QRONS INC.
CONDENSED BALANCE SHEETS
The accompanying notes are an integral part of these unaudited condensed financial statements.
QRONS INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
The accompanying notes are an integral part of these unaudited condensed financial statements.
QRONS INC.
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
The accompanying notes are an integral part of these unaudited condensed financial statements.
QRONS INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
The accompanying notes are an integral part of these unaudited condensed financial statements.
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2020 and 2
019
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 August 9, 2017. The new name and symbol change to "QRON" for the OTC Market was effective August 10, 2017. The Company's common
stock was upgraded from the Pink Market and commenced trading on the OTCQB Venture Market on August 12, 2019.
The Company is a preclinical stage biotechnology company developing advanced stem cell-synthetic hydrogel-based solutions to combat neuronal injuries and other nervous system pathologies and focused on achieving a
breakthrough in the treatment of traumatic brain injuries ("TBIs") for both concussions and penetrating injuries, an unmet medical need. The Company has collaborated 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.
Note 2 – Summary of Significant Accounting Policies
Financial Statement Presentation: The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission (the "SEC"), including the instructions to Form 10-Q and Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted
accounting principles in the United States of America ("U.S. GAAP"), have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, they do not include all the information and notes necessary for
comprehensive financial statements and should be read in conjunction with our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.
In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the three and nine-month periods have been made. Results for
the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year.
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 $33,441 and $207,900 for the three and nine months ended September 30, 2020, respectively. Research and development costs were $136,080 and $439,608 for the three and nine months ended September 30, 2019, respectively.
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2020 and 2019
Note 2 – Summary of Significant Accounting Policies (continued)
Advertising and Marketing Costs: Advertising and marketing costs are expensed as incurred, and included in general and administrative expenses. The Company incurred $807 and
$24,307 in advertising and marketing costs during the three and nine months ended September 30, 2020, respectively. The Company incurred $190,362 and $280,952 in advertising and marketing costs during the three and nine months ended September 30,
2019, respectively.
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 Company records stock-based compensation in accordance with ASC 718, Share-Based
Payments, using the fair value method on grant date. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or
the fair value of the equity instrument issued, whichever is more reliably measurable. 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 11, 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 September 30, 2020 and December 31, 2019:
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2020 and 2019
Note 2 – Summary of Significant Accounting Policies
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 and expenses the fair value as financing costs.
Income taxes: The Company has adopted ASC Topic 740 – "Income Taxes" 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 nine months ended September 30, 2020 and the year ended December 31, 2019 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:
New Accounting Pronouncements: Certain new accounting pronouncements that have been issued are not expected to have a material effect on the Company’s financial statements.
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2020 and 2019
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 of $211,000 during the nine months ended September 30, 2020 and $470,000 during the
year ended December 31, 2019 by way of private placement offerings to accredited investors, loans and advances from its officers and directors and third party short term loans, it does not believe its resources will be sufficient to meet its
operating and capital needs beyond the first quarter of 2021. 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, and continued support from its officers and directors. There can be no assurance that financing, whether debt or equity, will 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. In addition, if the Company is unable to obtain adequate capital due to the continued spread of COVID-19, the Company
may be required to reduce the scope, delay, or eliminate some or all of its planned operations.
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.
The recent COVID-19 pandemic has resulted in a delay of our planned research and development activities. As a result in April 2020, we terminated our employees, In addition, the universities with which we have
collaborated have closed for extended periods of time and reopened with capacity restrictions therefore we discontinued our service agreements with Ariel Scientific Innovation Ltd. (“Ariel”) and although we continue to collaborate with Professor
Chenfeng Ke at Dartmouth College (“Dartmouth”) on 3D printing research under a grant from the State of New Hampshire, we have not extended our sponsored research agreement with Dartmouth which expired in July 2020. We are investigating other
laboratories and methods to continue our research in traumatic brain injuries and other neurodegenerative and neuromuscular diseases, while advancing and protecting our intellectual property. However, the full impact of the COVID-19 pandemic
continues to evolve, is highly uncertain and subject to change. Management is monitoring the situation but given the daily evolution of the COVID-19 outbreak, the Company is not currently able to estimate the effects of the COVID-19 outbreak on its
operations or financial condition. The ultimate impact on our workforce and collaborative development efforts is currently uncertain.
COVID-19 has also caused significant disruptions to the global financial markets, which severely impacts our ability to raise additional capital. We terminated our employees in April 2020 in an
effort to conserve resources as we evaluate our business development efforts. We may be required to further reduce operations or cease operations if we are unable to finance our operations.
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 of
CubeSquare. 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 CubeSquare 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.
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2020 and 2019
Note 4 – Convertible Note – Related Party and Derivative Liabilities (continued)
On September 29, 2017, the Company and CubeSquare amended Note 1 to extend the maturity date from September 1, 2017 to September 1, 2018; on September 9, 2018, the Company further amended Note 1 to extend the maturity
date to September 1, 2019; on November 6, 2019, the Company further amended Note 1 to extend the maturity date to September 1, 2020; and on October 30, 2020, the Company further amended Note 1 to extend the maturity date to September 1, 2021, under
the same terms and conditions.
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 was due
on September 27, 2018. Interest accrues from September 27, 2017 and is 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 to September 27, 2019. On November 6, 2019, Note 2 was amended to extend the maturity date to September 27, 2020 and on October 30, 2020 Note 2 was amended to extend the maturity date to September 27, 2021.
The Company analyzed the amendment to Note 1 and Note 2 under ASC 815-10-15-83 and concluded that these two convertible Notes meet the definition of a derivative. The Company 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:
We recorded interest expenses of $507 and $1,510 for the three and nine months ended September 30, 2020, respectively. We recorded interest expenses of $507 and $1,504 for the three and nine months ended September 30,
2019, respectively. As of September 30, 2020, and December 31, 2019, the unpaid interest balance under Accounts payable and accrued liabilities – related party was $6,942 and $5,432, respectively.
As a result of the application of ASC No. 815, the fair value of the conversion feature is summarized as follows:
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 September 30, 2020 and December 31, 2019 and the commitment
date:
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2020 and 2019
Note 5 – Convertible Note and Derivative Liabilities
In December 2019 we issued and sold in a private offering 8% convertible notes in the aggregate principal amount of $70,000. Such notes are due on December 31, 2021 and are convertible into shares of our common stock
at a conversion price (the "Conversion Price") for each share of common stock equal to the lesser of: (a) $.50, (b) the lowest price at which the Company has converted any convertible security of the Company (to the holder or to any third party)
within 30 trading days prior to the date of delivery of the applicable Notice of Conversion; and (c) so long as lower than (a) or (b), such price per share of common stock as the Company and the holder may agree from time to time. In connection with
the 8% convertible note issuance, we issued warrants to purchase an aggregate of 70,000 shares of common stock at an exercise price of $1.00.
During the nine months ended September 30, 2020 we issued and sold in a private offering 8% convertible notes in the principal amount of $10,000, due on February 19, 2022 convertible into shares of our common stock at
a conversion price (the "Conversion Price") for each share of common stock equal to the lesser of: (a) $0.50; (b) the lowest price at which the Company has converted any convertible security of the Company (to the holder or to any third party) within
30 trading days prior to the date of delivery of the applicable Notice of Conversion; and (c) so long as lower than (a) or (b), such price per share of common stock as the Company and the holder may agree from time to time. In connection with the 8%
convertible note issuance, we issued warrants to purchase an aggregate of 10,000 shares of common stock at an exercise price of $1.00.
We recorded interest expenses of $1,915 and $5,296 for the three and nine months ended September 30, 2020, respectively, with respect to the aforementioned notes. As of September 30, 2020, and December 31, 2019, the
unpaid interest balance under Accounts payable and accrued liabilities was $5,457 and $161, respectively.
The convertible notes qualify for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The derivative liability of the $80,000 convertible notes was calculated using the Black-Scholes pricing
model to be $72,689.
The carrying value of these convertible notes is as follows:
Amortization of the discount during the three and nine months ended September 30, 2020 totaled $9,030 and $26,350, respectively, which amounts have been recorded as interest expense.
As a result of the application of ASC No. 815 as of September 30, 2020 and December 31, 2019, the fair value of the conversion feature is summarized as follows:
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2020 and 2019
Note 5 – Convertible Note and Derivative Liabilities (continued)
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 September 30, 2020 and December 31, 2019 and the commitment
date:
Note 6 – Unsecured Short-Term Advance from Third Party
On June 20, 2019, the Company received $100,000 from a third party in the form of an unsecured, demand, non-interest bearing, short term advance to meet its operating needs. The advance remains outstanding at September
30, 2020 and December 31, 2019.
Note 7 – Related Party Transactions
On May 1, 2019, the Company issued a promissory note (the "Note") to CubeSquare in the principal amount of $50,000. The Note bears interest at the rate of 8% per annum and is due and payable by the Company upon demand
from CubeSquare. We recorded interest expenses of $986 and $1,995 for the three and nine months ended September 30, 2020, respectively. We recorded interest expenses of $646 for the three and nine months ended September 30, 2019. As of September
30, 2020, and December 31, 2019, the unpaid interest balance under Accounts payable and accrued liabilities – related party was $4,658 and $2,663, respectively.
During the year ended December 31, 2019, the Company received $135,000 from Jonah Meer, its Chief Executive Officer, in the form of an unsecured, demand, non-interest bearing, short term advance to help meet its
operating needs. During the nine months ended September 30, 2020, the Company received an additional $70,000 from Jonah Meer.
On August 20, 2019, the Company received $50,000 from Ido Merfeld, its President, in the form of an unsecured, demand, non-interest bearing, short term advance to help meet its operating needs. During the nine months
ended September 30, 2020, the Company received an additional $21,000 from Ido Merfeld.
During the nine months ended September 30, 2020, the Company received $10,000 from CubeSquare in the form of an unsecured, demand, non-interest bearing, short term advance to help meet its operating needs. The
Company’s Chief Executive Officer is the managing partner and the Company’s President is a 25% owner of CubeSquare.
During the year ended December 31, 2019, Jonah Meer, the Company’s Chief Executive Officer, made payments to various vendors in the accumulated amount of $25,642. During the nine months ended September 30, 2020, Jonah
Meer, the Company’s Chief Executive Officer, made payments to various vendors in the accumulated amount of $10,164 and was repaid $3,631. The balance payable to Mr. Meer of $32,175 is reflected in accounts payable, related party.
During the year ended December 31, 2019, Ido Merfeld, the Company’s President, made payments to various vendors in the accumulated amount of $1,169. The balance payable to Mr. Merfeld of $1,169 is reflected in
accounts payable, related party.
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2020 and 2019
Note 8 – License and Research Funding Agreement / Royalty Agreement
Ariel Scientific Innovation Ltd.
On December 14, 2016, the Company entered into a license agreement (the “License Agreement”) with Ariel Scientific Innovation Ltd. (“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.
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 was obligated to issue to Ariel an immediately
exercisable warrant for 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 remained subject to the terms of the License Agreement and the occurrence of an Exit Event. In addition, the Addendum provided that Ariel may
not request a demand registration until the balance of the shares subject to the warrant was exercised.
In addition to the other payments, the Company was obligated to pay Ariel upon the occurrence of the following milestone events, additional payments within 6 months of completion of the milestone:
Upon successful development and commercialization and in recognition of the rights and licenses granted to the Company pursuant to the License Agreement, the Company was subject to certain royalty payments as specified
in the License Agreement.
In lieu of extending the research financing and research period under the License Agreement with Ariel beyond the initial 12 months, on December 14, 2017, the Company entered into a Services Agreement (the “First
Services Agreement”) pursuant to which a team at Ariel University, with Professor Danny Baranes as Principal Investigator, 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 First Services Agreement was amended (the “First Amendment”) 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 (the “Second Services Agreement”) 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.
On December 12, 2018, the Company further amended the First Services Agreement (the "Second Amendment") with Ariel to extend the term thereof for an additional twelve-month period until December 14, 2019. Pursuant to
the Second Amendment, the Company paid Ariel $17,250 on each of December 28, 2018 and June 24, 2019. All other terms and conditions of the Services Agreement not amended remain in effect.
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2020 and 2019
Note 8 – License and Research Funding Agreement / Royalty Agreement (continued)
On December 8, 2019, the Company further amended the First Services Agreement with Ariel (the "Third Amendment") to extend the term thereof for an additional twelve-month period until
December 14, 2020. Pursuant to the Third Amendment, the Company paid Ariel $17,250 on January 13, 2020 and was obligated to pay Ariel an additional $17,250 by May 1, 2020. Due to the continuing uncertainties of the COVID-19 pandemic on the capital
markets and the ability to finance our operations, we notified Ariel of our early termination of the First Services Agreement. The last payment of $17,250 was cancelled and Ariel refunded certain unused funds.
On November 30, 2019, the Company entered into a royalty and license fee sharing agreement (the “Royalty Agreement”) with Ariel which, among other things, supersedes and terminates the License Agreement. Certain
services agreements related to laboratory access and other services are not affected by such termination.
From and after the occurrence of an Exit Event, as such term is described in the Royalty Agreement, including an underwritten public offering of the Company’s shares with proceeds of at least $25 million, a
consolidation, merger or reorganization of the Company, and a sale of all or substantially all of the shares and/or the assets of the Company, Ariel has the right to require the Company to issue up to 3% of the issued and outstanding shares of
common stock of the Company at the time Ariel exercises such right.
Dartmouth College
On July 12, 2018, the Company entered into a one-year sponsored research agreement (the “Sponsored Research Agreement”) with the Trustees of Dartmouth College (“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 retains 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. On November 4, 2019, the parties entered into an amendment to the Sponsored Research
Agreement which extended the term of the Agreement through July 14, 2020. The Sponsored Research Agreement expired on July 14, 2020.
Note 9 – Intellectual Property License Agreement
On October 2, 2019, the Company entered into an Intellectual Property License Agreement (the “Agreement”) with the Trustees of Dartmouth College (“Dartmouth”) pursuant to which, effective
September 3, 2019 (the Effective Date”), Dartmouth granted the Company an exclusive world-wide license under the patent application entitled “Mechanically Interlocked Molecules-based Materials for 3D Printing” in the field of human and animal health
and certain additional patent rights to use and commercialize licensed products and services. The license grant includes the right of the Company to sublicense to third parties subject to the terms of the Agreement. Dartmouth has reserved certain
rights in its intellectual property for educational and research purposes.
As consideration for the license grant, the Company paid Dartmouth a license issue fee of $25,000. The Agreement also provides for (i) an annual license maintenance fee of $25,000, commencing on the first anniversary
of the Agreement until the date of the first commercial sale of a licensed product or service; (iii) an earned royalty of 2% of net sales (as defined in the Agreement) of licensed products and services by the Company or a sublicensee; (v)15% of all
consideration received by the Company under a sublicense; and (vi) beginning as of the date of the first commercial sale, an annual minimum royalty payment of $500,000 in the first calendar year after the first commercial sale, $1,000,000 in the
second calendar year, and $2,000,000 in the third calendar year and each year thereafter.
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2020 and 2019
Note 9 – Intellectual Property License Agreement (continued)
The Company will also reimburse Dartmouth for all patent preparation, filing, maintenance and defense costs.
Under the Agreement, the Company must diligently proceed with the development, manufacture and sale of licensed products and licensed services, including funding at least $1,000,000 of research in each calendar year
beginning in 2019 and ending with the first commercial sale of a licensed product; filing an IND/BLA (or equivalent) with the FDA or a comparable European regulatory agency before the four-year anniversary of the Effective Date, make the first
commercial sale of a licensed product before the twelve-year anniversary of the Effective Date and achieve annual net sales of at least $50,000,000 by 2033. If the Company fails to perform any of these obligations, Dartmouth has the option to
terminate the Agreement or change the exclusive license to a nonexclusive license. Failure to timely make any payment due under the Agreement will result in interest charges to the Company of the lower of 10% per year or the maximum amount of
interest allowable by applicable law.
The Agreement may be terminated by Dartmouth if the Company is in material breach of the Agreement which is not cured after 30 days of notice thereof or if the Company becomes insolvent. Dartmouth may terminate the
Agreement if the Company challenges a Dartmouth patent or does not terminate a sublicensee that challenges a Dartmouth patent, except in response to a valid court or governmental order. The Company may terminate the Agreement at any time upon six
months written notice to Dartmouth.
If the Company or any sublicensee or affiliate institutes or participates in a licensed patent challenge, the then current earned royalty rate for licensed products covered by Dartmouth patents will automatically be
increased to three times the then current earned royalty rate.
The Agreement also includes indemnification and insurance requirements by the Company and customary confidentiality provisions.
The Company recorded the initial $25,000 license fee under prepaid expenses, which amount has been expensed ratably over the initial one-year term of the Agreement. On the anniversary of the Agreement, the Company
received an invoice for the $25,000 annual maintenance fee with respect to the 2020-2021 license period. The Company has expensed $6,250 in the three months ended September 30, 2020 with respect to the license fee.
Note 10 – Commitments
On December 14, 2017, the Company entered into the First Services Agreement pursuant to which a team at Ariel with Prof. Danny Baranes, as Principal Investigator, will conduct molecular biology research activities
involving the testing of implant materials for the Company. As compensation for the services provided, the Company paid Ariel $17,250 on each of December 19, 2017 and April 26, 2018.
On April 12, 2018, the First Services Agreement was amended to provide for the payment by the Company of an additional monthly fee, commencing March 31, 2018, of up to $2,200 (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 First Services Agreement with Ariel (the "Second Amendment") to extend the term thereof for an additional twelve-month period until December 14, 2019. Pursuant to
the Second Amendment, the Company paid Ariel $17,250 on each of December 28, 2018 and June 24, 2019. All other terms and conditions of the Services Agreement not amended remain in effect.
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2020 and 2019
Note 10 – Commitments (continued)
On December 8, 2019, the Company further amended the First Services Agreement with Ariel (the "Third Amendment") to extend the term thereof for an additional twelve-month period until December 14, 2020. Pursuant to the
Third Amendment, the Company paid Ariel $17,250 on January 13, 2020 and was obligated to pay Ariel an additional $17,250 by May 1, 2020. Due to the continuing uncertainties of the COVID-19 pandemic on the capital markets and the ability to finance
our operations, we notified Ariel of our early termination of the First Services Agreement. The last payment of $17,250 was cancelled and Ariel refunded certain unused funds.
As a result there were no expenses incurred during the three months ended September 30, 2020. As a result of a refund of prior advanced expenses during of $8,104, during the nine months ended September 30, 2020 we
expensed a total of $7,708. During the three and nine months ended September 30, 2019, $8,626 and $26,594 were expensed, respectively.
On March 6, 2018, the Company entered into the Second Services 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 Second 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.
On April 11, 2019, the Company amended the Second Services Agreement (the "First Amendment") with Ariel which it entered into on March 6, 2018, to extend the term thereof for an additional twelve months until March 6,
2020. Pursuant to the First Amendment, the Company paid Ariel an aggregate of $41,160 in quarterly payments of $10,290 on each of April 11, 2019, June 1, 2019, September 1, 2019 and December 1, 2019 for the services of Professor Gadi Turgeman and his
neurobiology research team and the use of his lab. The agreement was not renewed upon expiration and certain unused funds were returned to the Company during the nine months ended September 30, 2020.
There were no additional expenses incurring during the three months ended September 30, 2020. During the nine months ended September 30, 2020, $10,290 previously expensed for the Second Services Agreement was credited
back to the Company, and we incurred no additional expenses. During the three and nine months ended September 30, 2019, $6,860 and $27,440 were expensed, respectively.
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 and Business Advisory Board as
described below, and the Company and Advisors have entered into Consulting Agreements with the following terms and conditions:
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2020 and 2019
Note 10 – Commitments (continued)
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. On January 28, 2019, the Company issued 30,000 shares of
common stock to Mr. Hilman for his continuing service on the Company's Advisory Board.
On September 18, 2019, the Company entered into a one-year advisory board member consulting agreement with Derrick Chambers under which Mr. Chambers 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 25,000 shares of its common stock to Mr. Chambers under its 2016 Stock Option and Stock Award Plan, which shares were fully vested and recorded as advisory services on issuance.
On February 10, 2020, the Company entered into a one-year advisory board member consulting agreement with Michael Maizel under which Mr. Maizel 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 granted an option to purchase 50,000 shares of common stock under the 2016 Stock Option and Award Plan subject to certain vesting terms. Due to continuing Covid-19 pandemic concerns, on August 17, 2020, we notified Mr. Maizel of the
termination of this agreement.
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2020 and 2019
Note 10 – Commitments (continued)
On August 8, 2019, the Company entered into a six-month services agreement with PCG Advisory, Inc. ("PCG") under which agreement PCG will provide investor relations and capital market advisory services to the Company.
In consideration therefor, the Company will pay PCG a monthly cash fee of $5,000 ($2,500 of which will be deferred until the Company raises at least $300,000 in a financing) and issued 50,000 shares of its common stock on August 8, 2019. After the
initial six-month term, the agreement will automatically renew on a month-to-month basis unless either party notifies the other of its desire to terminate the agreement or by the Company if PCG fails to comply with securities laws, makes an untrue
statement of material facts or omits to state any material fact in connection with an investment in the Company or breaches a representation, warranty or covenant in the agreement. The Company notified PCG in March 2020 that it currently was not
renewing the agreement.
On July 12, 2018, the Company entered into a one-year 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 retains 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, $18,147 on
December 17, 2018 and $18,146 on June 20, 2019.
On November 4, 2019, the parties entered into an amendment to the Sponsored Research Agreement to extend the term of the Agreement through July 14, 2020. Under the terms of the amendment, the Company was required to
fund $37,790 on November 4, 2019, an additional $18,895 on December 1, 2019, and a final payment of $18,895 on June 1, 2020, none of which amounts were funded as required. Due to the uncertainty caused by the current COVID-19 pandemic, the Agreement
was terminated, and Dartmouth issued the Company a closing invoice related to the Agreement of approximately $7,800.
During the three and nine months ended September 30, 2020, we recorded gains of $0 and $26,809, respectively relative to the above contract in order to reverse prior period accruals related to the various payment
obligations set out above. These amounts were recorded as offsets to research and development expenses. During the three and nine months ended September 30, 2019, $24,818 and $61,111 were expensed, respectively.
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.
On January 28, 2019, the Company issued 30,000 shares of common stock under its 2016 Stock Option and Stock Award Plan to Pavel Hilman for his continuing service on the Company's Board of Advisors. These shares were fully vested and recorded as
advisory services on issuance.
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2020 and 2019
Note 11 – Stock Plan (continued)
In connection with a Term Sheet, on July 1, 2019, Dr. Bonfiglio was granted (i) 50,000 shares of common stock of the Company, 37,500 of which shares vested upon issuance on July 1, 2019 and 12,500 of which shares will
vest on the earlier of (i) January 1, 2020 and (ii) the date the Company raises equity capital of $500,000, provided Dr. Bonfiglio is in the employ of the Company on such date. Mr. Bonfiglio was terminated, effective November 30, 2019. All unvested
stock awards were terminated on such date.
On September 18, 2019, the Company awarded 25,000 shares of common stock to Derrick Chambers, a member of its advisory board, under its 2016 Stock Option and Stock Award Plan, which shares were fully vested
and recorded as advisory services on issuance.
(a) Stock Options granted to Science Advisors and Business 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.
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2020 and 2019
Note 11 – Stock Plan (continued)
|
(a)
|
Stock Options granted to Science Advisors and Business Advisors (cont’d):
|
On July 1, 2019, 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 33,334 shares of common stock, exercisable on July 1,
2019 at an exercise price of $2.00 per share (ii) an option to purchase 33,333 shares of common stock exercisable on July 1, 2020 at an exercise price of $2.00 per share, and (iii) an option to purchase 33,333 shares of common stock exercisable on
July 1, 2021 at an exercise price of $2.00 per share, provided the advisor is still providing services to the Company.
On February 10, 2020 the Company granted three-year options to purchase an aggregate of 50,000 shares of its common stock at an exercise price of $2.00 per share, to Michael Maizels for serving as a Business Advisor.
25,000 of such shares subject to the option were immediately exercisable and expire on February 10, 2023, and 25,000 shares vest on February 10, 2021 and expire on February 10, 2024. On July 15, 2020 25,000 unvested options were forfeited.
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. On March 23, 2020, the Company accelerated the vesting provision such that options previously vesting on
December 10, 2020 shall vest immediately with an expiration date of March 23, 2023.
On December 10, 2019, 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, 2019 at an exercise price of $2.00 per share (ii) an option to purchase 33,333 shares of common stock exercisable on December 10, 2020 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, 2021 at an exercise price of $2.00 per share, provided the advisor is still providing services to the Company. On March 23, 2020, the Company accelerated the vesting provision such that options previously vesting on
December 10, 2020 and December 10, 2021 shall vest immediately with an expiration date of March 23, 2023.
The following table is the recognized compensation in respect of the above stock option compensation ((a) and (b)) which amount has been allocated as below:
As of September 30, 2020, and December 31, 2019, total unrecognized compensation remaining to be recognized in future periods totaled $6,820 and $105,683, respectively.
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2020 and 2019
Note 11 – Stock Plan (continued)
On June 25, 2019, the Company appointed John N. Bonfiglio, PhD as its chief operating officer, effective July 1, 2019. As compensation, Dr. Bonfiglio was granted a three-year stock option to purchase 100,000 shares of
common stock at an exercise price of $2.00 per share, 50,000 of which shares vested upon grant and 25,000shares will vest on each of July 1, 2020 and July 1, 2021, provided Dr. Bonfiglio is in the employ of the Company on such dates. If the Company
raised equity capital of $1.5 million before December 31, 2019, unvested shares subject to the option will immediately vest and become exercisable, so long as Dr. Bonfiglio is in the Company's employ on such date. Mr. Bonfiglio was terminated as
chief operating officer as of November 30, 2019. Accordingly, all unvested stock options terminated on such date.
On December 10, 2019, 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.
The following table is the recognized compensation in respect of the above stock option compensation, which amounts have been allocated as general and administrative expenses:
As of September 30, 2020, and December 31, 2019, total unrecognized compensation remaining to be recognized in future periods totaled $0.
The fair value of each option award referenced above is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions at the measurement date(s):
A summary of the activity for the Company's stock options at September 30, 2020 and December 31, 2019, is as follows:
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2020 and 2019
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 September 30, 2020 and December 31, 2019.
Common Stock
Common Stock issuances during the nine months ended September 30, 2020:
In August 2020, the Company sold an aggregate of 200,000 shares of its common stock with a five-year warrant to purchase an aggregate of 100,000 shares of common stock at an exercise price of $1.00 per share (the
“Warrant Shares”) to investors in a private offering for aggregate gross proceeds of $100,000. The proceeds will be used for general corporate purposes. The Warrant Shares have “piggyback” registration rights and the warrant has a provision for
cashless exercise. In addition, the warrant may not be exercised if it would result in beneficial ownership by the holder and his affiliates of more than 9.99% of the Company’s outstanding shares of common stock.
During the year ended December 31, 2019, the Company sold an aggregate of 65,000 shares of common stock to investors and received aggregate proceeds of $65,000 pursuant to subscription agreements in private offerings.
The proceeds will be used for research and general corporate purposes.
On January 28, 2019, the Company issued 30,000 shares of common stock for advisory services (Note10 (4)). The shares had a fair market value on the date of issuance of $37,500 or $1.25 per share.
On July 1, 2019, the Company issued 37,500 shares of common stock to its then Chief Operating Officer (Note 10 (3)). The shares had a fair market value on the date of issuance of $49,125 or $1.31 per share.
On August 8, 2019, the Company issued 50,000 shares of common stock for advisory services (Note 10 (7)). The shares had a fair market value on the date of issuance of $74,500 or $1.49 per share.
On September 18, 2019, the Company issued 25,000 shares for advisory services (Note 10(4)). The shares had a fair market value on the date of issuance of $40,250 or $1.61 per share.
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2020 and 2019
Note 12 – Capital Stock (continued)
Common Stock issuances during the year ended December 31, 2019 (cont’d)
During the year ended December 31, 2019, the Company received a warrant exercise notice for a warrant to purchase 52,000 shares of common stock from a subscriber and issued 9,980 shares of common stock on a cashless
exercise basis as per the cashless exercise formula contained in the warrant.
There was a total of 13,289,789 and 13,089,789 shares of common stock issued and outstanding as of September 30, 2020 and December 31, 2019, respectively.
Common Stock Purchase Warrants
As of September 30, 2020, and December 31, 2019, the following common stock purchase warrants were outstanding:
(1) Each two shares of common stock purchased in a private placement offering included one warrant to purchase an additional share of common stock at an exercise price of $0.40.
(2) During the year ended December 31, 2019, investors exercised warrants to purchase an aggregate of 52,000 shares of common stock and received 9,980 shares for exercises on a cashless basis.
(3) During the year ended December 31, 2019, the Company granted convertible notes holders accumulated 70,000 stock purchase warrants at an exercise price of $1.00. The fair value of the aforementioned warrants was
$36,410 and recorded as financing cost.
(4) During the nine months ended September 30, 2020, the Company granted a convertible note holder 10,000 stock purchase warrants at an exercise price of $1.00. The fair value of the aforementioned warrants was $3,400
and recorded as financing cost.
(5) Each two shares of common stock purchased in a private offering included one warrant to purchase an additional share of common stock at an exercise price of $1.00.
In accordance with authoritative accounting guidance, the fair value of the outstanding common stock purchase warrants was calculated using the Black-Scholes option-pricing model with the following assumptions at the
measurement date(s):
QRONS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 2020 and 2019
Note 13 – Subsequent Events
The Company has evaluated events for the period from September 30, 2020 through the date of the issuance of these financial statements and determined that there are no additional events requiring disclosure.