlled delivery of our proprietary MSCs.

 

While our research is progressing, there can be no assurance however that the research in which we are engaged will continue to progress or be successful in achieving its goals.

 

Our Market

 

Our market is the treatment of TBI. According to the Center for Disease Control and Prevention (the "CDC"), TBI is a major cause of death and disability in the United States and TBI contributes to about 30% of all injury deaths According to the CDC, every day, 153 people in the United States die from injuries that include TBI. In 2013, about 2.8 million TBI-related emergency department ("ED") visits, hospitalizations, and deaths occurred in the United States. TBI contributed to the deaths of nearly 50,000 people. TBI was a diagnosis in more than 282,000 hospitalizations and 2.5 million ED visits.  These consisted of TBI alone or TBI in combination with other injuries.  CDC data indicates that the economic cost of TBI in 2010, including direct and indirect medical costs, is estimated to be approximately $76.5 billion.

 

Market Competition

 

The biotechnology and pharmaceutical industries are characterized by intense and rapidly changing competition to develop new technologies and proprietary products, and any product candidates that we successfully develop and commercialize will have to compete with existing therapies and new therapies that may become available in the future. We believe that our novel multi- disciplinary approaches and scientific expertise will enable us to produce and deliver a treatment by integrating proprietary, engineered MSCs, synthetic hydrogels, 3D printable implants, smart materials and a novel delivery system to reduce neuronal loss and functional   impairment and possibly regenerate brain tissue and function for TBI patients which will provide us with competitive advantages. We face potential competition from many different sources, including larger and better-funded pharmaceutical, specialty pharmaceutical and biotechnology companies, as well as from academic institutions and governmental agencies and public and private research institutions that may develop potentially competitive products or technologies. To the extent that we develop product candidates for indications with larger patient populations, we expect to experience particularly intense competition from larger and better funded pharmaceutical and biotechnology companies. Any product candidate that we may develop will compete with such larger and better funded pharmaceutical and biotechnology companies, established drugs or solutions and new drug candidates being developed by others, that may currently be in clinical trials.

 

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Currently there are no approved products for our two product candidates. We believe the key competitive factors that will affect the success of our product candidates, if approved, are likely to be their efficacy, safety, convenience of administration and delivery, price, the level of generic competition and the availability of reimbursement from government and other third-party payors.

 

Many of our potential competitors, alone or with their strategic partners, have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of treatments and the commercialization of those treatments. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated among a smaller number of our competitors. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market .

 

Intellectual Property

 

Our intellectual property is critical to our business and we will strive to protect it, including by seeking, obtaining and maintaining patent protection for our product candidates, novel discoveries and technology, including new targets and applications, and other inventions that are important to our business. We also rely on trademarks, trade secrets, know-how, continuing technological innovation and licensing opportunities to develop and maintain our proprietary position.

 

Pursuant to the License Agreement, the Company has an exclusive, worldwide, royalty bearing license in Ariel patents and know-how for the development and commercialization of products based on or incorporating coral-based conditioned medium for neuronal tissue regeneration and/or repair, resulting from Ariel's research or technology or the Company's research funding. Under the License Agreement, Ariel will be responsible for the preparation, filing, prosecution and protection of the Ariel patents. Such preparation shall be done in consultation with the Company, provided expenses in excess of $1,000 will require Company pre-approval. The Company shall reimburse Ariel for all documented patent-related expenses.

 

On January 9, 2017, Ariel filed with the U.S. Patent and Trademark Office (the “USPTO”) a U.S. provisional patent application related to neural cell development research entitled “Methods, compositions and devices related to neural cell development”. Ariel refiled such provisional patent application on January 15, 2018 and January 17, 2019. A U.S. provisional patent application provides the means to establish an early effective filing date for a later filed nonprovisional patent application but does not mature into an issued patent unless the applicant files a regular non-provisional patent application within one year.

 

On April 9, 2018, the Company filed a provisional patent application with the USPTO entitled 'Techniques for Promoting Neuronal Recovery” and on January 22, 2019, filed a second application that included further technological developments and data.

 

The Company intends to file additional patents as research increases in order to protect its intellectual property.

 

On March 26, 2018, the Company exercised its exclusive option to negotiate a worldwide, royalty bearing, exclusive license with Dartmouth as it continues further evaluation and research 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 Option 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 and Dartmouth are engaged in discussions to finalize terms of the license.

 

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On November 15, 2017, Dartmouth filed a utility patent application with the USPTO for “Mechanically Interlocked Molecules-Based Materials” for 3-D printing, which the Company financed by reimbursing Dartmouth for the patent filing costs.

 

We cannot guarantee that our pending patent applications, or any patent applications that we may in the future file or license from third parties, will result in the issuance of patents. We also cannot predict the scope of claims that may be allowed or enforced in our patents. In addition, the coverage claimed in a patent application can be significantly reduced before a patent is issued, and its scope can be reinterpreted after issuance. Consequently, we may not be able to maintain adequate patent protection for any of our product candidates.

 

Government Regulation

 

The research, testing, manufacturing, labeling, approval, selling, import, export, marketing, and distribution of drug products, including biologics, are subject to extensive regulation by the FDA and other regulatory authorities in the United States. We are not permitted to market any biological drug product in the United States until we receive a Biologics License from the FDA. We have not previously submitted a Biologics License Application ("BLA") to the FDA, or similar approval filings to comparable foreign authorities. A BLA must include extensive preclinical and clinical data and supporting information to establish that the product candidate is safe, pure, and potent for each desired indication. The BLA must also include significant information regarding the chemistry, manufacturing, and controls for the product, and the manufacturing facilities must complete a successful pre- license inspection. We expect the novel nature of our product candidates to create further challenges in obtaining regulatory approval. The FDA may also require a panel of experts, referred to as an Advisory Committee, to deliberate on the adequacy of the safety and efficacy data to support licensure. The opinion of the Advisory Committee, although not binding, may have a significant impact on our ability to obtain licensure of the product candidates based on the completed clinical trials. Accordingly, the regulatory approval pathway for our product candidates may be uncertain, complex, expensive, and lengthy, and approval may not be obtained.

 

We will also be required to comply with costly and time-consuming compliance by foreign regulatory authorities if we want to sell our products outside of the United States.

 

Ethical, social and legal concerns about research regarding stem cells, could result in regulations restricting or prohibiting the processes we may use. Federal and state agencies, congressional committees and foreign governments have expressed interest in further regulating biotechnology. More restrictive regulations or claims that our products are unsafe or pose a hazard could prevent us from commercializing any products. New government requirements may be established that could delay or prevent regulatory approval of our product candidates under development. It is impossible to predict whether legislative changes will be enacted, regulations, policies or guidance changed, or interpretations by agencies or courts changed, or what the impact of such changes, if any, may be.

 

FDA Review, Clearance and Approval Process

 

In the US, an investigational new drug application ("IND") is required for nearly all new drugs or biologics entering clinical trials. The IND comprises three sections: chemistry and manufacturing controls ("CMC"), clinical study design, and nonclinical studies. The nonclinical studies section mainly concerns safety and toxicity in animals using the clinically intended route of administration and a product very similar, if not identical, to that which will be used in the clinic. This section typically includes a description of efficacy studies in relevant disease models. The CMC section pertains to manufacturing processes and quality control systems for ensuring consistency and the absence of potentially deleterious agents in the final product. Each of the sections of the IND must provide reviewers with a sufficient amount of detail to determine the potential safety of any product before allowing evaluation in humans.

 

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The regulatory route for licensure of an eventual product based on MSCs will likely require a BLA as opposed to a New Drug Application ("NDA"), the latter which generally pertains to drugs of well-defined composition. Within the FDA there are two centers responsible for oversight and approval of new drugs, The Center for Biologics Evaluation and Research ("CBER") and the Center for Drug Evaluation and Research ("CDER"). Jurisdictional oversight of biologics generally falls to CBER: with important exceptions for less complex entities, such as monoclonal antibodies and recombinant proteins. Therefore, the complexity of MSCs whether wholly or partially fractioned, likely will place it under the review of CBER.

 

Clinical Trials

 

The first step, a preclinical phase, is to find a promising agent, which involves taking advantage of the advances made in understanding a disease, pharmacology, computer science, and chemistry. Breaking down a disease process into its components can provide clues for targeting drug development. For example, if an enzyme is determined to be a key component of a disease process, a researcher might seek ways to inhibit this enzyme. Advances in basic science might help by ascertaining the active enzyme site. Numerous compounds might be synthesized and tested before a promising agent emerges. Computer modeling often helps select what compounds might be the most promising.

 

The next step before attempting a clinical trial in humans is to test the drug in living animals, usually rodents. The FDA requires that certain animal tests be conducted before humans are exposed to a new molecular entity. The objectives of early in vivo testing are to demonstrate the safety of the proposed medication. For example, tests should prove that the compound does not cause chromosomal damage and is not toxic at the doses that would most likely be effective. The results of these tests are used to support the IND application that is filed with the FDA. The IND application includes chemical and manufacturing data, animal test results, including pharmacology and safety data, the rationale for testing a new compound in humans, strategies for protection of human volunteers, and a plan for clinical testing. If the FDA is satisfied with the documentation, the stage is set for phase 1 clinical trials.

 

Phase 1 studies focus on the safety and pharmacology of a compound. During this stage low doses of a compound are administered to a small group of healthy volunteers who are closely supervised. In cases of severe or life-threatening illnesses, volunteers with the disease may be used. Generally, 20 to 100 volunteers are enrolled in a phase 1 trial. These studies usually start with very low doses, which are gradually increased. On average, about two thirds of phase 1 compounds will be found safe enough to progress to phase 2.

 

Phase 2 studies examine the effectiveness of a compound. To avoid unnecessarily exposing a human volunteer to a potentially harmful substance, studies are based on an analysis of the fewest volunteers needed to provide sufficient statistical power to determine efficacy. Typically, phase 2 studies involve 100 to 300 patients who suffer from the condition the new drug is intended to treat. During phase 2 studies, researchers seek to determine the effective dose, the method of delivery (e.g., oral or intravenous), and the dosing interval, as well as to reconfirm product safety. Patients in this stage are monitored carefully and assessed continuously. A substantial number of these drug trials are discontinued during phase 2 studies. Some drugs turn out to be ineffective, while others have safety problems or intolerable side effects.

 

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Phase 3 trials are the final step before seeking FDA approval. During phase 3, researchers try to confirm previous findings in a larger population. These studies usually last from 2 to 10 years and involve thousands of patients across multiple sites. These studies are used to demonstrate further safety and effectiveness and to determine the best dosage. Despite the intense scrutiny, a product receives before undergoing expensive and extensive phase 3 testing, approximately 10% of medications fail in phase 3 trials.

 

If a drug or biologic survives the clinical trials, an NDA or BLA is submitted to the FDA. An NDA or BLA contains all the preclinical and clinical information obtained during the testing phase. The application contains information on the chemical makeup and manufacturing process, pharmacology and toxicity of the compound, human pharmacokinetics, results of the clinical trials, and proposed labeling. An NDA can include experience with the product from outside the United States as well as external studies related to the drug.

 

After receiving an NDA or BLA, the FDA completes an independent review and makes its recommendations. The Prescription Drug User Fee Act of 1992 (“PDUFA”) was designed to help shorten the review time. This act allowed the agency to collect user fees from pharmaceutical companies as financial support to enhance the review process. The 1992 act specifies that the FDA reviews a standard drug or biologic application within 12 months and a priority application within 6 months. The FDA does not always meet its PDUFA goal dates for standard and priority NDAs or BLAs, and the review process may be extended by FDA requests for additional information or clarification . Application for drugs or biologics similar to those on the market are considered standard, whereas priority applications represent drugs or biologics offering important advances in addition to existing treatments. If during the review the FDA staff feels there is a need for additional information or corrections, they will make a written request to the applicant. During the review process it is not unusual for the FDA to interact with the applicant staff.

 

Once the review is complete, the NDA or BLA might be approved or rejected. If the drug or biologic is not approved, the applicant is given the reasons why and what information could be provided to make the application acceptable. Sometimes the FDA makes a tentative approval recommendation, requesting that a minor deficiency or labeling issue be corrected before final approval. Once a drug or biologic is approved, it can be marketed.

 

Some approvals contain conditions that must be met after initial marketing, such as conducting additional clinical studies. For example, the FDA might request a post-marketing, or phase 4, study to examine the risks and benefits of the new drug or biologic in a different population or to conduct special monitoring in a high-risk population. Alternatively, a phase 4 study might be initiated by the sponsor to assess such issues as the longer-term effects of exposure, to optimize the dose for marketing, to evaluate the effects in pediatric patients, or to examine the effectiveness of the drug or biologic for additional indications. Post-marketing surveillance is important, because even the most well-designed phase 3 studies might not uncover every problem that could become apparent once a product is widely used. Furthermore, the new product might be more widely used by groups that might not have been well studied in the clinical trials, such as elderly patients. A crucial element in this process is that physicians report any untoward complications. The FDA has set up a medical reporting program called Medwatch to track serious adverse events. The manufacturer must report adverse reactions at quarterly intervals for the first 3 years after approval including a special report for any serious and unexpected adverse reactions.

 

Employees

 

As of March 22, 2019, we had three full-time employees and two part-time employees. In addition, our two executive officers, Jonah Meer and Ido Merfeld, who are our sole officers and directors, are responsible for the day-to-day operations of our company. We currently outsource all professional services to third parties in an effort to maintain lower operational costs.

 

Research and Development

 

During the years ended December 31, 2018 and 2017, we incurred research and development costs of $919,706 and $1,179,777, respectively.

 

Item 1A: Risk Factors

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

  12  

 

Item 1B. Unresolved Staff Comments

 

Not applicable.

 

Item 2. Properties

 

The Company had a month-to-month lease for office space at 777 Brickell Avenue, Suite 500, Miami, Florida 33131 for $70 per month. As of March 15, 2019, the Company’s principal executive office is located at 50 Battery Place, #7T, New York, New York 10280 in space currently provided by the Company’s Chief Executive Officer at no cost. The Company believes that this space is adequate for its current needs.

 

Item 3. Legal Proceedings

 

There are no pending legal proceedings to which we are a party or in which any director, officer or affiliate of ours, any owner of record or beneficially of more than 5% of any class of our voting securities, or security holder is a party adverse to us or has a material interest adverse to us.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

PART II

 

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market Information  

 

Our common stock has been quoted on the OTC pink sheets under the symbol "BLMB" since July 3, 2017 and since August 10, 2017 under the symbol "QRON". Prior to July 3, 2017, there was no trading market for our common stock.

 

The following table sets forth the high and low sales prices as reported on the OTC pink sheets. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

 

 

    High     Low  
2017            
Third Quarter   $ 3.00     $ 1.00  
Fourth Quarter   $ 3.00     $ 2.80  
2018                
First Quarter   $ 2.80     $ 2.00  
Second Quarter   $ 2.50     $ 2.00  
Third Quarter   $ 2.50     $ 1.90  
Fourth Quarter   $ 3.90     $ 1.85  

 

The last reported sales price of our common stock on the OTC pink sheets on March 18, 2019, the most recent trading date, was $1.20 .

As of March 22, 2019, there were 39 stockholders of record of our common stock.

 

  13  

 

 

Dividend Policy

 

The Company has never paid dividends on its common stock and does not anticipate that it will pay dividends in the foreseeable future. It intends to use any future earnings for the expansion of its business. Any future determination of applicable dividends will be made at the discretion of the board of directors and will depend on the results of operations, financial condition, capital requirements and other factors deemed relevant. 

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table provides information regarding our equity compensation plans as of December 31, 2018:

 

Equity Compensation Plan Information

 

Plan category   Number of securities to be issued upon exercise of outstanding options, warrants and rights     Weighted-average exercise price of outstanding options, warrants and rights     Number of securities remaining available for future issuance under equity compensation plans  
Equity compensation plans approved by security holders     -       -       -  
                         
Equity compensation plans not approved by security holders (1)     1,615,000 (2)   $ 1.97       -  

______________ 

(1) On December 14, 2016, the Board adopted the Plan as described in Item 10 of this Annual Report on Form 10-K. 10,000,000 shares are reserved for issuance under the Plan.

(2) Represents (i) five-year options granted to each of Jonah Meer and Ido Merfeld to purchase (x) 300,000 shares of common stock at $2.00 per share exercisable on December 4, 2018 and (y) 325,000 shares of common stock at $2.00 per share exercisable on December 10, 2018, (ii) three-year options to purchase an aggregate of 20,000 shares of common stock at $2.00 per share granted to each of Motti Ratmansky and Albert Pinhasov, each a Science Advisor, (iii) three-year options to purchase an aggregate of 30,000 shares of common stock at $0.40 per share to Yitshak Francis, a Science Advisor, (iv) three-year options to purchase an aggregate of 30,000 shares of common stock at $2.00 per share to Chenfeng Ke, a Science Advisor, (v) three-year options to purchase an aggregate of 20,000 shares of common stock at $2.00 per share to Igor Korman, a Science Advisor, (vi) three-year options to purchase 100,000 shares of common stock at $2.00 to Matanel Tfilin, our Head of Stem Cell Research (vii) a five-year option to purchase 145,000 shares of common stock at $2.00 per share exercisable on December 10, 2018 to Liat Hammer, our Director of Research and Development as set forth in Note 7 to the financial statements under Item 8 of this Annual Report on Form 10-K. 

 

Recent Sales of Unregistered Securities

 

Except as set forth below, there were no sales of equity securities during the period covered by this Report that were not registered under the Securities Act and were not previously reported in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K filed by the Company. 

 

On December 26, 2018 we sold 22,728 shares our common stock to an accredited investor for $25,000 pursuant to a subscription agreement.

 

The above issuance did not involve any underwriters, underwriting discounts or commissions, or any public offering and we believe is exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof and/or Regulation D promulgated thereunder. The purchaser represented to us that he was an accredited investor and was acquiring the shares for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof and that he could bear the risks of the investment.

 

  14  

 

 

Item 6. Selected Financial Data

 

As a smaller reporting company, we are not required to provide the information required by this Item. 

 

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Our Management's Discussion and Analysis contains forward-looking statements relating to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "intends", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential", or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors which may cause our or our industry's actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements. 

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. You should not place undue reliance on these statements, which speak only as of the date that they were made. These cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future. Except as required by applicable law, we do not intend to update any of the forward-looking statements to conform these statements to actual results, later events or circumstances or to reflect the occurrence of unanticipated events.

 

The management's discussion and analysis of our financial condition and results of operations are based upon our audited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").

 

The following discussion and analysis of financial condition and results of operations of the Company is based upon, and should be read in conjunction with, the audited financial statements and related notes elsewhere in this Annual Report on Form 10-K.

 

Plan of Operation

 

We have not generated any revenue from the sales of products.

 

To date, we have identified two product candidates. We have completed an in-vivo efficacy experiment with QS100 TM for treating penetrating brain injuries in an animal model that was successful in substantiating our theories and practices regarding cell regeneration. We have begun animal in-vivo efficacy experiments with QS200 TM for treating concussions and other diffused axonal injuries.

 

In the next 12 months, we currently plan on completing development of our product candidates. This will require us to continue working with Dartmouth under the Sponsored Research Agreement in our development of innovative 3D printable biocompatible advanced materials and stem cell delivery techniques. At our research facilities located in Ariel’s labs our Stem Cells Team will continue development of our proprietary, neuro-regenerative MSC lines. Upon completion of the development of our product candidates we will begin testing for efficacy. This will require us to establish an Efficacy Team, in preparation to reach clinical trials.

 

As our research progresses, if and when we achieve functional supporting results, the Company intends to file for additional patents.

 

  15  

 

 

We will continue exploring sources of additional debt and equity financings as well as available grants.

 

There is substantial doubt that we can continue as an on-going business unless we obtain additional capital to pay our expenditures. We do not currently have sufficient resources to accomplish all of the conditions necessary for us to generate revenue.

 

Results of Operations

 

Revenue

 

We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the near future.

 

Operating Expenses  

 

For the years ended December 31, 2018 and December 31, 2017:

    For the Year ended
December 31,
    2018   2017
Operating expenses:                
Research and development expenses   $  919,706      $ 1,179,777  
Professional fees     44,147       22,429  
General and administrative expenses     2,941,092       200,939  
Total operating expenses    $ 3,904,945      $ 1,403,145  

  

Total operating expenses for the year ended December 31, 2018 were $3,904,945 compared to $1,403,145 for the year ended December 31, 2017. Operating expenses for the year ended December 31, 2018 consisted of research and development expenses of $919,706, which included  $592,019  in stock based compensation for stock options issued to certain of our Scientific Advisors and employees which vested during the current fiscal year as compared to operating expenses for the year ended December 31, 2017 which consisted of research and development expenses of $1,179,777, including  $1,147,860  in stock based compensation for stock awards issued to certain of our Scientific Advisors and the value of milestone stock awards issued to Ariel in 2017. Professional fees were $44,147 for the year ended December 31, 2018, as compared to professional fees of $22,429 for the year ended December 31, 2017, which consisted primarily of legal and accounting fees. General and administrative expenses totaled $2,941,092 for the year ended December 31, 2018 which consisted primarily of $2,851,011 in stock based compensation related to stock options and stock awards granted to officers and consultants, marketing fees of $56,879 and travel expenses of $13,077 as compared to general and administrative expenses of $200,939 for the year ended December 31, 2017 which consisted of $135,529 in stock-based compensation associated with the issuance of stock options to certain members of our Scientific Advisory board as well as two officers, and advertising and marketing fees of $28,481, as well as other general office expenses.  

 

Other expenses

 

Other expenses for the year ended December 31, 2018 were $26,083 which included interest expense on the Company’s convertible notes of $2,011 and accretion of the debt discount related thereto totaling $18,335, as well as the loss on the associated derivative liability over the period of $5,737 as compared to $20,295 for the year ended December 31, 2017 which included accrued interest expense on the Company's convertible notes of $1,123 and accretion of the debt discount related thereto totaling $13,082, as well as the loss on the associated derivative liability over the period of $6,090.

 

  16  

 

 

Statement of Cash Flows

 

The following table summarizes our cash flows for the period presented:

    For the Year ended
December 31, 		 
    2018     2017  
Net cash provided (used by) operating activities    $ (488,905 )   $  (121,927 )
Net cash provided from (used by) investing activities     -       -  
Net cash provided from financing activities     575,000       24,452  
Increase (decrease) in cash and cash equivalents    $ 86,095     $  (97,475)  

 

During the year ended December 31, 2018, our net cash increased by $86,095 as compared to a decrease in cash for the year ended December 31, 2017 of $97,475.

 

Cash Used in Operating Activities

 

Cash used in operating activities for the year ended December 31, 2018 totaled $488,905 as compared to cash used in operating activities for the year ended December 31, 2017 of $121,927.

 

Adjustments for various non-cash items for the year ended December 31, 2018, included $178,000 in stock awards for certain consulting and business advisory services , $592,019 related to stock options granted to Scientific Advisory Board members, as well as $2,673,011 related to stock options granted to officers, accretion of the debt discount of $18,335 and a change in derivative liabilities of $5,737, as compared to adjustments for the year ended December 31, 2017 which included stock awards issued to Scientific Advisory Board members of $812,000,  shares issued to Ariel for the achievement of certain milestone pursuant to the License Agreement valued at $335,860, stock options granted to officers and consultants totaling $135,029, accretion of the debt discount of $13,082 and a change in derivative liabilities of $6,090.

 

Cash Provided by Investing Activities

 

There was no cash provided by investing activities for the years ended December 31, 2018 and December 31, 2017.

 

Cash Provided by Financing Activities

 

During the year ended December 31, 2018, financing activities provided cash of $575,000 which consisted of proceeds from private placements during the year. During the year ended December 31, 2017 financing activities provided cash of $24,452 which consisted of $32,000 in proceeds from private placements, $15,000 in proceeds from convertible notes, offset by financing costs of $22,548 associated with the filing of our registration statement on Form S-1. 

 

Liquidity and Capital Resources

 

As of December 31, 2018, we had cash of $143,862. We are in the early stage of development and have experienced net losses to date and have not generated revenue from operations which raises substantial doubt about our ability to continue as a going concern. There are a number of conditions that we must satisfy before we will be able to commercialize potential products and generate revenue, including successful development of product candidates, which includes clinical trials, FDA approval, demonstration of effectiveness sufficient to generate commercial orders by customers, establishing production capabilities as well as effective marketing and sales capabilities for our product. We do not currently have sufficient resources to accomplish any of these conditions necessary for us to generate revenue and currently expect to incur increasing operating expenses. We will require substantial additional funds for operations, the service of debt and to fund our business objectives. We 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 us in the amount required at any particular time or for any particular period or, if available, that it can be obtained on terms favorable to us.

  17  

 

 

The Company raised an aggregate of $281,000 between November 2, 2016 and January 27, 2017 from 37 accredited investors and an aggregate of $575,000 during 2018 from accredited investors in private placement offerings under Regulation D and Regulation S under the Securities Act of 1933, as amended, respectively. The Company raised an additional $40,000 from accredited investors in private offerings in 2019. However, without additional financing, we do not believe our resources will be sufficient to meet our operating and capital needs beyond the second quarter of 2019.

 

Off Balance Sheet Arrangements

 

We currently have no off-balance sheet arrangements. 

 

Critical Accounting Policies

 

The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments which are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. The results of their evaluation form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions and circumstances. Our significant accounting policies are more fully discussed in the Notes to our Financial Statements.  Refer to Note 2 of the Financial Statements included herein.

 

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 $919,706 for the year ended December 31, 2018. Research and development costs were $1,179,777 for the year ended December 31, 2017, inclusive of stock-based compensation cost.

 

Stock-Based Compensation and Other Share-Based Payments:  The expense attributable to the Company's directors is recognized over the period in which 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 .

 

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.

 

Recent Accounting Pronouncements

 

Except as set forth below, recent accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) (including its EITF), the American Institute of Certified Public Accountants and the Securities and Exchange Commission (“SEC”) did not or are not believed by management to have a material effect on the Company’s present or future financial statements.

  18  

 

 

In June 2018, an accounting update was issued by FASB to simplify the accounting for nonemployee share-based payment transactions resulting from expanding the scope of  ASC Topic 718, Compensation-Stock Compensation , to include share-based payment transactions for acquiring goods and services from nonemployees. An entity is required to apply the requirements of  ASC Topic 718  to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments in the accounting update specify that  ASC Topic 718  applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that  ASC Topic 718  does not apply to share-based payments used to effectively provide (1) financing to an issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under  ASC Topic 606, Revenue from Contracts with Customers . The amendments in this accounting update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of  ASC Topic 606 .

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

 

 

  19  

 

Qrons Inc.

 

Index to Financial Statements

 

    Page
Report of Independent Registered Public Accounting Firm    F-2
Balance Sheets as of December 31, 2018 and 2017    F-3
Statements of Operations for the years ended December 31, 2018 and 2017    F-4
Statement of Changes in Stockholders' Equity (Deficit)    F-5
Statements of Cash Flows for the years ended December 31, 2018 and 2017    F-6
Notes to Financial Statements    F-7 to F-22

 

 

 

  F- 1  

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Qrons Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Qrons Inc. (the Company) as of December 31, 2018 and 2017, and the related statements of operations, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as December 31, 2018 and 2017, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provides a reasonable basis for our opinion.

 

Emphasis of Matter

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses and has no operations which raise substantial doubt about its ability to continue as a going concern.  Management’s plans in regard to these matters are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Pinnacle Accountancy Group of Utah

 

We have served as the Company’s auditor since 2016.

 

Pinnacle Accountancy Group of Utah

Farmington, Utah

March 21, 2019

 

  F- 2  

 

 

 

 

QRONS INC.

 

BALANCE SHEETS

 

 

   

December 31,

2018

 

December 31,

2017

         
         
ASSETS                
Current assets                
Cash and cash equivalents   $ 143,862     $ 57,767  
Prepaid expenses     51,985       15,812  
Total current assets     195,847       73,579  
                 
TOTAL ASSETS   $ 195,847     $ 73,579  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
Current liabilities                
Accounts payable and accrued liabilities   $ 23,324     $ 14,141  
Accounts payable and accrued liabilities – related party     3,421       1,410  
Convertible note – related party, net of debt discount     25,000       6,665  
Derivative liabilities     36,827       31,090  
Total current liabilities     88,572       53,306  
                 
Total liabilities     88,572       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; 12,872,309 and 12,404,910 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively     1,287       1,240  
Additional Paid-in Capital     5,629,694       1,611,711  
Accumulated deficit     (5,523,708 )     (1,592,680 )
Total stockholder's equity     107,275       20,273  
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY   $ 195,847     $ 73,579  

 

 

 

The accompanying notes are an integral part of these financial statements.

  F- 3  

 

 

QRONS INC.

 

STATEMENTS OF OPERATIONS


 

    For the Years Ended
    December 31,
    2018   2017
         
Net sales   $ —       $ —    
                 
Operating expenses:                
Research and development expenses     919,706       1,179,777  
Professional fees     44,147       22,429  
General and administrative expenses     2,941,092       200,939  
Total operating expenses     3,904,945       1,403,145  
                 
Income (loss) from operations     (3,904,945 )     (1,403,145 )
                 
Other income (expense)                
Interest expense     (20,346 )     (14,205 )
Change in derivative liabilities     (5,737 )     (6,090 )
Total Other income (expense)     (26,083 )     (20,295 )
                 
Net (loss)   $ (3,931,028 )   $ (1,423,440 )
                 
Net (loss) per common shares (basic and diluted)   $ (0.31 )   $ (0.12 )
                 
Weighted average shares outstanding                
Basic and diluted     12,770,845       11,657,791  

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

  F- 4  

 

 

QRONS INC.

 

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

 

    Series A Preferred Shares   Common Stock   Additional
Paid-in 		  Accumulated   Total
    Shares   Amount   Shares   Amount   Capital   Deficit   Equity
Balance, December 31, 2016     2,000     $ 2       11,424,000     $ 1,142     $ 319,468     $ (169,240 )   $ 151,372  
Issuance of common stock for private placement     —         —         128,000       13       31,987       —         32,000  
Financing costs associated with S-1     —         —         —         —         (22,548 )     —         (22,548 )
Warrants exercised associated with private placement     —         —         442,960       44       (44 )     —         —    
Warrants exercised associated with License and Research Funding Agreement     —         —         119,950       12       335,848       —         335,860  
Shares issued for stock awards     —         —         290,000       29       811,971       —         812,000  
Stock option granted to officers     —         —         —         —         106,029       —         106,029  
Stock option granted to non-employees     —         —         —         —         29,000       —         29,000  
Net loss for the year     —         —         —         —         —         (1,423,440 )     (1,423,440 )
Balance, December 31, 2017     2,000       2       12,404,910       1,240       1,611,711       (1,592,680 )     20,273  
Issuance of common stock for private placement     —         —         380,684       38       574,962       —         575,000  
Warrants exercised associated with private placement     —         —         1,715       —         —         —         —    
Shares issued for stock awards for business advisory services     —         —         10,000       1       27,999       —         28,000  
Shares issued for services provided     —         —         75,000       8       149,992       —         150,000  
Stock option granted to officers        —         —         —         —         2,673,011       —         2,673,011  
Stock option granted to non-employees as research and development costs     —         —         —         —         152,626       —         152,626  
Stock option granted to employees as research and development costs     —         —         —         —         439,393       —         439,393  
Net loss for the year     —         —         —         —         —         (3,931,028 )     (3,931,028 )
Balance, December 31, 2018     2,000     $ 2       12,872,009     $ 1,287     $ 5,629,694     $ (5,523,708 )   $ 107,275  

 

 

The accompanying notes are an integral part of these financial statements.

 

  F- 5  

 

 

QRONS INC.

 

STATEMENTS OF CASH FLOWS

 

 

    For the Years ended December 31,
    2018   2017
Cash Flows From Operating Activities                
Net loss   $ (3,931,028 )   $ (1,423,440 )
Adjustments to reconcile net loss to net cash provided from (used by) operating activities:                
Stock options recorded as research and development expense     592,019       812,000  
Stock awards recorded as advisory and consulting services     178,000       —    
Shares issued as research and development expense     —         335,860  
Stock options granted and recorded as administrative expenses     2,673,011       135,029  
Accretion of debt discount     18,335       13,082  
Change in derivative liabilities     5,737       6,090  
Changes in operating assets and liabilities:                
Prepaid expenses     (36,173 )     (15,812 )
Accounts payable and accrued liabilities     9,183       13.854  
Accounts payable and accrued liabilities, related party     2,011       1,410  
Net cash provided (used by) operating activities     (488,905 )     (121,927 )
                 
Cash Flows From Investing Activities                
Net cash provided from (used by) investing activities     —         —    
                 
Cash Flows From Financing Activities                
Proceeds from convertible note     —         15,000  
Proceeds from private placement     575,000       32,000  
Financing costs     —         (22,548 )
Net cash provided from financing activities     575,000       24,452  
                 
Increase (decrease) in cash and cash equivalents     86,095       (97,475 )
                 
Cash at beginning of year     57,767       155,242  
Cash at end of year   $ 143,862     $ 57,767  
                 
SUPPLEMENTAL DISCLOSURES                
Interest paid   $ —       $ —    
Income taxes paid   $ —       $ —    
                 
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES                
Derivative liability associated with debt discount   $ —     $ 25,000  

 

The accompanying notes are an integral part of these financial statements.

 

  F- 6  

 

 

QRONS INC.

 

NOTES TO FINANCIAL STATEMENTS

 

Note 1 – Description of Business and Basis of Presentation

 

Organization and nature of business:

 

Qrons Inc.  ("Qrons" or the "Company") was incorporated under the laws of the State of Wyoming on August 22, 2016 under the name BioLabMart Inc.

 

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.

 

The Company is a p reclinical stage biotechnology company developing advanced stem cell-synthetic hydrogel-based solutions to combat neuronal injuries and achieve a breakthrough in the treatment of traumatic brain injuries ("TBIs"), for both concussions and penetrating injuries, an unmet medical need.  We believe that our approach is  pushing the boundaries of science by using the latest advances in molecular biology and chemistry.  The Company collaborates  with universities and scientists in the fields of regenerative medicine, tissue engineering and 3D printable hydrogels to develop a  treatment that integrates proprietary, engineered mesenchymal stem cells (“MSCs”), synthetic hydrogels, 3D printable implant, smart materials and a novel delivery system.  

 

On March 15, 2019, the Company relocated its principal executive office from Miami, Florida to 50 Battery Place, #7T, New York, New York 10280.

 

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., a wholly owned subsidiary of Ariel University, based in Ariel, Israel ("Ariel"). Under the terms of the License Agreement, for certain agreed cash consideration, 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 in accordance with 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 implant 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 lab.

 

On December 12, 2018, the Company further amended the Services Agreement with Ariel to extend the term thereof for an additional twelve-month period until December 14, 2019. All other terms and conditions of the Services Agreement not amended remain in effect.

 

  F- 7  

 

 

QRONS INC.

 

NOTES TO FINANCIAL STATEMENTS

 

Note 1 – Description of Business and Basis of Presentation (continued)

 

Dartmouth Agreements

 

On October 17, 2017, the Company entered into an Option Agreement (the "Option Agreement") with the Trustees of Dartmouth College (“Dartmouth”) 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 Option Agreement, the Company agreed to finance the prosecution of patents by Dartmouth to protect its intellectual property.  Further, the Option 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.

 

On July 12, 2018, the Company entered into a one-year sponsored research agreement (the "Sponsored Research Agreement"), with Dartmouth pursuant to which the Company will support and fund the cost of research conducted by Dartmouth of mutual interest to the parties in accordance with the terms of the Sponsored Research Agreement.  Intellectual property invented or developed solely by a party shall be owned by such party and intellectual property jointly invented or developed shall be jointly owned.  Dartmouth shall retain an irrevocable worldwide right to use intellectual property owned by it resulting from its research under the Sponsored Research Agreement on a non-exclusive royalty-free basis for research and education purposes.

 

The Sponsored Research Agreement may be terminated earlier than one year upon written agreement of the parties, a material breach which is not cured within 30 days of notice thereof, if Professor Ke no longer conducts the research under the Sponsored Research Agreement and a successor acceptable to both parties is not available, or in the event of an unauthorized assignment of the Company's rights and obligations under the Sponsored Research Agreement.


 

Note 2 – Summary of Significant Accounting Policies

 

Financial Statement Presentation:  The audited 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 $919,706 for the year ended December 31, 2018. R esearch and development costs were $1,179,777 for the year ended December 31, 2017, inclusive of stock-based compensation cost.

 

Advertising and Marketing Costs:  Advertising and marketing costs are expensed as incurred.  The Company incurred $56,879 and $28,481 in advertising and marketing costs during the years ended December 31, 2018 and 2017, respectively.

 

  F- 8  

 

 

QRONS INC.

 

NOTES TO FINANCIAL STATEMENTS

 

Note 2 – Summary of Significant Accounting Policies (continued)

 

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.

 

The following table provides a summary of the fair value of the Company’s derivative liabilities as of December 31, 2018 and December 31, 2017:

 

  Fair value measurements on a recurring basis  
  Level 1   Level 2   Level 3  
As of December 31, 2018:            
Liabilities            
Derivative liabilities   $ -     $ -     $ 36,827  
                         
As of December 31, 2017:                        
Liabilities                        
Derivative liabilities   $ -     $ -     $ 31,090  


 

 

  F- 9  

 

 

QRONS INC.

 

NOTES TO FINANCIAL STATEMENTS

 

Note 2 – Summary of Significant Accounting Policies (continued)

 

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 the Company applies 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 which 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 260 – "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 years ended December 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.

 

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:

 

    December 31, 2018     December 31, 2017  
Stock purchase warrants     52,000       54,000  
Research Warrants at 3% of issued and outstanding shares     386,170       372,147  
Convertible Notes     27,864       18,864  
Series A Preferred shares     700       700  
Stock options vested     1,486,670       13,334  
Stock options not yet vested     128,330       656,666  
Stock award not yet vested     -       290,000  
Total     2,081,734       1,405,711  

 

  F- 10  

 

 

QRONS INC.

 

NOTES TO FINANCIAL STATEMENTS

 

Note 2 – Summary of Significant Accounting Policies (continued)

 

New Accounting Pronouncements:  Recent accounting pronouncements, other than below, issued by the Financial Accounting Standards Board (“FASB”), (including its EITF, the AICPA and the SEC, did not or are not believed by management to have a material effect on the Company's present or future financial statements.

 

In June 2018, an accounting update was issued by FASB to simplify the accounting for nonemployee share-based payment transactions resulting from expanding the scope of  ASC Topic 718, Compensation-Stock Compensation , to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of  ASC Topic 718  to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that  ASC Topic 718  applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that  ASC Topic 718  does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under  ASC Topic 606, Revenue from Contracts with Customers . The amendments in this accounting update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of  ASC Topic 606 .

 

Note 3 – Going Concern

 

The Company has experienced net losses to date, and it has not generated revenue from operations.  While the Company raised proceeds during 2018, it does not believe its resources will be sufficient to meet its operating and capital needs beyond the second quarter of 2019. 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 its Chief Executive Officer is the managing partner and its 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 is 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 from September 1, 2017 to September 1, 2018 and on September 9, 2018, the Company further amended Note 1 to extend the maturity date to September 1, 2019, under the same terms and conditions.

 

 

  F- 11  

 

 

QRONS INC.

 

NOTES TO 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. On September 9, 2018, Note 2 was amended to extend the maturity date until September 27, 2019.

 

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:

 

    December 31, 2018     December 31, 2017  
Face value of certain convertible notes   $ 25,000     $ 25,000  
Less: unamortized discount     -       (18,335 )
Carrying value   $ 25,000     $ 6,665  

 

Amortization of the discount over the years ended December 31, 2018 and 2017 totaled $18,335 and $13,082, respectively, which amounts have been recorded as interest expense. 

 

As a result of the application of ASC No. 815 in the periods ended December 31, 2018 and December 31, 2017 the fair value of the conversion feature is summarized as follows:

 

Balance at December 31, 2016   $ -  
Derivative addition associated with convertible notes     25,000  
Loss on change in fair value     6,090  
Balance at December 31, 2017     31,090  
Derivative addition associated with convertible notes     -  
Change in fair value     5,737  
Balance at December 31, 2018   $ 36,827  

 

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 December 31, 2018 and commitment date:

 

  Commitment Date  

December 31,

2018

 

December 31,

2017

 
Expected dividends   0     0     0  
Expected volatility 101% ~103%   64% ~ 65%   110% ~ 115%  
Expected term 0.92 ~ 1 year   0.67 ~0.74 year   0.67 ~0.74 year  
Risk free interest rate   1.33%     2.60%   1.53% ~ 1.65%  

 

  F- 12  

 

 

QRONS INC.

 

NOTES TO FINANCIAL STATEMENTS

 

Note 5 – License and Research Funding Agreements

 

On December 14, 2016, the Company entered into the License Agreement with Ariel under which the Company paid Ariel $100,000 to fund research for 12 months (with an option to extend such research financing and research period). In consideration therefore, the Company received an exclusive worldwide royalty-bearing license in Ariel patents and know-how to develop and commercialize products based on or incorporating coral-based conditioned medium for neuronal tissue regeneration and/or repair, resulting from Ariel's research or technology or the Company's research funding in accordance with 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 to the License Agreement, effective December 13, 2017 (the "Addendum") 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 related to certain stock awards discussed in Note 6 – Commitments below, granted to various members of the Company's scientific advisory board.

 

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 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 lab pursuant to which the Company paid Ariel $20,580 on each of March 19, 2018 and August 22, 2018.

 

  F- 13  

 

 

QRONS INC.

 

NOTES TO FINANCIAL STATEMENTS

 

Note 5 – License and Research Funding Agreements (continued)

 

The Services Agreement and first amendment thereto, dated April 12, 2018 were previously filed with the SEC with the Company's Current Reports on Form 8-K on December 15, 2017 and April 16, 2018, respectively.

 

On December 12, 2018, the Company further amended the Services Agreement (the "Second Amendment") with Ariel to extend the term thereof for an additional twelve-month period until December 14, 2019. The Second Amendment also provides that the Company pay Ariel $17,250 within 30 days of the date of the Amendment and an additional $17,250 on or before May 1, 2019. All other terms and conditions of the Services Agreement not amended remain in effect.

 

On July 12, 2018, the Company entered into the Sponsored Research Agreement with Dartmouth pursuant to which the Company will support and fund the cost of research conducted by Dartmouth of mutual interest to the parties in accordance with the Agreement.  Intellectual property invented or developed solely by a party shall be owned by such party and intellectual property jointly invented or developed shall be jointly owned.  Dartmouth shall retain an irrevocable worldwide right to use intellectual property owned by it resulting from its research under the Agreement on a non-exclusive royalty-free basis for research and education purposes. The Agreement may be terminated earlier than one year upon written agreement of the parties, a material breach which is not cured within 30 days of notice thereof, if Professor Ke no longer conducts the research under the Agreement and a successor acceptable to both parties is not available, or in the event of an unauthorized assignment of the Company's rights and obligations under the Agreement.

 

Note 6 –  Commitments

 

(1)   Service Agreement with Ariel Scientific Innovations Ltd.

 

On December 14, 2017, the Company entered into 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 implant 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 and on April 26, 2018, the remaining installment of $17,250 was paid.

 

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 $2,130 (8,000 Israeli shekels) as compensation for additional costs which the Company may request. During the year ended December 31, 2018, the Company paid $16,935 for these additional costs.

 

On December 12, 2018, the Company further amended the Services Agreement with Ariel (the "Second Amendment") to extend the term thereof for an additional twelve-month period until December 14, 2019. The Second Amendment also provides that the Company pay Ariel $17,250 within 30 days of the date of the Amendment and an additional $17,250 on or before May 1, 2019. All other terms and conditions of the Services Agreement not amended remain in effect.

 

During the year ended December 31, 2018 and December 31, 2017, $33,781 and $1,438 were expensed, respectively, and the remaining $16,531 (December 31, 2017 - $15,812), which amount is reflected on the Company's balance sheets as prepaid expenses, will be expensed in a subsequent period.

 

  F- 14  

 

 

QRONS INC.

 

NOTES TO FINANCIAL STATEMENTS

 

Note 6 –  Commitments (continued)

 

(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 lab. As compensation for the services provided, the Company paid Ariel $20,580 on each of March 19, 2018 and August 22, 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 year ended December 31, 2018, $41,160 was paid and recorded as prepaid expenses, of which $34,300 was expensed in the year ended December 31, 2018, and the remaining $6,860 will be expensed in a subsequent period.

 

(3)   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 management with respect to neuronal injuries and neuro degenerative diseases.   

 

- 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 an option to purchase 20,000 shares of common stock and one Advisor was granted an option to purchase 30,000 shares of common stock under the 2016 Stock Option and Award Plan subject to certain vesting terms.

 

On April 16, 2018, the Company entered into a one-year advisory board member consulting agreement with an assistant Professor of Chemistry at Dartmouth College to 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 under certain vesting terms to the assistant Professor.

 

On August 15, 2018, the Company entered into an Agreement with an Advisor under the terms of which the Company granted an option to purchase 20,000 shares of common stock under the 2016 Stock Option and Award Plan subject to certain vesting terms.

  F- 15  

 

 

QRONS INC.

 

NOTES TO FINANCIAL STATEMENTS

 

Note 6 –  Commitments (continued)

 

(4)   Business 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.

 

 (5)    Investor Relations Agreement

 

On April 23, 2018, the Company entered into a six-month investor relations agreement with an investor relations firm for a monthly consulting fee of $5,000 and the issuance of 75,000 shares of common stock payable on signing the agreement.

 

On June 23, 2018, the Company gave notice of rescission of the agreement to such firm and requested the return of the consulting fee paid and the 75,000 shares of common stock. As a result, the Company has not recorded any fees for services rendered past June 23, 2018.  A total of $10,000 representing April 2018 and May 2018 monthly consulting fees is reflected in the statement of operations and a total of $150,000, the fair market value of the issued shares, was expensed on issue. As at the date of this report no fees or shares have been recovered.

 

 (6)    Sponsored Research Agreement

 

On July 12, 2018, the Company entered into the Sponsored Research Agreement with Dartmouth pursuant to which the Company will support and fund the cost of research conducted by Dartmouth of mutual interest to the parties in accordance with the Agreement.  Intellectual property invented or developed solely by a party shall be owned by such party and intellectual property jointly invented or developed shall be jointly owned.  Dartmouth shall retain an irrevocable worldwide right to use intellectual property owned by it resulting from its research under the Agreement on a non-exclusive royalty-free basis for research and education purposes. The Company funded $36,293 on August 20, 2018 and funded an additional $18,147 on December 17, 2018 and is required to fund an additional $18,146 by June 1, 2019.

 

The Agreement may be terminated earlier than one year upon written agreement of the parties, a material breach which is not cured within 30 days of notice thereof, if Professor Ke no longer conducts the research under the Agreement and a successor acceptable to both parties is not available, or in the event of an unauthorized assignment of the Company's rights and obligations under the Agreement.

 

During the year ended December 31, 2018, $54,440 was paid and recorded as prepaid expenses, of which $27,220 was expensed in the year ended December 31, 2018, and the remaining $27,220 will be expensed in a subsequent period.

 

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.

 

  F- 16  

 

 

QRONS INC.

 

NOTES TO FINANCIAL STATEMENTS

 

Note 7 – Stock Plan (continued)

 

Stock Awards:

 

On December 14, 2016, the Board awarded to each of Prof. Danny Baranes, a Science Advisor and Dr. Liat Hammer, a former Science Advisor, a total of 440,000 shares of common stock of which 150,000 shares vested on December 14, 2016 and 145,000 shares vested on December 14, 2017. The balance of 145,000 shares did not vest as the nature of such services in such capacities were no longer provided 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 did not vest during the fourth quarter of 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, which shares were fully vested and recorded as advisory services on issuance.  

 

   

For the years ended

December 31,

 
    2018     2017  
Number of shares vested in period     10,000       290,000  
Fair market value per share   $ 2.80     $ 2.80  
Stock based compensation recognized   $ 28,000     $ 812,000  

 

Stock Options:

 

(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.

 

On April 16, 2018, 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 10,000 shares of common stock, exercisable on April 16, 2018 at an exercise price of $2.00 per share (ii) an option to purchase 10,000 shares of common stock exercisable on April 16, 2019 at an exercise price of $2.00 per share, and (iii) an option to purchase 10,000 shares of common stock exercisable on April 16, 2020 at an exercise price of $2.00 per share, provided the advisor is still providing services to the Company. 

 

On August 15, 2018, 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 6,667 shares of common stock, exercisable on August 15, 2018 at an exercise price of $2.00 per share (ii) an option to purchase 6,667 shares of common stock exercisable on August 15, 2019 at an exercise price of $2.00 per share, and (iii) an option to purchase 6,666 shares of common stock exercisable on August 15, 2020 at an exercise price of $2.00 per share, provided the advisor is still providing services to the Company.  

 

  F- 17  

 

 

QRONS INC.

 

NOTES TO FINANCIAL STATEMENTS

 

Note 7 – Stock Plan (continued)

 

Stock Options: (continued)

 

(b)   Stock Options granted Employees:

 

On December 10, 2018, under the 2016 Stock Option and Award Plan, the Board granted an immediately exercisable five-year option to purchase an aggregate of 145,000 shares of common stock at an exercise price of $2.00 per share to an employee of the Company for services provided to the Company as a “replacement award” for the same number of shares which did not vest as described in Note 7-Stock Awards. Applying the accounting guidance contained in ASC 718-20 the issuance of the stock option and concurrent cancelation of a stock award of the same number of shares is considered a “replacement award” and the Company has determined and expensed the incremental cost of the replacement award in the amount of $54,840.

 

On December 10, 2018, under the 2016 Stock Option and Award Plan, the Board awarded an employee the following three-year stock options: (i) an option to purchase 33,334 shares of common stock, exercisable on December 10, 2018 at an exercise price of $2.00 per share (ii) an option to purchase 33,333 shares of common stock exercisable on December 10, 2019 at an exercise price of $2.00 per share, and (iii) an option to purchase 33,333 shares of common stock exercisable on December 10, 2020 at an exercise price of $2.00 per share, provided the advisor is still providing services to the Company. 

 

During the year ended December 31, 2018 and December 31, 2017, total recognized compensation in respect of the above stock option compensation was $592,019 and $29,000, respectively, which amount has been allocated as advisory services as part of general and administrative expenses.

 

As of December 31, 2018, total unrecognized compensation remaining to be recognized in future periods totaled $198,088.

 

(c)   Stock Options granted to Officers:

 

On December 4, 2017, the Board granted five-year options to each of its two officers  for the purchase of 300,000 shares of the common stock of the Company . The options have an exercise price of $2.00 and vest and become exercisable on December 4, 2018.

 

On December 10, 2018, the Board granted five-year options to each of its two officers  for the purchase of 325,000 shares of the common stock of the Company . The options have an exercise price of $2.00 and are immediately exercisable.

 

During the year ended December 31, 2018 and December 31, 2017, total recognized compensation of $2,673,011 and $106,029, respectively, were recorded as general and administrative expenses.

 

As of December 31, 2018, total unrecognized compensation remaining to be recognized in future periods totaled $0.

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% ~ 2.68%  
Expected life (years)   3 ~ 5  
Stock Price   $ 2.00 ~ 2.80  
Exercise Price   $ 0.40 ~ 2.00  

 

  F- 18  

 

 

QRONS INC.

 

NOTES TO FINANCIAL STATEMENTS

 

Note 7 – Stock Plan (continued)

 

A summary of the activity for the Company's stock options for the years ended December 31, 2018 and 2017, is as follows:

 

    December 31, 2018     December 31, 2017  
          Weighted Average           Weighted Average  
    Shares     Exercise Price     Shares     Exercise Price  
Outstanding, beginning of period     670,000     $ 1.93       -     $ -  
Granted     945,000     $ 2.00       670,000     $ 1.93  
Exercised     -     $ -       -     $ -  
Canceled     -     $ -       -     $ -  
Outstanding, end of period     1,615,000     $ 1.97       670,000     $ 1.93  
Options exercisable, end of period     1,486,670     $ 1.98       13,334     $ 2.00  
Options expected to vest, end of period     128,330     $ 1.81       656,666     $ 1.89  
Weighted average fair value of options granted           $ 2.19             $ 2.36  

 

Note 8 – Capital Stock

 

Authorized:

 

The Company has authorized 100,000,000 shares of common stock, par value $0.0001 and 10,000 shares of preferred stock which is designated as Series A Preferred Stock, par value $0.001.

 

Series A Preferred Stock:

 

The Series A Preferred Stock is redeemable at the option of the Company at any time, in whole or in part, upon 10 trading days prior notice, at a price of $1.00 per share plus 4% per annum from the date of issuance (the "Stated Value"). The holders of the Series A Preferred Stock are entitled to a liquidation preference equal to the Stated Value, prior to the holders of other preferred stock or common stock. The holders of the Series A Preferred Stock have the right to convert such stock into common stock at a conversion rate equal to the Stated Value as of the conversion date divided by the average closing price of the common stock for the five previous trading days. The Company is required to reserve sufficient number of shares for the conversion of the Series A Preferred Stock. The holders of Class A Preferred Stock shall vote together as a single class with the holders of the Company's common stock and the holders of any other class or series of shares entitled to vote with the common stock, with the holders of Class A Preferred Stock being entitled to 66 2/3% of the total votes on   all such matters, regardless of the actual number of shares of Class A Preferred Stock then outstanding.

 

There was a total of 2,000 shares of Series A Preferred Stock issued and outstanding as of December 31, 2018 and December 31, 2017.

 

  F- 19  

 

 

QRONS INC.

 

NOTES TO FINANCIAL STATEMENTS

 

Note 8 – Capital Stock (continued)

 

Common Stock

 

Common Stock issuances during the year ended December 31, 2018

 

During the year ended December 31, 2018, the Company sold an aggregate of 380,684 shares of its common stock to investors and received aggregate proceeds of $575,000 pursuant to subscription agreements in private offerings. The proceeds 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)). The shares were valued at fair market value on the date of issuance for a total of $28,000 or $2.80 per share.

 

During the year ended December 31, 2018, the Company  received a warrant exercise notice for a warrant to purchase 2,000 shares of common stock 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.

 

On April 23, 2018, the Company issued 75,000 shares of its common stock pursuant to an investor relations services agreement which was rescinded on June 23, 2018 (Note 6(5)). The shares were valued at the fair market value on the date of issuance for a total of $150,000, or $2.00 per share.

 

Common Stock issuances during the year ended December 31, 2017

 

On December 13, 2017, 119,950 shares were issued to Ariel upon the exercise of a warrant pursuant to the 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.

 

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 7 – Stock Plan).

 

During the year ended December 31, 2017, the Company sold an aggregate of 128,000 shares of common stock to investors and received aggregate proceeds of $32,000 in private offerings. The proceeds of the offering will be used for research and general corporate purposes.

During the year ended December 31, 2017 the Company  received warrant exercise notices for warrants to purchase an aggregate of 512,000 shares of common stock 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  

 

  F- 20  

 

 

QRONS INC.

 

NOTES TO FINANCIAL STATEMENTS

 

Note 8 – Capital Stock (continued)

 

Share Purchase Warrants (continued)

 

As of December 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 – December 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 warrants to purchase an aggregate of 512,000 shares of common stock and received 442,960 underlying shares for exercises on a cashless basis.

 

(3) During the year ended December 31, 2018, investors  exercised warrants to purchase an aggregate of 2,000 shares of common stock and received 1,715 shares for exercises on a cashless basis.

 

Note 9 – Income Taxes

 

On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the “Tax Act”) was enacted including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018., The Company is required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, remeasuring its U.S. deferred tax assets and liabilities as well as reassessing the net realizability of its deferred tax assets and liabilities. The Company has remeasured its U.S. deferred tax assets at a statutory income tax rate of 21% during years ended December 31, 2017 and December 31, 2018

 

The income tax expense (benefit) consisted of the following for the years ended December 31, 2018 and December 31, 2017:

 

      December 31, 2018       December 31, 2017  
Total current   $ -     $ -  
Total deferred     -       -  
    $ -     $ -  

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

 

  F- 21  

 

 

QRONS INC.

 

NOTES TO FINANCIAL STATEMENTS

 

Note 9 – Income Taxes (continued)

 

The following is a reconciliation of the expected statutory federal income tax and state income tax provisions to the actual income tax benefit for the years ended December 31, 2018 and December 31, 2017: 

 

    December 31, 2018     December 31, 2017  
Expected benefit at federal statutory rate   $ 825,500       298,900  
Non-deductible expenses     (724,200 )     (198,900 ) 
Change in valuation allowance     (101,300 )     (100,000 )
    $ -     $ -  
                         

 

The Company had deferred income tax assets as of December 31, 2018 and 2017 as follows:

 

    December 31, 2018     December 31, 2017  
Loss carryforwards   $ 1,137,380     $ 333,880  
Less – stock based compensation     (933,600 )     (210,600 )
Less – derivative liabilities     (2,480 )     (1,280 )
Change in tax effected rates     -       (22,000 )
Less - valuation allowance     (201,300 )     (100,000 )
Total net deferred tax assets   $ -     $ -  

  

Tax years from inception to the year ended December 31, 2018 have been filed and are open for examination by the taxing authorities.  The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the periods presented above. The Company had no accruals for interest and penalties at December 31, 2018. The Company's utilization of any net operating loss carry-forward may be unlikely as a result of its intended activities. 

 

Note 10 – Subsequent Events

 

On January 28, 2019, the Company issued 30,000 shares of common stock to Pavel Hilman for his continuing service on the Company’s Board of Advisors.

 

On February 25, 2019, the Company sold an aggregate of 40,000 shares of its common stock to two investors and received aggregate proceeds of $40,000 pursuant to subscription agreements in private offerings. The proceeds will be used for research and general corporate purposes.

 

On March 15, 2019 the Company relocated its principal executive office from Miami, Florida to 50 Battery Place, #7T, New York, New York 10280. Jonah Meer, the Company’s Chief Executive Officer and a director, provides the use of this office space at no cost.

 

  F- 22  

 

 

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

 

None.

 

Item 9A. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of December 31, 2018, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, based on the material weaknesses discussed below, our disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that our disclosure controls are not effectively designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting that occurred during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Management's Annual Report on Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Rules 13a-15(f) under the Securities Exchange Act of 1934, internal control over financial reporting is a process designed by, or under the supervision of, the Company's principal executive, principal operating and principal financial officers, or persons performing similar functions, and effected by the Company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

 

The Company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company's assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company's management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

  20  

 

 

Our management, including our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting at December 31, 2018. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Based on that assessment under those criteria, management has determined that, as of December 31, 2018, our internal control over financial reporting was not effective.

 

Our internal controls are not effective for the following reasons: (i) there is an inadequate segregation of duties consistent with control objectives as management is comprised of only two persons, one of which is the Company's principal executive officer and principal financial officer and, (ii) the Company does not have an audit committee with a financial expert, and thus the Company lacks the board oversight role within the financial reporting process.

 

In order to mitigate the foregoing material weakness, we have engaged an outside accounting consultant with significant experience in the preparation of financial statements in conformity with GAAP to assist us in the preparation of our financial statements to ensure that these financial statements are prepared in conformity with GAAP. We will continue to monitor the effectiveness of this action and make any changes that our management deems appropriate.

 

We would need to hire additional staff to provide greater segregation of duties. Currently, it is not feasible to hire additional staff to obtain optimal segregation of duties. Management will continue to reassess this matter to determine whether improvement in segregation of duty is feasible. In addition, we would need to expand our board to include independent members.

 

Going forward, we intend to evaluate our processes and procedures and, where practicable and resources permit, implement changes in order to have more effective controls over financial reporting.

 

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to the exemption provided to issuers that are not "large accelerated filers" nor "accelerated filers" under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

 

Item 9B. Other Information.

 

None.  

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

The following table sets forth the names, ages and positions of our current board members and executive officers:

 

Name   Age   Position(s)
         
Jonah Meer   63   Chief Executive Officer, Chief Financial Officer, Secretary and Director
Ido Merfeld   54   President and Director

 

Our directors are elected for a term of one year and serve such director's successor is duly elected and qualified. Each executive officer serves at the pleasure of the Board.

 

  21  

 

 

The Company has no nominating, audit or compensation committees at this time. The entire Board participates in the nomination and audit oversight processes and considers executive and director compensation. Given the size of the Company and its stage of development, the entire Board is involved in such decision-making processes. Thus, there is a potential conflict of interest in that our directors and officers have the authority to determine issues concerning management compensation, nominations, and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our executive officers or directors.

 

Jonah Meer, Chief Executive Officer, Chief Financial Officer, Secretary and a Director

 

Mr. Meer has served as our Chief Executive Officer, Chief Financial Officer, Secretary and a Director since the formation of the Company on September 22, 2016. Mr. Meer is an attorney, accountant and entrepreneur. His career started in 1979 and has been spent both in the financial services industry and in the investment world. He has held many executive and fiduciary roles with numerous private and public companies and entities, including as Chief Operating Officer of a U.S. broker dealer. Separately he has served on numerous public and private company boards of directors. Since 1998 he has been CEO of jTrade Global LLC (formerly known as jBroker Global Inc.), a software marketing company. In 2005 he was appointed by the Equity Committee to serve as a Bankruptcy Trustee in the Southern District of New York to wind down a complex liquidating trust, which was finally terminated in 2015. Mr. Meer has founded private investment companies investing in special situations and alternative investments, , including most recently CubeSquare LLC, a Florida limited liability company (“CubeSquare”) which invests in special situations and alternative investments involving public and pre-public companies. CubeSquare does not have a controlling interest in any public company and is not registered as an investment advisor. Mr. Meer received his Master of Law degree from New York University, in addition to holding juris doctor and accounting degrees. As a co-founder and Chief Executive Officer, Mr. Meer is involved with the Company's day to day operations which led to his appointment to the Board.

 

Ido Merfeld, President and a Director

 

Mr. Merfeld has served as our President and a Director since the formation of the Company on September 22, 2016. In October 1991, Mr. Merfeld co-founded Ivory Software Systems based in Tel Aviv Israel, a start-up company specializing in servicing the financial services industry both in Israel and abroad ("Ivory"). Ivory developed and maintains software, infrastructure and products that allow large financial institutions to trade in the global securities markets on a real time basis. In the last 10 years, he has also been involved in the establishment of several startup companies including the establishment of a new Art Exchange in Luxemburg and a financial education internet company in the UK. In 2014 Mr. Merfeld, resigned as CEO of Ivory to become its Chairman. He now spends time enrolled in the molecular biology department at Ariel University. He previously received his B.A. in Computer Science, Statistics & Economics from Bar-Ilan University in Israel. As a co-founder and President, Mr.Merfeld is involved with the Company's day to day operations which led to his appointment to the Board.

 

Board of Advisors

 

The Company has a Board of Advisors which currently consists of the following seven members.

 

Scientific Advisors

 

Professor Danny Baranes is Head of the Department of Molecular Biology at Ariel University, and the Principal Investigator for research in connection with the License Agreement. Professor Baranes did his post-doctoral fellowship in neuroscience in the lab of the Nobel laureate Dr. Eric Kandel at Columbia University. Professor Baranes continued on to McGill University, and returned to Israel in 2000 where he has held several positions at Ben Gurion University before joining Ariel University in 2009. He has received numerous international awards, published dozens of articles in leading international scientific journals as well having given numerous lectures and presentations. Professor Baranes received his PhD. in Biochemistry from Hebrew University.

 

Dr. Albert Pinhasov is Vice-President and Dean for Research and Development at Ariel University. He is a molecular biologist specializing in the neurobiology of social behavior. In addition, Dr. Pinhasov was a Postdoctoral Fellow on the Drug Discovery CNS Research Team at Johnson and Johnson Pharmaceutical. He received his PhD in Molecular Biology and Clinical Biochemistry from Tel Aviv University in Israel.

 

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Dr. Motti Ratmansky is the head of the Pain Rehabilitation Clinic at the Lowenstein Rehabilitation Hospital in Israel. He was the former head of the Israeli National Instruction Unit for combat medics and medical field units, supervising and training combat medics. Dr. Ratmansky received his Medical Degree from the Technion Medical School in Israel.

 

Dr. Yitshak Francis received his Biology undergraduate degree from the Technion and his PhD in Medical Molecular Biology from University College London. After his PhD, he joined Columbia University as a post doctorate and after two years became an Associate Research Scientist. As an Associate Research Scientist, he worked on a variety of drug development projects. Additionally, he was a co-founder and CEO of Citta Pharmaceuticals, a Columbia University spin-off biotechnology company that develops drugs for treating Alzheimer's disease, where he was responsible for business development, management and fundraising. Currently Dr. Francis serves as Director of Business Development at Ariel Scientific Innovations (Ariel University's tech transfer company), where he facilitates the translation of academic life science projects to the industry. Pursuant to the License Agreement, Dr. Francis was appointed as a non-voting observer on our Board of Directors.

 

Professor Chenfeng Ke is Assistant Professor of Chemistry at Dartmouth. Professor Ke received a PhD in Supramolecular Chemistry from Nankai University in 2009 and a BSc in Chemistry from Nankai University in 2004. He was a Newton Fellow (The Royal Society, UK) at the University of Bristol, from 2009 to 2011 and a Postdoctoral Fellow at Northwestern University from 2011 to 2015.

 

Dr. Igor Korman is a molecular biologist who holds a medical degree, and a PhD and Doctor of Science degrees in Clinical Pharmacology. Since 2016, Dr. Korman has headed The Institute for Translational Research at Ariel where he has assembled a team of scientists and started a number of projects in the field of anticancer drug discovery, 3D tissue fabrication for drug development and personalized diagnostics and data analysis for drug repurposing etc. In 2007, Dr Koman was part of the research team of Cleveland Biolabs, Inc. (NASDAQ: CBLI), a biotech drug development company, and a research leader in the department of Cell Stress Biology at Roswell Park Comprehensive Cancer Center. He began his academic career in 1998 when he joined the research lab in the Department of Molecular Biology in the University of Illinois at Chicago as a visiting scientist.

 

Business Advisor

 

Pavel Hilman is Chairman of HIG Capital AG, a Swiss holding company, Mr. Hilman has extensive experience in the financial industry and private venture investments in the areas of bio-tech, agri-tech, med-tech, nano-tech and IT. Mr. Hilman currently serves on various executive and advisory Boards and supervisory committees of private and public corporations in the United Kingdom, USA, Switzerland, Israel, Luxemburg, Poland, Russian Federation and the Ukraine.

 

Involvement in legal proceedings

 

There are no legal proceedings that have occurred within the past ten years concerning our directors, or control persons which involved a criminal conviction, a criminal proceeding, an administrative or civil proceeding limiting one's participation in the securities or banking industries, or a finding of securities or commodities law violations.

 

Family relationships

 

There are no family relationships among any of our officers or directors.

 

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Committees of the Board of Directors

 

The Company does not have an audit committee. We are not a "listed company" under SEC rules and are therefore not required to have an audit committee comprised of independent directors.

 

We do not currently have a "financial expert" within the meaning of the rules and regulations of the SEC.

 

The Company has no nominating or compensation committees at this time. The entire Board participates in the nomination and audit oversight processes and considers executive and director compensation. Given the size of the Company and its stage of development, the entire Board is involved in such decision-making processes. Thus, there is a potential conflict of interest in that our directors and officers have the authority to determine issues concerning management compensation, nominations, and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our executive officers or directors.

 

Code of Ethics

 

The Company has not as yet adopted a code of ethics applicable to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions as required by the Sarbanes-Oxley Act of 2002 due to our small size and limited resources and because management's attention has been focused on matters pertaining to raising capital and the operation of the business.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who beneficially own more than 10% percent of our equity securities ("Reporting Persons") to file reports of ownership and changes in ownership with the SEC. Based solely on our review of copies of such reports and representations from the Reporting Persons, we believe that during the fiscal year ended December 31, 2018, the Reporting Persons timely filed all such reports.

 

Changes in Nominating Process

 

There are no material changes to the procedures by which security holders may recommend nominees to our Board.

 

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Item 11. Executive Compensation.

 

Summary Compensation Table

 

The following table provides certain information regarding compensation awarded to, earned by or paid to our Chief Executive Officer and the other executive officer with compensation exceeding $100,000 during fiscal 2018 and 2017 (each a "Named Executive Officer").

 

Name and Fiscal Year Salary Bonus Stock Awards Option Awards All Other Total
Principal Position Ended 12/31 ($) ($) ($) ($) ($) ($)
Jonah Meer, 2017 - - - 53,015 (1) - 53,015 (1)
Chief Executive Officer, Chief Financial Officer, Secretary and Director 2018 - - - 1,336,506 (2) - 1,336,506 (2)
Ido Merfeld, 2017 - - - 53,015 (1) - 53,015 (1)
President and Director 2018 - - - 1,336,505 (2) - 1,336,505 (2)

 

         

(1)  Represents a five-year option to purchase 300,000 shares of common stock at an exercise price of $2.00 per share, exercisable on December 4, 2018 and the grant date fair value computed in accordance with FASB ASC Topic 718 as described in Note 7 to the financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2018.

 

(2) Represents a five-year option to purchase 325,000 shares of common stock at an exercise price of $2.00 per share, exercisable on December 10, 2018 and the grant date fair value computed in accordance with FASB ASC Topic 718 as described in Note 7 to the financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2018.

 

2016 Stock Option and Stock Award Plan

 

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, or in the absence of an Administrator, by the Board. The Company has reserved 10 million shares for issuance under the Plan.

 

Outstanding Equity Awards

 

The table below reflects all outstanding equity awards made to each Named Executive Officer that were outstanding at December 31, 2018. 

 

OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2018

 

Name Grant Date Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable

Option

Exercise Price

($)

Option Expiration

Date

           
Jonah Meer 12/4/17 300,000 0 2.00 12/4/22
  12/10/18 325,000 0 2.00 12/10/23
           
           
Ido Merfeld 12/4/17 300,000 0 2.00 12/4/22
  12/10/18 325,000 0 2.00 12/10/23

 

Compensation of Directors

 

During the year ended December 31, 2018, no compensation has been paid to our directors in consideration for their services rendered in their capacities as directors.

 

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table lists, as of March 22, 2019, the number of shares of common stock beneficially owned by (i) each person, entity or group (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) known to the Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each of our Named Executive Officers and (iii) all officers and directors as a group. Information relating to beneficial ownership of common stock by our principal stockholders and management is based upon information furnished by each person using "beneficial ownership" concepts under the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person directly or indirectly has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to dispose or direct the disposition of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the SEC rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary interest. Except as noted below, each person has sole voting and investment power with respect to the shares beneficially owned and each stockholder's address is c/o Qrons Inc., Suite 500, 777 Brickell Avenue, Miami, Florida 33131.

 

The percentages below are calculated based on 12,942,309 issued and outstanding shares of common stock outstanding as of March 22, 2019.

 

   
  Amount and Percentage of Beneficial
Name and Address of Beneficial Owner Ownership
  Shares     %
Directors and Executive Officers:          
Jonah Meer          
       Chief Executive Officer, Chief Financial Officer, Secretary and Director 5,685,000(2)     41.9 %(1)
           
Ido Merfeld          
       President and Director 5,685,000(2)     41.9 %(1)
           
All officers and directors as a group (2 persons): 11,370,000(3)     80.1 %
           

(1) Messrs. Meer and Merfeld are the holders of the Company's issued and outstanding Series A preferred stock. For so long as the Class A preferred stock is issued and outstanding, the holders of Class A Preferred Stock shall vote together as a single class with the holders of the Company's common stock and the holders of any other class or series of shares entitled to vote with the common stock, with the holders of Class A Preferred Stock being entitled to 66 2/3% of the total votes on all such matters.
(2) Includes currently exercisable options to purchase an aggregate of 625,000 shares of common stock.
(3) Includes currently exercisable options to purchase an aggregate of 1,250,000 shares of common stock.

Change-in-Control Agreements

 

The Company does not have any change-in-control agreements with any of its executive officers.

 

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Item 13. Certain Relationships and Related Transactions and Director Independence.

 

Certain Relationships and Related Transactions

 

On September 1, 2016, the Company entered into a convertible debenture agreement with CubeSquare (the “$10,000 Debenture”). Jonah Meer, our Chief Executive Officer is the managing member of CubeSquare. Ido Merfeld, our President, is a 25% owner of CubeSquare. Under the debenture agreement, CubeSquare loaned $10,000 to the Company. Cube Square had agreed to loan the Company an additional $15,000 on the same terms and conditions if requested by the Company. The loan bears interest at 8% per annum (which will increase to 12% if an event of default as described in the debenture agreement occurs) and was due on September 1, 2017, or immediately upon an event of default. Interest is payable, at CubeSquare's option, in cash or common stock. Any portion of the loan and unpaid interest are convertible at any time at the option of CubeSquare into shares of common stock of the Company at a conversion price per share of the greater of (i) $0.0625, if the Company's shares are not trading on a public market, and (ii) if the Company's shares are listed for trading on a public market, an amount equal to a 50% discount to the average of the five lowest trading prices during the previous twenty trading days. So long as the loan is outstanding, the Company may not merge, reorganize, restructure, reverse split its stock, consolidate or sell all or substantially all of its assets without giving seven days prior written notice to CubeSquare, in which case, CubeSquare can put the note to the Company at 125% of the then outstanding principal and interest. The debenture agreement also provides for anti-dilution protection (with certain exceptions) if the Company engages in other transactions at a lower price per share. The Company has the right to redeem the loan for 6 months, in whole or in part, at 125% of the principal amount being redeemed and accrued interest thereon. The Company must reserve 150% of the number of shares issuable upon conversion of the loan. The Company may not engage in short sales. Except upon 61 days prior written notice to the Company, CubeSquare may not convert the loan if as a result of such conversion, CubeSquare and its affiliates would own in excess of 9.9% of the total issued and outstanding shares of the Company.

 

On September 27, 2017, the Company entered into an 8% convertible debenture in the amount of $15,000 with CubeSquare (the “$15,000 Debenture”), with the same terms as the $10,000 Debenture described above, due September 27, 2018. On September 9, 2018, the maturity date of the $15,000 Debenture was extended to September 27, 2019 pursuant to a First Amendment to 8% Convertible Debenture, dated September 9, 2018.

 

On September 28, 2017, the maturity date of the $10,000 Debenture was extended to September 1, 2018 pursuant to a First Amendment to 8% Convertible Debenture, dated September 28, 2017. On September 9, 2018, the maturity date of the $10,000 Debenture was extended to September 1, 2019 pursuant to a Second Amendment to 8% Convertible Debenture, dated September 9, 2018.

 

On December 4, 2017, we granted a five-year option to purchase 300,000 shares of common stock at an exercise price of $2.00 per share to each of Jonah Meer and Ido Merfeld, which option became exercisable on December 4, 2018.

 

On December 10, 2018, we granted an immediately exercisable five-year option to purchase 325,000 shares of common stock at an exercise price of $2.00 per share to each of Jonah Meer and Ido Merfeld.

 

Jonah Meer currently provides the Company with space for its principal executive office at 50 Battery Place, #7T, New York, New York 10280 at no cost.

 

Insider Transactions Policies and Procedures

 

The Company does not currently have an insider transaction policy.

 

Director Independence

 

Our Board of Directors does not include any independent directors.

 

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Item 14. Principal Accounting Fees and Services.

 

Audit Fees

 

Audit fees consist of fees for professional services rendered for the audit of the Company's consolidated financial statements included in the Company's Annual Report on Form 10-K and the review of financial statements included in the Company's Quarterly Reports on Form 10-Q. The aggregate fees billed for professional services rendered by our principal accountant, Heaton & Company, PLLC (doing business as Pinnacle Accountancy Group of Utah), for audit and review services for the years ended December 31, 2018 and December 31, 2017 were $10,750 and $9,000, respectively.

 

We incurred no non-audit related fees, tax fees or other fees for professional services rendered by our principal accountant for the years ended December 31, 2018 and 2017.

 

Administration of the Engagement; Pre-Approval of Audit and Permissible Non-Audit Services

 

We have not yet established an audit committee. Until then, there are no formal pre-approval policies and procedures. Nonetheless, the auditors engaged for these services are required to provide and uphold estimates for the cost of services to be rendered. The percentage of hours expended on Heaton & Company, PLLC's respective engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was 0%.

 

PART IV

 

Item 15. Exhibits, Financial Statement Schedules.

 

Exhibit Number Exhibit
   
3.1 Articles of Incorporation of the Company (1)
3.2 Certificate of Designation of Series A Preferred Stock (1)
3.3 Bylaws of the Company (1)
3.4 Amendment to Articles of Incorporation (2)
4.1 2016 Stock Option and Stock Award Plan (1)
10.1 $10,000 8% Convertible Debenture Agreement, dated September 1, 2016, between the Company and CubeSquare LLC (1)
10.2 License and Research Funding Agreement, dated December 14, 2016, between the Company and Ariel University R&D Co., Ltd. (1)
10.3 Form of Subscription Agreement for the Company's Regulation D private offering which closed January 27, 2017 (1)
10.4 Form of Common Stock Purchase Warrant for the Company's Regulation D private offering which closed January 27, 2017 (1)
10.5 Option Agreement between Trustees of Dartmouth College and the Company (3) **
10.6 Addendum #1 to License and Research Funding Agreement, effective December 13, 2017, between the Company and Ariel Scientific Innovations Ltd. (4)
10.7 Services Agreement, dated December 14, 2017, between Ariel Scientific Innovations Ltd., Ariel, Israel and the Company (4)
10.8 Subscription Agreement, dated January 23, 2017, between the Company and Coventus Holdings SA (4) (5)
10.9 Advisory Board Consulting Agreement, dated January 23, 2017, between the Company and Pavel Hilman (5)
10.10 First Amendment to $10,000 8% Convertible Debenture, dated September 28, 2017, between the Company and CubeSquare LLC (6)

 

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10.11 $15,000 8% Convertible Debenture, dated September 27, 2017, between the Company and CubeSquare LLC(6)
10.12 Form of Advisory Board Member Consulting Agreement (6)
10.13 First Amendment to Services Agreement, dated April 12, 2018, between the Company and Ariel Scientific Innovations Ltd. (7)
10.14 Sponsored Research Agreement made as of July 12, 2018 between the Company and Trustees of Dartmouth College (8)
10.15 Second Amendment to Services Agreement, dated December 12, 2018 (9)
10.16* First Amendment to $15,000 8% Convertible Debenture, dated September 9, 2018
10.17* Second Amendment to the $10,000 8% Convertible Debenture, dated September 9, 2018
31* Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer and Chief Financial Officer
32* Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer
101* Interactive Data Files

_____________ 

* Filed herewith  

**Portions of Exhibit 10.5 have been omitted pursuant to a confidential treatment request granted by the SEC.

(1) Incorporated by reference to the corresponding exhibit to the Company's Registration Statement on Form S-1 filed with the SEC on March 13, 2017

(2) Incorporated by reference to the corresponding exhibit to the Company's Current Report on Form 8-K filed with the SEC on August 11, 2017

(3) Incorporated by reference to the corresponding exhibit to the Company's Current Report on Form 8-K filed with the SEC on October 20, 2017

(4) Incorporated by reference to the corresponding exhibit to the Company's Current Report on Form 8-K filed with the SEC on December 15, 2017

(5) Incorporated by reference to the corresponding exhibit to the Company's Current Report on Form 8-K filed with the SEC on February 12, 2017

(6) Incorporated by reference to the corresponding exhibit to the Company's Annual Report on Form 10-K filed with the SEC on March 2, 2018

(7) Incorporated by reference to the corresponding exhibit to the Company's Current Report on Form 8-K filed with the SEC on April 16, 2018

(8) Incorporated by reference to the corresponding exhibit to the Company's Current Report on Form 8-K filed with the SEC on July 18, 2018

(9) Incorporated by reference to Exhibit 10.14 to the Company's Current Report on Form 8-K filed with the SEC on December 14, 2018

 

 

  29  

 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

  Qrons Inc .
   
Date: March 25, 2019 By: /s/ Jonah Meer  
   

Jonah Meer

Chief Executive Officer, Chief Financial Officer and Secretary

(Principal Executive Officer and Principal Financial and Accounting Officer)

 

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

Signature

     

 

Title

 

 

Date

             
             
/s/ Jonah Meer       Chief Executive Officer, Chief Financial Officer, Secretary and a Director   March 25, 2019
Jonah Meer       (Principal Executive Officer and Principal Financial and Accounting Officer)    
             
             
/s/ Ido Merfeld       President and a Director   March 25, 2019
Ido Merfeld            
             
       
                   

 

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