Company Quick10K Filing
Qrons
Price2.30 EPS-0
Shares13 P/E-32
MCap30 P/FCF-73
Net Debt-0 EBIT-1
TEV30 TEV/EBIT-32
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-15
10-K 2019-12-31 Filed 2020-03-30
10-Q 2019-09-30 Filed 2019-11-14
10-Q 2019-06-30 Filed 2019-08-14
10-Q 2019-03-31 Filed 2019-05-14
10-K 2018-12-31 Filed 2019-03-25
10-Q 2018-09-30 Filed 2018-11-06
10-Q 2018-06-30 Filed 2018-08-02
10-Q 2018-03-31 Filed 2018-05-09
10-K 2017-12-31 Filed 2018-03-02
10-Q 2017-09-30 Filed 2017-11-07
10-Q 2017-06-30 Filed 2017-08-11
10-Q 2017-03-31 Filed 2017-05-15
8-K 2019-12-17
8-K 2019-11-30
8-K 2019-11-04
8-K 2019-10-02
8-K 2019-08-08
8-K 2019-06-25
8-K 2019-05-01
8-K 2019-04-11
8-K 2018-12-10
8-K 2018-07-12
8-K 2018-04-16
8-K 2018-04-12
8-K 2018-03-26
8-K 2018-02-12

QRON 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Note 1 - Description of Business and Basis of Presentation
Note 2 - Summary of Significant Accounting Policies
Note 3 - Going Concern
Note 4 - Convertible Note - Related Party and Derivative Liabilities
Note 5 - Convertible Note and Derivative Liabilities
Note 6 - Unsecured Short - Term Advance From Third Party
Note 7 - Related Party Transactions
Note 8 - License and Research Funding Agreement / Royalty Agreement
Note 9 - Intellectual Property License Agreement
Note 10 - Commitments
Note 11 - Stock Plan
Note 12 - Capital Stock
Note 13 - Other Events
Note 14 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex311.htm
EX-32.1 ex321.htm

Qrons Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
0.60.40.20.0-0.2-0.42017201820192020
Assets, Equity
0.0-0.3-0.5-0.8-1.0-1.32017201820192020
Rev, G Profit, Net Income
0.50.40.20.1-0.1-0.22017201820192020
Ops, Inv, Fin

10-Q 1 form10q.htm 10-Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended March 31, 2020
 
 
[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from __________ to __________

000-55800
(Commission File Number)
 
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 offices)
(Zip Code)
 
(212)-945-2080
(Registrant's telephone number, including area code)
 
 
(Former name, former address and former fiscal year, if changed since last report)
 
Securities registered pursuant to Section 12(b) of the Act: None

Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
None
 
N/A
 
N/A


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 [  ]

1

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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[X] 
Smaller reporting company [X]
 
Emerging growth company [X]

      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 7(a)(2)(B) of the Securities Act. [  ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes [  ]  No [X ]
 
As of May 15, 2020, there were 13,089,789 shares of the registrant's common stock outstanding.

2


QRONS INC.
TABLE OF CONTENTS
 
 
Page
 
PART I – FINANCIAL INFORMATION
 
 
 
 
 4
 
 
 
 27
 
 
 
 34
 
 
 
 34
 
 
 
 
PART II – OTHER INFORMATION
 
 
 
 
 36
 
 
 
 36
 
 
 
 36
 
 
 
 36
 
 
 
 36
 
 
 
 36
 
 
 
 36
 
 
 
 
 37


3


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

QRONS INC.
 
BALANCE SHEETS
(Unaudited)

 
 
March 31,
2020
   
December 31,
2019
 
 
           
ASSETS
           
Current assets
           
Cash and cash equivalents
 
$
22,961
   
$
67,025
 
Prepaid expenses
   
26,850
     
56,265
 
Total current assets
   
49,811
     
123,290
 
 
               
TOTAL ASSETS
 
$
49,811
   
$
123,290
 
 
               
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
               
 
               
Current liabilities
               
Accounts payable and accrued liabilities
 
$
153,785
   
$
140,967
 
Accounts payable and accrued liabilities – related party
   
37,488
     
34,907
 
Demand loans, related party
   
50,000
     
50,000
 
Advances from related party
   
240,000
     
185,000
 
Unsecured short-term advances
   
100,000
     
100,000
 
Convertible note – related party, net of debt discount
   
25,000
     
25,000
 
Convertible note, net of debt discount
   
16,646
     
6,171
 
Derivative liabilities
   
104,192
     
89,367
 
Total current liabilities
   
727,111
     
631,412
 
 
               
Total liabilities
   
727,111
     
631,412
 
 
               
Stockholders' equity (deficit)
               
Series A Preferred stock: $0.001 par value, shares authorized 10,000; 2,000 shares issued and outstanding at March 31, 2020 and December 31, 2019
   
2
     
2
 
Common stock, $0.0001 par value: shares authorized 100,000,000; 13,089,789 shares issued and outstanding at March 31, 2020 and December 31, 2019
   
1,309
     
1,309
 
Additional paid-in capital
   
6,632,001
     
6,561,047
 
Accumulated deficit
   
(7,310,612
)
   
(7,070,480
)
Total stockholder's equity (deficit)
   
(677,300
)
   
(508,122
)
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
 
$
49,811
   
$
123,290
 

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

4


QRONS INC.
 
STATEMENTS OF OPERATIONS
(unaudited)

 
 
For the Three Months Ended
 
 
 
March 31,
 
 
 
2020
   
2019
 
 
           
Net sales
 
$
-
   
$
-
 
 
               
Operating expenses:
               
Research and development expenses
   
171,568
     
165,154
 
Professional fees
   
23,624
     
15,586
 
General and administrative expenses
   
23,746
     
82,774
 
Total operating expenses
   
218,938
     
263,514
 
 
               
Income (loss) from operations
   
(218,938
)
   
(263,514
)
 
               
Other income (expense)
               
Interest expense
   
(14,284
)
   
(496
)
Change in derivative liabilities
   
(6,910
)
   
2,549
 
Total other income (expense)
   
(21,194
)
   
2,053
 
 
               
Net (loss)
 
$
(240,132
)
 
$
(261,461
)
 
               
Net (loss) per common shares (basic and diluted)
 
$
(0.02
)
 
$
(0.02
)
 
               
Weighted average shares outstanding
               
(basic and diluted)
   
13,089,789
     
12,910,865
 
 
 
The accompanying notes are an integral part of these unaudited financial statements.
5


QRONS INC.
 
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(unaudited)

 
 
Series A Preferred Shares
   
Common Stock
   
Additional
Paid-in
   
Accumulated
   
Total
Stockholders'
 
 
 
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
Equity (Deficit)
 
Balance, December 31, 2019
   
2,000
   
$
2
     
13,089,789
   
$
1,309
   
$
6,561,047
   
$
(7,070,480
)
 
$
(508,122
)
Stock options granted to non-employees as research and development costs
   
-
     
-
     
-
     
-
     
67,554
     
-
     
67,554
 
Warrants granted as financing costs
   
-
     
-
     
-
     
-
     
3,400
     
-
     
3,400
 
Net loss for the period
   
-
     
-
     
-
     
-
     
-
     
(240,132
)
   
(240,132
)
Balance, March 31, 2020
   
2,000
   
$
2
     
13,089,789
   
$
1,309
   
$
6,632,001
   
$
(7,310,612
)
 
$
(677,300
)

 
 
 
Series A Preferred Shares
   
Common Stock
   
Additional
Paid-in
   
Accumulated
   
Total
 
 
 
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
Equity (Deficit)
 
Balance, December 31, 2018
   
2,000
     
2
     
12,872,309
     
1,287
     
5,629,694
     
(5,523,708
)
   
107,275
 
Shares issued for stock awards for business advisory services
   
-
     
-
     
30,000
     
3
     
37,497
     
-
     
37,500
 
Stock options granted to non-employees as research and development costs
   
-
     
-
     
-
     
-
     
45,442
     
-
     
45,442
 
Shares issued in private placement
   
-
     
-
     
40,000
     
4
     
39,996
     
-
     
40,000
 
Net loss for the period
   
-
     
-
     
-
     
-
     
-
     
(261,461
)
   
(261,461
)
Balance, March 31, 2019
   
2,000
   
$
2
     
12,942,309
   
$
1,294
   
$
5,752,629
   
$
(5,785,169
)
 
$
(31,244
)
 
The accompanying notes are an integral part of these unaudited financial statements.
6


QRONS INC.
 
STATEMENTS OF CASH FLOWS
(unaudited)
  
 
 
For the three months ended
March 31,
 
 
 
2020
   
2019
 
Cash Flows From Operating Activities
           
Net loss
 
$
(240,132
)
 
$
(261,461
)
Adjustments to reconcile net loss to net cash (used by) operating activities:
               
Stock options issued for research and development expense
   
67,554
     
45,442
 
Stock awards issued for advisory and consulting services
   
-
     
37,500
 
Warrants granted as financing costs
   
3,400
     
-
 
Accretion of debt discount
   
8,390
     
-
 
Change in derivative liabilities
   
6,910
     
(2,549
)
Changes in operating assets and liabilities:
               
Prepaid expenses
   
29,415
     
30,378
 
Accounts payable and accrued liabilities
   
12,818
     
15,092
 
Accounts payable and accrued liabilities, related party
   
2,581
     
496
 
Net cash (used by) operating activities
   
(109,064
)
   
(135,102
)
 
               
Cash Flows From Investing Activities
               
Net cash provided from (used by) investing activities
   
-
     
-
 
 
               
Cash Flows From Financing Activities
               
Proceeds from convertible notes
   
10,000
     
-
 
Proceeds from private placement
   
-
     
40,000
 
Proceeds from related party advances
   
55,000
     
-
 
Net cash provided from financing activities
   
65,000
     
40,000
 
 
               
Increase (decrease) in cash and cash equivalents
   
(44,064
)
   
(95,102
)
 
               
Cash at beginning of year
   
67,025
     
143,862
 
Cash at end of year
 
$
22,961
   
$
48,760
 
 
               
SUPPLEMENTAL DISCLOSURES
               
Interest paid
 
$
-
   
$
-
 
Income taxes paid
 
$
-
   
$
-
 
 
               
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES
               
Derivative liability associated with debt discount
 
$
7,915
   
$
-
 

The accompanying notes are an integral part of these unaudited financial statements.
7


QRONS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2020 and 2019
 
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'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 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 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.
 
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 $171,568 and $165,154 for the three months ended March 31, 2020 and 2019, respectively.
8


QRONS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2020 and 2019
 
Note 2 – Summary of Significant Accounting Policies (continued)
 
Advertising and Marketing Costs: Advertising and marketing costs are expensed as incurred. The Company incurred $19,500 and $48,387 in advertising and marketing costs during the three months ended March 31, 2020 and 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 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 March 31, 2020 and December 31, 2019:
 
 
Fair value measurements on a recurring basis
 
 
Level 1
 
Level 2
 
Level 3
 
As of March 31, 2020:
           
Liabilities
           
Derivative liabilities
 
$
-
   
$
-
   
$
104,192
 
 
                       
As of December 31, 2019:
                       
Liabilities
                       
Derivative liabilities
 
$
-
   
$
-
   
$
89,367
 
 
9

QRONS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2020 and 2019
 
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 and expenses the fair value as financing costs.  
 
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 three months ended March 31, 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:
 
 
 
March 31,
2020
   
December 31,
2019
 
Research Warrants at 3% of issued and outstanding shares
   
392,694
     
392,694
 
Convertible Notes
   
319,029
     
261,107
 
Series A Preferred shares
   
700
     
700
 
Stock options vested
   
2,423,335
     
2,331,669
 
Stock options not yet vested
   
141,665
     
183,331
 
Stock purchase warrants
   
80,000
     
70,000
 
Total
   
3,357,423
     
3,239,501
 

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. 
 
10

QRONS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 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 $65,000 during the three months ended March 31, 2020 and $470,000 during the year ended December 31, 2019, respectively, 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 second quarter of 2020. 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 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. 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.
 
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.

On September 28, 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; and on September 1, 2019, the Company further amended Note 1 to extend the maturity date to September 1, 2020, 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 until September 27, 2019.

On September 27, 2019, Note 2 was amended to extend the maturity date until September 27, 2020.
 
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. 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.
11

QRONS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2020 and 2019

Note 4 – Convertible Note – Related Party and Derivative Liabilities (continued)
  
The carrying value of these convertible notes is as follows:

  
 
March 31,
2020
   
December 31,
2019
 
Face value of certain convertible notes
 
$
25,000
   
$
25,000
 
Less: unamortized discount
   
-
     
-
 
Carrying value
 
$
25,000
   
$
25,000
 

We recorded interest expenses of $501 and $496 for the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, and December 31, 2019, the unpaid interest balance under Accounts payable and accrued liabilities – related party was $5,933 and $5,432, respectively.

As a result of the application of ASC No. 815 in the three months ended March 31, 2020, the fair value of the conversion feature is summarized as follows:
 
Balance at December 31, 2018
 
$
36,827
 
Change in fair value
   
355
 
Balance at December 31, 2019
   
37,182
 
Change in fair value
   
4,165
 
Balance at March 31, 2020
 
$
41,347
 
 
The fair value at the commitment and re-measurement dates for the Company's derivative liabilities were based upon the following management assumptions as of March 31, 2020 and December 31, 2019 and the commitment date:
  
 
 
Commitment Date
   
March 31, 2020
   
December 31, 2019
 
Expected dividends
   
0
     
0
     
0
 
Expected volatility
 
101% ~103%
   
178% ~ 190%
   
167% ~ 180%
 
Expected term
 
0.92 ~ 1 year
   
0.21 year
   
0.26 year
 
Risk free interest rate     1.33%
    0.15       1.60%

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 three months ended March 31, 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.

12


QRONS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2020 and 2019

Note 5 – Convertible Note and Derivative Liabilities (continued)

We recorded interest expenses of $1,486 for the three months ended March 31, 2020 in respect of the aforementioned notes.

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:
 
 
 
March 31,
2020
   
December 31, 2019
 
Face value of certain convertible notes
 
$
80,000
   
$
70,000
 
Less: unamortized discount
   
(63,354
)
   
(63,829
)
Carrying value
 
$
16,646
   
$
6,171
 
 
Amortization of the discount during the three months ended March 31, 2020 totaled $8,390 which amounts have been recorded as interest expense. 
 
As a result of the application of ASC No. 815 for the three months ended March 31, 2020 and the year ended December 31, 2019, the fair value of the conversion feature is summarized as follows:
 
Balance at December 31, 2018
 
$
-
 
Derivative addition associated with convertible notes
   
64,774
 
Change in fair value
   
(12,589
)
Balance at December 31, 2019
   
52,185
 
Derivative addition associated with convertible notes
   
7,915
 
Change in fair value
   
2,745
 
Balance at March 31, 2020
 
$
62,845
 
 
The fair value at the commitment and re-measurement dates for the Company's derivative liabilities were based upon the following management assumptions as of March 31, 2020 and December 31, 2019 and the commitment date:

 
 
Commitment Date
   
March 31, 2020
   
December 31, 2019
 
Expected dividends
   
0
     
0
     
0
 
 Expected volatility   154% ~173%
    177% ~ 183%
      156 %
Expected term
 
2.10 year
   
1.83 ~ 1.91 year
   
2 year
 
Risk free interest rate   1.42 ~ 1.65%       0.23 %     1.58 %
 
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 March 31, 2020 and December 31, 2019.

13


QRONS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2020 and 2019

Note 7 – Related Party Transactions

(1)
Demand Loan from related party

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 $1,008 for the three months ended March 31, 2020. As of March 31, 2020, and December 31, 2019, the unpaid interest balance under Accounts payable and accrued liabilities – related party was $3,671 and $2,663, respectively.

(2)
Advances from Related Parties

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 three months ended March 31, 2020, the Company received an additional $35,000 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 three months ended March 31, 2020, the Company received an additional $10,000 from Ido Merfeld.

During the three months ended March 31, 2020, the Company received $10,000 from CubeSquare, of which its Chief Executive Officer is the managing partner and its President is a 25% owner, in the form of an unsecured, demand, non-interest bearing, short term advance to help meet its operating needs.

(3)
Others

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 three months ended March 31, 2020, Jonah Meer, the Company’s Chief Executive Officer, made payments to various vendors in the accumulated amount of $3,664, and repaid in cash of $2,092. The balance of $27,214 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 of $11,169 is reflected in accounts payable, related party.

Note 8 – License and Research Funding Agreement / Royalty Agreement

On December 14, 2016, the Company entered into a license agreement with Ariel (the “License Agreement”) 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 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 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:
 
14


QRONS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2020 and 2019

Note 8 – License and Research Funding Agreement / Royalty Agreement (continued)

-
 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 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.

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 is obligated to pay Ariel an additional $17,250 by May 1, 2020 All other terms and conditions of the First Services Agreement not amended remain in effect.

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 to extend the term of the Agreement through July 14, 2020.

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.

15


QRONS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2020 and 2019

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 will pay Dartmouth: (i) a license issue fee of $25,000; (ii) an annual license maintenance fee of $25,000, commencing on the first anniversary of the Effective Date 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.

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 $25,000 license fee under prepaid expenses, which amount shall be expensed ratably over the initial one-year term of the Agreement.
 
16


QRONS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2020 and 2019

Note 10 – Commitments
 
(1)  
Service Agreement with Ariel Scientific Innovations Ltd.
 
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.

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 is obligated to pay Ariel an additional $17,250 by May 1, 2020 All other terms and conditions of the First Services Agreement not amended remain in effect.

During the three months ended March 31, 2020 and 2019, $8,625 were expensed, and the remaining $7,187 (December 31, 2019 - $15,812), which amount is reflected on the Company's balance sheets as prepaid expenses, will be expensed in a subsequent period.

(2)  
Service Agreement with Ariel - Dr. Gadi Turgeman
 
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.

During each of the three-month periods ended March 31, 2020 and 2019, $10,290 was expensed.
17

QRONS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2020 and 2019

Note 10 – Commitments
 
(3)  
Science Advisory Board Member Consulting Agreements (the " Consulting 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 and Business Advisory Board as described below, and the Company and Advisors have entered into Consulting 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.

(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. 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.


18

QRONS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2020 and 2019

Note 10 – Commitments
 
(4)  
Business Advisory Board Agreement (continued)

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.

 (5)  
 Investor Relations Agreement
 
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.

 (6)  
 Sponsored Research 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. The Company funded $37,790 on November 4, 2019, $18,895 on December 1, 2019 and $18,895 on June 1, 2020.

During the three months ended March 31, 2020 and 2019, $18,895 and $18,147 were expensed, respectively, and the remaining $3,150 (December 31, 2019 - $22,045), which amount is reflected on the Company's balance sheets as prepaid expenses, will be expensed in the applicable period.

19


QRONS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2020 and 2019

Note 11 – Stock Plan
 
2016 Stock Option and Stock Award 
 
On December 14, 2016, the Board adopted the Company's 2016 Stock Option and Stock Award Plan (the "Plan"). The Plan provides for the award of stock options (incentive and non-qualified), stock awards and stock appreciation rights to officers, directors, employees and consultants who provide services to the Company. The terms of awards under the Plan are made by the Administrator of the Plan appointed by the Company's Board of Directors (the "Board"), or in the absence of an Administrator, by the Board. The Company has reserved 10 million shares for issuance under the Plan. 

Stock Awards:
  
On January 28, 2019, the Company issued 30,000 shares to Pavel Hilman under its 2016 Stock Option and Stock Award Plan which shares were fully vested and recorded as advisory services on issuance of common stock to Pavel Hilman for his continuing service on the Company's Board of Advisors.

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.
 
 
March 31,
 
March 31,
 
 
2020
 
2019
 
Number of shares vested in period
   
-
     
30,000
 
Weighted average fair market value per share
 
$
-
   
$
1.25
 
Stock based compensation recognized
 
$
-
   
$
37,500
 
 
Stock Options:
 
(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.
20

QRONS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2020 and 2019

Note 11 – Stock Plan (continued)
 
Stock Options: (continued)

(a)  
Stock Options granted to Science Advisors and Business Advisors: (continued)

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.  
 
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.
 
(b)  
Stock Options granted to Employees:
 
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.

21

QRONS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2020 and 2019

Note 11 – Stock Plan (continued)
 
Stock Options: (continued)

(b)  
Stock Options granted to Employees: (continued)

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:

 
Three Months ended
 
 
March 31,
 
 
2020
 
2019
 
 
 
 
 
 
Research and development expenses
$
67,554
 
$
45,442
 

As of March 31, 2020, and December 31, 2019, total unrecognized compensation remaining to be recognized in future periods totaled $63,599 and $105,683 respectively.

(c)  
Stock Options granted to Officers:
 
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 25,000 shares 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.

22


QRONS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2020 and 2019

Note 11 – Stock Plan (continued)

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:

 
Three Months ended
 
 
March 31,
 
 
2020
 
2019
 
General and administrative expenses
$
-
 
$
-
 

As of March 31, 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):
 
 
 
Measurement date
 
Dividend yield
 
 
0%
 
Expected volatility
 
114.69 ~ 186.80%
 
Risk-free interest rate
 
1.36% ~ 2.68%
 
Expected life (years)
 
3 ~ 5
 
Stock Price
 
$
0.62 ~ 2.80
 
Exercise Price
 
$
0.40 ~ 2.00
 

A summary of the activity for the Company's stock options at March 31, 2020 and December 31, 2019, is as follows:
 
 
 
March 31, 2020
   
December 31, 2019
 
 
       
Weighted Average
         
Weighted Average
 
 
 
Shares
   
Exercise Price
   
Shares
   
Exercise Price
 
Outstanding, beginning of period
   
2,515,000
   
$
1.97
     
1,615,000
   
$
1.97
 
Granted
   
50,000
   
$
2
     
950,000
   
$
2
 
Exercised
   
-
   
$
-
     
-
   
$
-
 
Canceled
         
$
2
     
(50,000
   
$
2
 
Outstanding, end of period
   
2,565,000
   
$
1.987
     
2,515,000
   
$
1.987
 
Options exercisable, end of period
   
2,423,335
   
$
1.98
     
2,331,669
   
$
1.98
 
Options expected to vest, end of period
   
141,665
   
$
1.98
     
183,331
   
$
1.98
 
Weighted average fair value of options granted
         
$
1.60
           
$
1.62
 

Note 12 – 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.
 
23


QRONS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2020 and 2019

Note 12 – Capital Stock (continued)

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 March 31, 2020 and December 31, 2019.

Common Stock
 
Common stock issued during the three months ended March 31, 2020.

None.

Common Stock issuances during the year ended December 31, 2019

During the year ended December 31, 2019, the Company sold an aggregate of 65,000 shares of its 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 for advisory services (Note10 (4)). The shares were valued at fair market value on the date of issuance for a total of $37,500 or $1.25 per share.

On July 1, 2019, the Company issued 37,500 shares to its Chief Operating Officer (Note 10 (3)). The shares were valued at fair market value on the date of issuance for a total of $49,125 or $1.31 per share.

On August 8, 2019, the Company issued 50,000 shares for advisory services (Note 10 (7)). The shares were valued at fair market value on the date of issuance for a total 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 were valued at fair market value on the date of issuance for a total of $40,250 or $1.61 per share.

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 13,089,789 shares of common stock issued and outstanding as of March 31, 2020 and December 31, 2019.
 
24


QRONS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2020 and 2019

Note 12 – Capital Stock (continued)

Common Stock Purchase Warrants
 
As of March 31, 2020 and December 31, 2019, the following common stock purchase warrants were outstanding:
 
 
 
Warrants
     
Weighted Average Exercise Price
 
Outstanding – December 31, 2018
 
52,000
 
(1) 
 $
0.40
 
Granted
 
70,000
 
(3) 
 
1.00
 
Forfeited/Canceled
 
-
     
-
 
Exercised
 
(52,000
)
(2) 
 
0.40
 
Outstanding – December 31, 2019
 
70,000
     
1.00
 
Granted
 
10,000
 
(4) 
 
1.00
 
Forfeited/Canceled
 
-
     
-
 
Exercised
 
-
     
-
 
Outstanding – March 31, 2020
 
80,000
     $
1.00
 
 
(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 three months ended March 31, 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.

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):
 
 
 
Measurement date
 
Dividend yield
 
 
0%
 
Expected volatility
 
97.90~155.19%
 
Risk-free interest rate
 
0.37~1.72%
 
Expected life (years)
 
2.71~5.00
 
Stock Price
 
 
$0.25 ~ $0.65
 
Exercise Price
 
 
$0.40 ~ $1.00
 

25


QRONS INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2020 and 2019

Note 13 – Other Events
 
Due to the uncertainty caused by the current COVID-19 pandemic, on March 23, 2020, the Company gave 30 days’ notice of termination of employment to its employees. Further, as a result of such pandemic, the laboratory at Ariel has been closed and Professor Chenfeng Ke’s research laboratory at Dartmouth has been closed since approximately mid-March 2020.  We are currently continuing lab research offsite, compiling test results and working on perfecting our intellectual property. We also recently entered into an agreement with Dartmouth for the allocation of rights resulting from certain 3D printing research under a research grant from the State of New Hampshire. However, we do not currently know the full affect of COVID-19 on our operations or the extent of potential delays of research under our service and research agreements.

Note 14 – Subsequent Events

On April 21, 2020 the Company received $5,000 as a forgivable small business loan upon submission of a successful application to the Federal government as a result of the COVID 19 pandemic.  The funds are intended to provide temporary economic relief to businesses that are impacted by the pandemic.

The Company has evaluated events for the period from March 31, 2020 through the date of the issuance of these financial statements and determined that there are no additional events requiring disclosure.



26


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

This Quarterly Report on Form 10-Q contains predictions, estimates and other 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. Forward-looking statements involve known and unknown risks, uncertainties and other factors  including the risks set forth in the section entitled "Risk Factors" in our Post-Effective Amendment No. 1 to our Registration Statement on Form S-1, as filed with the Securities and Exchange Commission (the "SEC") on March 15, 2018, 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 Report. You should read this Report 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.

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

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements for the three months ended March 31, 2020 and the notes thereto appearing elsewhere in this Report and the Company's audited financial statements for the fiscal year ended December 31, 2019, as filed with the SEC in its Annual Report on Form 10-K on March 30, 2020, along with the accompanying notes. As used in this Quarterly Report, the terms "we", "us", "our", and the "Company" means BioLabMart Inc. prior to August 8, 2017 and Qrons Inc. since August 8, 2017.

Overview

The Company was incorporated under the laws of the State of Wyoming on August 22, 2016 as BioLabMart Inc. and changed its name to Qrons Inc. on August 8, 2017.

The Company is a preclinical stage biotechnology company developing advanced stem cell synthetic hydrogel-based solutions to combat neuronal injuries and focused on achieving 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”), 3D printable implant, smart materials and a novel delivery system.

To date, the Company has two product candidates for treating penetrating and non-penetrating (concussion-like) TBIs, both integrating proprietary, anti-brain inflammation synthetic hydrogel and modified MSCs.  QS100TM is an injury specific, 3D printable, implantable MSCs-synthetic hydrogel, to treat penetrating brain injuries and QS200TM 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 entered into an intellectual property license agreement (the “Intellectual Property Agreement”) with Dartmouth pursuant to which Dartmouth granted the Company an exclusive worldwide, royalty bearing license for such 3D printable materials in the field of human and animal health and certain additional patent rights to use and commercialize licensed products and services.

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"). The Company is the sole owner of any intellectual property developed from such research.
27


The Company has relied primarily on its two co-founders, Jonah Meer, Chief Executive Officer, and Ido Merfeld, President, who are its sole directors to manage its day-to-day business. The Company currently outsources all professional services to third parties in an effort to maintain lower operational costs.

Messrs. Meer and Merfeld, 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.  FINRA announced the Company's name change to Qrons Inc. on its Daily List on August 9, 2017. The new name and symbol, "QRON", became effective on 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 common stock will continue to be traded under the symbol "QRON".
 
Intellectual Property Agreement with Dartmouth

Pursuant to an option agreement with Dartmouth entered into on October 17, 2017, on October 2, 2019 the Company entered into the Intellectual Property Agreement 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.

The Company will pay Dartmouth: (i) a $25,000 license issue fee; (ii) an annual license maintenance fee of $25,000, commencing on the first anniversary of the Effective Date until 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; (iv) 15% of consideration received by the Company under a sublicense; and (v) beginning as 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. 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.

28

Sponsored Research Agreement with Dartmouth

On July 12, 2018, the Company entered into a one-year Sponsored Research Agreement with Dartmouth (the “Sponsored Research Agreement”) 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. 

On November 4, 2019, the Company and Dartmouth entered in the First Amendment to the Sponsored Research Agreement to extend the term of the Agreement and provide for an additional year of funding through July 14, 2020.

Royalty and License Fee Sharing Agreement with Ariel

On November 30, 2019, the Company entered into a royalty and license fee sharing agreement (the “Royalty Agreement”) with Ariel which, among other things, superseded and terminated the license and research funding agreement, dated December 14, 2016, as amended, between the Company and Ariel (the “License Agreement”). Services agreements with Ariel (as described below) related to laboratory access and other services were 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 then issued and outstanding shares of common stock of the Company. The issuance of any such shares in the future will result in dilution to the interests of other stockholders.

In consideration for the parties’ agreement to terminate the License Agreement and for future general scientific collaboration between the parties, the Company agreed to pay Ariel  a royalty of 1.25% of net sales (as defined in the Royalty Agreement) of products sold by the Company, or its affiliates and licensees for fifteen years from the first commercial sale in a particular country.
29

Services Agreements with Ariel

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, with Professor Danny Baranes acting as Principal Investigator, will conduct molecular biology research activities involving the testing of implant materials for the Company. If Professor 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. Effective March 6, 2019, this additional service agreement was amended to extend the term for an additional twelve-month period until March 6, 2020 for total compensation of $41,160 to be paid to Ariel in quarterly installments of $10,290 commencing on the execution of the amendment and on each of June 1, 2019, September 1, 2019 and December 1, 2019.

Plan of Operations
 
To date, we have two product candidates for treating penetrating and non-penetrating (concussion-like) TBIs. We have completed an in-vivo efficacy experiment with QS100TM for treating penetrating brain injuries in an animal model that was successful in substantiating our theories and practices regarding cell regeneration. We have completed animal in-vivo efficacy experiments with QS200TM for treating concussions and other diffused axonal injuries. Subject to the impact of the COVID-19 pandemic as described below, in the next 12 months, we 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, we intend to file for additional patents.

However, there is substantial doubt that we can continue as an on-going business unless we obtain additional capital to pay our expenditures. We have not generated revenues from the sales of products and we do not currently have sufficient resources to accomplish all of the conditions necessary for us to generate revenue. We will continue exploring sources of debt and equity financings as well as available grants.

Covid-19 Pandemic

We rely on our employees and, our agreements with Ariel and Dartmouth, for our research and development. The recent COVID-19 pandemic could have an adverse impact on the research and development of our product candidates. As a result of such pandemic, the laboratory at Ariel has been closed and Professor Chenfeng Ke’s research laboratory at Dartmouth has been closed since approximately mid-March 2020.  We are currently continuing lab research offsite, compiling test results and working on perfecting our intellectual property. We also recently entered into an agreement with Dartmouth for the allocation of rights resulting from certain 3D printing research under a research grant from the State of New Hampshire. However, we do not currently know the full affect of COVID-19 on our operations or the extent of potential delays of research under our service and research agreements.

COVID-19 has also caused significant disruptions to the global financial markets, which severely impacts our ability to raise additional capital. We gave 30- days’ notice of termination of employment to our employees on March 23, 2020 in an effort to conserve resources as we evaluate our business development efforts.  We may be required to substantially reduce operations or cease operations if we are unable to finance our operations. The ultimate impact on us and our significant contracted relationships is currently uncertain.
30


The full impact of the COVID-19 outbreak continues to evolve as of the date of this report, is highly uncertain and subject to change. Management is actively 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. However, while significant uncertainty remains, the Company believes it is likely that the COVID-19 outbreak will have a negative impact on its ability to raise additional financing and will result in delays as it continues to impact the Company’s workforce and its collaborative development efforts.

Results of Operations

Three Months Ended March 31, 2020 and March 31, 2019

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.

Net Loss

Our net loss for the three months ended March 31, 2020 and March 31, 2019 is as follows:

 
 
For Three Months Ended
 
 
 
March 31,
 
 
 
2020
   
2019
 
 
           
Net sales
 
$
-
     
-
 
 
               
Operating expenses:
               
Research and development expenses
   
171,568
     
165,154
 
Professional fees
   
23,624
     
15,586
 
General and administrative expenses
   
23,746
     
82,774
 
Total operating expenses
   
218,938
     
263,514
 
 
               
Income (loss) from operations
   
(218,938
)
   
(263,514
)
 
               
Other income (expense)
               
Interest expense
   
(14,284
)
   
(496
)
Change in derivative liabilities
   
(6,910
)
   
2,549
 
Total other income (expense)
   
(21,194
)
   
2,053

 
               
Net (loss)
 
$
(240,132
)
   
(261,461
)

Operating Expenses

Total operating expenses for the three months ended March 31, 2020 were $218,938 compared to total operating expenses of $263,514 for the three months ended March 31, 2019. During the three months ended March 31, 2020, the Company incurred $171,568 of research and development expenses which included payroll of $57,314, service fees related to certain research and development agreements of $76,179, fees associated with a sponsored research agreement of $29,185, legal and filing fees related to patents of $587, purchases of expendable lab supplies and equipment of $312 and technology licensing fees of $7,991, compared to $165,154 of research and development expenses which included payroll of $52,192, service fees related to certain research and development agreements of $60,044, fees associated with a sponsored research agreement of $18,146, legal and filing fees related to patents of $17,838, software fees of $1,374 and purchases of expendable lab supplies and equipment of $15,560. The Company incurred general and administrative expenses of $23,746 for the three months ended March 31, 2020 compared to general and administrative expenses of $82,774 for the three months ended March 31, 2019. The substantial decrease in general and administrative expense during the three months ended March 31, 2020 was primarily due to a decrease in stock-based compensation costs from $37,500 in the three months ended March 31, 2019 to $0 in the three months ended March 31, 2020 , and a reduction in advertising and marketing costs from $48,387 in the three months ended March 31, 2019 to $19,500 in the  three months ended March 31, 2020. Professional fees were $23,624 for the three months ended March 31, 2020, which reflect an increase in professional accounting fees in the three months ended March 31, 2020 compared to professional fees of $15,586 during the three months ended March 31, 2019. Other expense in the three months ended March 31, 2020 was $21,194 and included a loss of $6,910 as a result of the change in value of  derivative liabilities and interest expense of $14,284 which is comprised of accretion of  convertible notes of $8,390, financing costs of $3,400 and accrued interest on notes of $2,494. Other income of $2,053 in the three months ended March 31, 2019, includes a gain of $2,549 as a result of the change in value of derivative liabilities over the three months ended March 31, 2019, and interest expenses of $496.
31

 
We had a net loss of $240,132 in the three months ended March 31, 2020 compared to a net loss of $261,461 in the three months ended March 31, 2019.

Working Capital

 
 
March 31,
2020
 
 
December 31,
2019
 
Current Assets
 
$
49,811
 
 
$
123,290
 
Current Liabilities
 
 
727,111
 
 
 
631,412
 
Working Capital (deficiency)
 
$
677,300
 
 
$
508,122
 

Cash Flows

 
 
At March 31, 2020
 
 
At March 31, 2019
 
Net cash (used in) operating activities
 
$
(109,064
)
   
(135,102
)
Net cash provided by investing activities
 
 
-
     
-
 
Net cash provided by financing activities
 
$
65,000
     
40,000
 
Net increase (decrease) in cash during period
 
 
(44,064
)
   
(95,102
 
Operating Activities

Net cash used in operating activities was $109,064 for the three months ended March 31, 2020 compared to $135,102 for the three months ended March 31, 2019.  Cash used in operating activities for the three months ended March 31, 2020 was primarily the result of our net loss, offset by non-cash items including compensation in the form of stock options for research and development expense totaling $67,554, warrants granted as financing costs valued at $3,400, accretion of debt discount of $8,390, a change in our derivative liabilities of $6,910 and changes to our operating assets and liabilities including a decrease to prepaid expenses of $29,415 and increases to our accounts payable and accounts payable – related parties.  Cash used in the three months ended March 31, 2019 was primarily the result of our net loss, offset by non-cash items including compensation in the form of stock options for research and development expense totaling $45,442, stock awards totaling $37,500, a gain from the change in derivative liabilities of $2,549 and changes to our operating assets and liabilities including an increase to prepaid expenses of $30,378 and increases to our accounts payable and accounts payable-related parties.

Investing Activities
 
There were no investing activities during the three months ended March 31, 2020 and 2019.
32

 
Financing Activities

Net cash provided by financing activities was $65,000 for the three months ended March 31, 2020 compared to $40,000 for the three months ended March 31, 2019. We received no proceeds from private placement offerings in the three months ended March 31, 2020 as compared to $40,000 in the three months ended March 31, 2019. During the three months ended March 31, 2020 we received $55,000 in proceeds from related parties in the form of short-term advances from our officers with no comparative transactions during the three months ended March 31, 2019.  During the three months ended March 31, 2020 we also received $10,000 in the form of convertible notes with no similar financing in the three months ended March 31, 2019.

Liquidity and Capital Resources
 
As of March 31, 2020, we had cash of $22,961. 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 expect to incur increasing operating expenses. We will require substantial additional funds for operations, the service of debt and to fund our business objectives. There can be no assurance that financing, whether debt or equity, will 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. If additional funds are raised by the issuance of equity securities, such as through the issuance and exercise of warrants, then existing stockholders will experience dilution of their ownership interest. If additional funds are raised by the issuance of debt or other equity instruments, we may be subject to certain limitations in our operations, and issuance of such securities may have rights senior to those of the then existing stockholders. We currently have no agreements, arrangements or understandings with any person or entity to obtain funds through bank loans, lines of credit or any other sources.  Additionally, the continued spread of COVID-19 and uncertain market conditions will limit the Company’s ability to access capital. Without additional financing, we do not believe our resources will be sufficient to meet our operating and capital needs beyond the second quarter of 2020.

Going Concern

Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, does not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. Our report from our independent registered public accounting firm for the fiscal year ended December 31, 2019 includes an explanatory paragraph stating the Company has not generated revenues sufficient to cover operating expenses and will need additional capital to service its debt obligations. Also, if the Company is unable to obtain adequate capital due to the continued spread of COVID-19, the Company may be required to further reduce the scope, delay, or eliminate some or all of its planned operations. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.


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Critical Accounting Policies and Estimates

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 Note 2 to our unaudited financial statements contained 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 $171,568 and $165,154 for the three months ended March 31, 2020 and 2019, respectively.
 
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 11, 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 the Company applies the Black Scholes model and expenses the fair value as financing costs.  
 
Recent Accounting Pronouncements

There were various accounting standards and interpretations issued recently, none of which are expected to have a material effect on the Company's operations, financial position or cash flows.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company and are not required to provide this information.

ITEM 4. 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 March 31, 2020, 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 Securities and Exchange Act Commission'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.

34

Our internal controls and procedures 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 a formal 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.

Changes in Internal Control over Financial Reporting

During the period covered by this report, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


35


PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company's property is not the subject of any pending legal proceedings.

ITEM 1A. RISK FACTORS

The Company is a smaller reporting company and is not required to provide this information.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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

As compensation for serving on the Company’s Advisory Board, on February 10, 2020, we issued options to purchase an aggregate of 50,000 shares of our common stock at an exercise price of $2.00 per share to Michael Maizels. 25,000 of such shares were exercisable upon grant and expire on February 10, 2023 and 25,000 shares vest and become exercisable on February 10, 2021 and expire on February 10, 2024.

On February 19, 2020, in connection with the issuance of an 8% convertible note in the principal amount of $10,000 to an accredited investor in a private offering, we issued a five-year warrant to purchase an aggregate of 10,000 shares of common stock at an exercise price of $1.00.

The above issuances 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.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

Exhibit Number
Exhibit
101.INS
XBRL INSTANCE DOCUMENT
101.SCH
XBRL TAXONOMY EXTENSION SCHEMA
101.CAL
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB
XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

36

SIGNATURES

Pursuant to the requirements 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: May 15, 2020
By:
/s/Jonah Meer
 
 
 
Name: Jonah Meer
 
 
 
Title: Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial and Accounting Officer)
 

37