We rely on our employees and 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.
Professor Chenfeng Ke’s research laboratory at Dartmouth is currently subject to a six-week closure. We do not currently know the full 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 have given notice of
termination of employment to our current employees 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.
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 able to estimate the effects of the COVID-19 outbreak on its operations or financial condition in the next 12 months. 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.
The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments which are based on historical experience and on various other
factors that are believed to be reasonable under the circumstances. The results of their evaluation form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under
different assumptions and circumstances. Our significant accounting policies are more fully discussed in the Notes to our Financial Statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 8.
Financial statements and Supplemental Data
Qrons Inc.
Index to Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Qrons, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Qrons, Inc. (the Company) as of December 31, 2019 and 2018, and the related statements of operations, stockholders’ deficit,
and cash flows for the years then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as
December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Consideration of the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has sustained recurring losses from operations, negative working capital, and
insufficient liquidity which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 3. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we
are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no
such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Heaton & Company, PLLC
We have served as the Company’s auditor since 2016.
Heaton & Company, PLLC
Farmington, Utah
March 27, 2020
QRONS INC.
The accompanying notes are an integral part of these audited financial statements.
The accompanying notes are an integral part of these audited financial statements.
QRONS INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
The accompanying notes are an integral part of these audited financial statements.
The accompanying notes are an integral part of these audited financial statements.
QRONS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 1 – Description of Business and Basis of Presentation
Organization and nature of business:
Qrons Inc. ("Qrons" or the "Company") was incorporated under the laws of the State of Wyoming on August 22, 2016 under the name BioLabMart Inc.
On July 6, 2017, the board of directors and a majority of the Company's shareholders approved an amendment to the Company's Articles of Incorporation to change the name of the Company from "BioLabMart Inc." to
"Qrons Inc." On August 8, 2017, the Company filed Amended Articles of Incorporation with the State of Wyoming to effectuate such name change. The Company's common stock was approved by the Financial Industry Regulatory Authority ("FINRA") for
quotation on the OTC pink sheets under the symbol "BLMB" as of July 3, 2017. FINRA announced the Company's name change to Qrons Inc. on its Daily List on August 9, 2017. The new name and symbol change to "QRON" for the OTC Market was effective
August 10, 2017.
The Company is a preclinical stage biotechnology company developing advanced stem cell-synthetic hydrogel-based solutions to combat neuronal injuries and achieve a
breakthrough in the treatment of traumatic brain injuries ("TBIs"), for both concussions and penetrating injuries, an unmet medical need. 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 audited financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").
Fiscal year end: The Company has selected December 31 as its fiscal year end.
Use of Estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported
therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from these estimates.
Cash Equivalents: The Company considers all highly liquid investments with maturities of 90 days or less from the date of purchase to be cash equivalents.
Research and Development Costs: The Company charges research and development costs to expense when incurred in accordance with FASB ASC 730, "Research and Development."
Research and development costs were $651,476 for the year ended December 31, 2019. Research and development costs were $919,706 for the year ended December
31, 2018
Advertising and Marketing Costs: Advertising and marketing costs are expensed as incurred. The Company incurred $256,106 and $56,879
in advertising and marketing costs during the years ended December 31, 2019 and 2018, respectively.
QRONS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 2 – Summary of Significant Accounting Policies (continued)
Related parties: For the purposes of these financial statements, parties are considered to be related if one party has the ability, directly or indirectly, to control the
party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Company and the party are subject to common control or common significant influence. Related parties may be
individuals or other entities.
Stock-Based Compensation and Other Share-Based Payments: The expense attributable to the Company's directors is recognized over the period the amounts are earned and vested,
and the expense attributable to the Company's non-employees is recognized when vested, as described in Note 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 December 31, 2019 and December 31, 2018:
QRONS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 2 – Summary of Significant Accounting Policies (continued)
Warrants: The Company accounts for common stock warrants in accordance with applicable accounting guidance provided in ASC Topic 815 "Derivatives
and Hedging – Contracts in Entity's Own Equity" (ASC Topic 815), as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement. For warrants classified as equity instruments the
Company applies the Black Scholes model. Presently all warrants issued and outstanding are accounted for using the equity method.
Income taxes: The Company has adopted ASC Topic 740 – "Income Taxes" ASC Topic 740 which requires the use of the asset and liability method of accounting for income taxes.
Under the asset and liability method of ASC Topic 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled.
Basic and Diluted Loss Per Share: In accordance with ASC Topic 260 – "Earnings Per Share," the basic loss per common share is computed by dividing net loss available to
common stockholders by the weighted average number of common stock outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional shares
of common stock that would have been outstanding if the potential common stock had been issued and if the additional shares of common stock were dilutive.
Potential common stock consists of the incremental common stock issuable upon the exercise of common stock warrants (using the if-converted method), convertible notes, classes of shares with conversion features,
and stock awards and stock options. The computation of basic loss per share for the years ended December 31, 2019 and 2018 excludes potentially dilutive securities of underlying share purchase warrants, convertible notes, stock options and
preferred shares, because their inclusion would be antidilutive. As a result, the computations of net loss per share for each period presented is the same for both basic and fully diluted.
The table below reflects the potentially dilutive securities at each reporting period which have been excluded from the computation of diluted net loss per share:
New Accounting Pronouncements: Recent accounting pronouncements, other than below, issued by the
Financial Accounting Standards Board (“FASB”), (including its EITF, the AICPA and the SEC), did not or are not believed by management to have a material effect on the Company's present or future financial statements.
QRONS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 2 – Summary of Significant Accounting Policies (continued)
In June 2018, an accounting update was issued by FASB to simplify the accounting for nonemployee share-based payment transactions resulting from expanding the scope of ASC Topic
718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of ASC Topic 718 to
nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The
amendments specify that ASC Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing
share-based payment awards. The amendments also clarify that ASC Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in
conjunction with selling goods or services to customers as part of a contract accounted for under ASC Topic 606, Revenue from Contracts with Customers. The amendments in this accounting update are
effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of ASC Topic 606.
Note 3 – Going Concern
The Company has experienced net losses to date, and it has not generated revenue from operations. While the Company raised proceeds of $470,000 and $575,000 during 2019 and 2018, respectively, by way of private
placement offerings to accredited investors and loans and advances from our 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. 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.
The Company received proceeds of $10,000 during fiscal 2016 ("Note 1"). The note bears interest at 8% per annum and was due on September 1, 2017. Interest accrues from September 1, 2016 and is payable on maturity. Interest is payable, at the
lender's option, in cash or common stock. Any portion of the loan and unpaid interest is convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of the greater of (i) $0.0625 per share
if the Company's shares are not trading on a public market and; (ii) in the event the Company's shares are listed for trading on a public market, the conversion price shall be equal to a 50% discount to the average of the five lowest trading
prices during the previous twenty trading days prior to the date of the notice of conversion from the lender.
On September 28, 2017, the Company and CubeSquare amended Note 1 to extend the maturity date from September 1, 2017 to September 1, 2018; 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 is
due on September 27, 2018. Interest shall accrue from September 27, 2017 and shall be payable on maturity. Any portion of the principal and unpaid interest under the note is convertible at any time at the option of CubeSquare into shares of
common stock of the Company at a conversion price equal to a 50% discount to the average of the five lowest trading prices during the previous twenty trading days prior to the date of the notice of conversion from CubeSquare. On September 9,
2018, Note 2 was amended to extend the maturity date until September 27, 2019.
QRONS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 4 – Convertible Note – Related Party and Derivative Liabilities (continued)
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.
The carrying value of these convertible notes is as follows:
We recorded interest expenses of $2,011 for the years ended December 31, 2019 and 2018. As of December 31, 2019, and 2018, the unpaid interest balance under Accounts payable and accrued liabilities – related party was
$5,432 and $3,421, respectively.
As a result of the application of ASC No. 815 in the years ended December 31, 2019 and December 31, 2018 the fair value of the conversion feature is summarized as follows:
The fair value at the commitment and re-measurement dates for the Company's derivative liabilities were based upon the following management assumptions as of December 31, 2019 and December 31, 2018 and the
commitment date:
QRONS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018
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; or (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; or (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.
We recorded interest expenses of $161 for the year ended December 31, 2019 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 $70,000 convertible notes was calculated using the Black-Scholes
pricing model to be $64,774.
The carrying value of these convertible notes is as follows:
Amortization of the discount during the year ended December 31, 2019 totaled $945 which amounts have been recorded as interest expense.
As a result of the application of ASC No. 815 in the periods ended December 31, 2019 and December 31, 2018 the fair value of the conversion feature is summarized as follows:
The fair value at the commitment and re-measurement dates for the Company's derivative liabilities were based upon the following management assumptions as of December 31, 2019 and commitment date:
Note 6 – Unsecured Short-Term Advance from Third Party
On June 20, 2019, the Company received $100,000 from a third party in the form of an unsecured, demand, non-interest bearing, short term advance to meet its operating needs.
The advance remains outstanding at December 31, 2019.
QRONS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 7 – Related Party Transactions
On May 1, 2019, the Company issued a promissory note (the "Note") to CubeSquare in the principal amount of $50,000. The Note bears interest at the rate of 8% per annum and
is due and payable by the Company upon demand from CubeSquare. We recorded interest expenses of $2,663 for the year ended December 31, 2019. As of December 31, 2019, the unpaid interest balance under Accounts payable and accrued
liabilities – related party was $2,663.
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.
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.
On June 25, 2019, the Company entered into a term sheet ("Term Sheet") with John N. Bonfiglio, PhD ("Bonfiglio") pursuant to which Dr. Bonfiglio will serve as the Company's chief operating officer, effective July
1, 2019. As compensation 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 as described in the Term Sheet, provided Dr. Bonfiglio is in the employ of the Company on such date. The Term Sheet also provides for the grant of 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 will vest 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 raises 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 and
Dr. Bonfiglio will be appointed to the Company's board of directors.. In addition, Dr. Bonfiglio will be entitled to a salary of $12,000 per month which will be deferred and payable at the rate of 5% of equity capital raised by the Company up to
$12,000 per month, only if such capital is raised.
The Term Sheet was terminated effective October 31, 2019.Mr. Bonfiglio was terminated as Chief Operating Officer effective November 30, 2019 and all unvested options
and awards were concurrently terminated.
During the year ended December 31, 2019, fees incurred as general and administrative expenses relative to the aforementioned contract were as follows:
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 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 $26,811 is reflected in accounts payable, related party.
QRONS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018
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 therefore, the Company received an exclusive worldwide royalty-bearing license in Ariel patents and know-how to develop and commercialize products based on or incorporating coral-based
conditioned medium for neuronal tissue regeneration and/or repair, resulting from Ariel's research or technology or the Company's research funding in accordance with milestones set forth in the Agreement.
In addition, upon the occurrence of an Exit Event (as defined in the License Agreement) of the Company or of any affiliate commercializing the products, the Company is
obligated to issue to Ariel an immediately exercisable warrant for that number of shares equal to 4% of the issued and outstanding shares of the Company at the time of issuance. The Company and Ariel entered into Addendum #1 to the
License Agreement, effective December 13, 2017 (the "Addendum") pursuant to which Ariel was permitted to exercise a portion of the warrant granted pursuant to the License Agreement. On December 13, 2017, the Company issued 119,950 shares of
common stock to Ariel, representing 1% of the issued and outstanding shares of the Company on such date, and valued at $335,860. The right to the balance of the shares subject to the warrant remains subject to the terms of the License Agreement
and the occurrence of an Exit Event (as described in the License Agreement). In addition, the Addendum provides that Ariel may not request a demand registration until the balance of the shares subject to the warrant is exercised.
In addition to the other payments, the Company will pay Ariel upon the occurrence of the following milestone events, additional payments which shall be due within 6 months of completion of the milestone:
Upon successful development and commercialization and in recognition of the rights and licenses granted to the Company pursuant to the License Agreement, the Company will be subject to certain royalty payments as
specified in the License Agreement.
In lieu of extending the research financing and research period under the License Agreement with Ariel beyond the initial 12 months, on December 14, 2017, the Company entered into the Services Agreement pursuant to
which a team at Ariel University, with Professor Danny Baranes as Principal Investigator, will conduct molecular biology research activities involving the testing of scaffold materials for the Company. [track language from business section] As
compensation for such services, the Company paid Ariel (i) $17,250 on December 19, 2017 and an additional $17,250 on April 26, 2018. On April 12, 2018, the Services Agreement was amended to provide for the payment by the Company of an additional
monthly fee, commencing March 2018, of up to 8,000 Israeli shekels as compensation for additional costs which the Company may request.
On March 6, 2018, the Company entered into an additional service agreement with Ariel for the services of Professor Gadi Turgeman and his neurobiology research team in their lab pursuant to which the Company paid
Ariel $20,580 on each of March 19, 2018 and August 22, 2018.
On December 12, 2018, the Company further amended the Services Agreement (the "Second Amendment") with Ariel to extend the term thereof for an additional twelve-month period until
December 14, 2019. 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 Services Agreement with Ariel (the "Third Amendment") to extend the term thereof for an additional twelve-month period until December 14, 2020. The Third
Amendment also provides that the Company pay Ariel $17,250 within 30 days of the date of such Amendment and an additional $17,250 on or before May 1, 2020. All other terms and conditions of the Services Agreement not amended remain in effect.
QRONS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 8 – License and Research Funding Agreement / Royalty Agreement (continued)
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 shall retain an irrevocable worldwide right to use intellectual property owned by it resulting from its research under the Agreement on a non-exclusive royalty-free basis for
research and education purposes. The Agreement may be terminated earlier than one year upon written agreement of the parties, a material breach which is not cured within 30 days of notice thereof, if Professor Ke no longer conducts the research
under the Agreement and a successor acceptable to both parties is not available, or in the event of an unauthorized assignment of the Company's rights and obligations under the Agreement. 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.
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.
QRONS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 9 – Intellectual Property License Agreement (continued)
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.
On December 14, 2017, the Company entered into the 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 will paid Ariel $17,250 on each of December 19, 2017 and 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 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 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 Services Agreement with Ariel (the "Third Amendment") to extend the term thereof for an additional twelve-month period until December 14, 2020. The Third
Amendment also provides that the Company pay Ariel $17,250 within 30 days of the date of the Amendment and an additional $17,250 on or before May 1, 2020. All other terms and conditions of the Services Agreement not amended remain in effect.
During the years ended December 31, 2019 and 2018, $35,219 and $68,081 were expensed, respectively, and the remaining $15,812 (December 31, 2018 - $16,531), which amount is
reflected on the Company's balance sheets as prepaid expenses, will be expensed in a subsequent period.
QRONS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 10 – Commitments (continued)
On March 6, 2018, the Company entered into a service agreement for the services of Professor Gadi Turgeman and his neurobiology research team in their lab. As compensation for the services provided, the Company
paid Ariel $20,580 on each of March 19, 2018 and August 22, 2018.
The Services Agreement may be terminated by the non-breaching party upon a material breach that is not cured within 30 days or by the Company upon thirty days' prior written notice to Ariel. Ariel must keep
confidential information of the Company confidential for six years after the term of the Services Agreement.
On April 11, 2019, the Company amended its 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 will pay 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.
During the years ended December 31, 2019 and 2018, $37,730 and $34,300 were expensed, respectively, with no prepaid amounts remaining in fiscal 2019 and $6,860 remaining in
prepaid accounts at December 31, 2018, which amount was expensed in a subsequent period.
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:
On November 15, 2017, the Company entered into Consulting Agreements with three Advisors under the terms of which two Advisors are granted an option to purchase 20,000 shares of common stock and one Advisor was
granted an option to purchase 30,000 shares of common stock under the 2016 Stock Option and Award Plan subject to certain vesting terms.
QRONS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 10 – Commitments (continued)
On April 16, 2018, the Company entered into a Consulting Agreement with an Advisor to serve on the Company's Scientific Advisory Board under the terms of which the Advisor was granted an option to purchase 30,000
shares of common stock under the 2016 Stock Option and Award Plan subject to certain vesting terms.
On August 15, 2018, the Company entered into a Consulting Agreement with an Advisor under the terms of which the Company granted an option to purchase 20,000 shares of common stock under the 2016 Stock Option and
Award Plan subject to certain vesting terms.
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 Pavel Hilman for his continuing service on the Company's Advisory Board.
On September 18, 2019, the Company entered into a one-year advisory board member consulting agreement with Derrick Chambers under which Mr. Chambers will serve on the Company's Advisory Board as a business advisor.
The Advisory Board Agreement will automatically renew for up to two additional one-year periods, unless earlier terminated by either party upon 30 days' prior written notice to the other party. In consideration for serving on the Advisory Board,
the Company awarded 25,000 shares of its common stock to Mr. Chambers under its 2016 Stock Option and Stock Award Plan, which shares were fully vested and recorded as advisory services on issuance.
On April 23, 2018, the Company entered into a six-month investor relations agreement with an investor relations firm for a monthly consulting fee of $5,000 and the issuance of 75,000 shares of common stock payable
on signing the agreement. On June 23, 2018, the Company gave notice of rescission of the agreement to such firm. As a result, the Company has not recorded any fees for services rendered past June 23, 2018. A total of $10,000 representing April
2018 and May 2018 monthly consulting fees is reflected in the statement of operations and a total of $150,000, the fair market value of the issued shares, was expensed on issue.
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.
QRONS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 10 – Commitments (continued)
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 shall retain
an irrevocable worldwide right to use intellectual property owned by it resulting from its research under the Agreement on a non-exclusive royalty-free basis for research and education purposes. The Company funded $36,293 on August 20, 2018 and
funded an additional $18,147 on December 17, 2018 and funded an additional $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 required to fund $37,790 on November 4, 2019 and
fund an additional $18,895 on December 1, 2019 and fund final amount of $18,895 on June 1, 2020.
During the years ended December 31, 2019 and 2018, $80,006 and $27,220 were expensed, respectively, and the remaining $22,045 (December 31, 2018 - $27,220), which amount is
reflected on the Company's balance sheets as prepaid expenses, was expensed in the applicable period.
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 December 14, 2016, the Board awarded to each of Prof. Danny Baranes, a Science Advisor, and Dr. Liat Hammer, a former Science Advisor, a total of 440,000 shares of common
stock of which 150,000 shares vested on December 14, 2016 and 145,000 shares vested on December 14, 2017. The balance of 145,000 shares did not vest as the nature of such services in such capacities were no longer provided to the Company.
The value of the vested awards had been recorded as research and development expenses in the respective periods. A total of 290,000 stock awards did not vest during the fourth quarter of fiscal 2018.
On January 23, 2018, the Company awarded 10,000 shares of its common stock to Mr. Hilman under its 2016 Stock Option and Stock Award Plan, which shares were fully vested and recorded as advisory services on
issuance. On January 28, 2019, the Company issued 30,000 shares of common stock to Pavel Hilman for his continuing service on the Company's Board of Advisors.
In connection with the 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.
QRONS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018
Stock Awards: (continued)
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.
On November 15, 2017, under the 2016 Stock Option and Award Plan, the Board awarded two of its Science Advisors the following three-year stock options: (i) an immediately exercisable option to purchase 6,667 shares
of common stock at an exercise price of $2.00 per share, (ii) an option to purchase 6,667 shares of common stock exercisable on November 15, 2018 at an exercise price of $2.00 per share and (iii) an option to purchase 6,666 shares of common stock
exercisable on November 15, 2019 at an exercise price of $2.00 per share, provided the advisors are still providing services to the Company.
On November 15, 2017, under the 2016 Stock Option and Award Plan, the Board awarded a Science Advisor, the following three-year stock options: (i) an option to purchase 15,000 shares of common stock, exercisable on
November 15, 2018 at an exercise price of $0.40 per share and (ii) an option to purchase 15,000 shares of common stock exercisable on November 15, 2019 at an exercise price of $0.40 per share, provided the advisor is still providing services to
the Company.
On April 16, 2018, under the 2016 Stock Option and Award Plan, the Board awarded a Science Advisor, the following three-year stock options: (i) an option to purchase 10,000 shares of common stock, exercisable on
April 16, 2018 at an exercise price of $2.00 per share (ii) an option to purchase 10,000 shares of common stock exercisable on April 16, 2019 at an exercise price of $2.00 per share, and (iii) an option to purchase 10,000 shares of common stock
exercisable on April 16, 2020 at an exercise price of $2.00 per share, provided the advisor is still providing services to the Company.
On August 15, 2018, under the 2016 Stock Option and Award Plan, the Board awarded a Science Advisor, the following three-year stock options: (i) an option to purchase 6,667 shares of common stock, exercisable on
August 15, 2018 at an exercise price of $2.00 per share (ii) an option to purchase 6,667 shares of common stock exercisable on August 15, 2019 at an exercise price of $2.00 per share, and (iii) an option to purchase 6,666 shares of common stock
exercisable on August 15, 2020 at an exercise price of $2.00 per share, provided the advisor is still providing services to the Company.
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.
QRONS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 11 – Stock Plan (continued)
Stock Options: (continued)
On December 10, 2018, under the 2016 Stock Option and Award Plan, the Board granted an immediately exercisable five-year option to purchase an aggregate of 145,000 shares of common stock at an exercise price of $2.00 per share to an employee of the Company for services provided to the Company as a "replacement
award" for the same number of shares which did not vest as described in Note 7-Stock Awards. Applying the accounting guidance contained in ASC 718-20 the issuance of the stock option and concurrent cancelation of a stock award of the
same number of shares is considered a "replacement award" and the Company has determined and expensed the incremental cost of the replacement award in the amount of $54,840.
On December 10, 2018, under the 2016 Stock Option and Award Plan, the Board awarded an employee the following three-year stock options: (i) an option to purchase 33,334 shares of common stock, exercisable on
December 10, 2018 at an exercise price of $2.00 per share (ii) an option to purchase 33,333 shares of common stock exercisable on December 10, 2019 at an exercise price of $2.00 per share, and (iii) an option to purchase 33,333 shares of common
stock exercisable on December 10, 2020 at an exercise price of $2.00 per share, provided the advisor is still providing services to the Company.
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.
The following table is the recognized compensation in respect of the above stock option compensation ((a) and (b)) which amount has been allocated as below:
As of December 31, 2019, and 2018, total unrecognized compensation remaining to be recognized in future periods totaled $105,683 and $198,088 respectively.
On December 4, 2017, the Board granted five-year options to each of its two officers for the purchase of 300,000 shares of the common stock of the Company. The options have an exercise price of $2.00 and vest and become exercisable on December 4, 2018.
On December 10, 2018, the Board granted five-year options to each of its two officers for the purchase of 325,000 shares of the common stock of the Company. The options have an exercise price of $2.00 and are immediately exercisable.
QRONS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 11 – Stock Plan (continued)
Stock Options: (continued)
On June 25, 2019, the Company appointed John N. Bonfiglio, PhD as its chief operating officer, effective July 1, 2019. As compensation, Dr. Bonfiglio was granted a three-year
stock option to purchase 100,000 shares of common stock at an exercise price of $2.00 per share, 50,000 of which shares vested upon grant and 25,000 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.
The following table is the recognized compensation in respect of the above stock option compensation, which amounts have been allocated as general and administrative
expenses:
As of December 31, 2019, and 2018, total unrecognized compensation remaining to be recognized in future periods totaled $0.
The fair value of each option award referenced above is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions at the
measurement date(s):
A summary of the activity for the Company's stock options at December 31, 2019 and December 31, 2018, is as follows:
QRONS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018
The Company has authorized 100,000,000 shares of common stock, par value $0.0001, and 10,000 shares of preferred stock which is designated as Series A Preferred Stock, par value $0.001.
Series A Preferred Stock:
The Series A Preferred Stock is redeemable at the option of the Company at any time, in whole or in part, upon 10 trading days prior notice, at a price of $1.00 per share plus 4% per annum from the date of issuance
(the "Stated Value"). The holders of the Series A Preferred Stock are entitled to a liquidation preference equal to the Stated Value, prior to the holders of other preferred stock or common stock. The holders of the Series A Preferred Stock have
the right to convert such stock into common stock at a conversion rate equal to the Stated Value as of the conversion date divided by the average closing price of the common stock for the five previous trading days. The Company is required to
reserve sufficient number of shares for the conversion of the Series A Preferred Stock. The holders of Class A Preferred Stock shall vote together as a single class with the holders of the Company's common stock and the holders of any other class
or series of shares entitled to vote with the common stock, with the holders of Class A Preferred Stock being entitled to 66 2/3% of the total votes on all such matters, regardless of the actual
number of shares of Class A Preferred Stock then outstanding.
There was a total of 2,000 shares of Series A Preferred Stock issued and outstanding as of December 31 , 2019 and December 31, 2018.
Common Stock
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.
QRONS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 12 – Capital Stock (continued)
Common Stock issuances during the year ended December 31, 2018
During the year ended December 31, 2018, the Company sold an aggregate of 380,684 shares of its common stock to investors and received aggregate proceeds of $575,000
pursuant to subscription agreements in private offerings. The proceeds will be used for research and general corporate purposes.
On January 23, 2018, the Company issued 10,000 shares for advisory services (Note 10(4)). The shares were valued at fair market value on the date of issuance for a
total of $28,000 or $2.80 per share.
During the year ended December 31, 2018, the Company received a warrant exercise notice for a warrant to purchase 2,000 shares of common stock from a subscriber and
issued 1,715 shares of common stock on a cashless exercise basis as per the cashless exercise formula contained in the warrant.
On April 23, 2018, the Company issued 75,000 shares of its common stock pursuant to an investor relations services agreement which was rescinded on June 23, 2018 (Note 10(5)). The shares were valued at the fair
market value on the date of issuance for a total of $150,000, or $2.00 per share.
There was a total of 13,089,789 and 12,872,309 shares of common stock issued and outstanding as of December 31, 2019 and December 31, 2018, respectively.
Common Stock Purchase Warrants
As of December 31, 2019, and December 31, 2018, the following common stock purchase warrants were outstanding:
(1) Each two shares of common stock purchased in a private placement offering included one warrant to purchase an additional share of common stock at an exercise price of $0.40.
(2) During the year ended December 31, 2018, investors exercised warrants to purchase an aggregate of 2,000 shares of common stock and received 1,715 shares for exercises on
a cashless basis.
(3) 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.
(4) 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.
QRONS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 12 – Capital Stock (continued)
Common Stock Purchase Warrants (continued)
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):
On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the “Tax Act”) was enacted including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21%
effective January 1, 2018., The Company is required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, remeasuring its U.S. deferred tax assets and liabilities as well as reassessing
the net realizability of its deferred tax assets and liabilities. The Company has remeasured its U.S. deferred tax assets at a statutory income tax rate of 21% during years ended December 31, 2019 and December 31, 2018
The income tax expense (benefit) consisted of the following for the years ended December 31, 2019 and December 31, 2018:
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
The following is a reconciliation of the expected statutory federal income tax and state income tax provisions to the actual income tax benefit for the years ended December 31, 2019 and December 31, 2018:
The Company had deferred income tax assets as of December 31, 2019 and 2018 as follows:
QRONS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 13 – Income Taxes (continued)
Tax years from inception to the year ended December 31, 2018 have been filed and are open for examination by the taxing authorities. The Company recognizes interest accrued
related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the periods presented above. The Company had no accruals for interest and penalties at December
31, 2019. The Company's utilization of any net operating loss carry-forward may be unlikely as a result of its intended activities.
Note 14 – Subsequent Events
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 Science Advisor
to the Company. 25,000 of such shares subject to the option are immediately exercisable and expire on February 10, 2023, 25,000 shares vest on February 10, 2021 and expire on February 10, 2024.
On February 19, 2020 we issued an 8% convertible promissory note in the principal amount of $10,000 and a warrant to purchase 10,000 shares of our common stock at an exercise price of $1.00 per share to an accredited
investor in a private offering pursuant to a securities purchase agreement.
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.
The Company has evaluated events for the period of December 31, 2019 through the date of the issuance of these financial statements and determined that there are no additional events requiring disclosure.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The following table sets forth the names, ages and positions of our current board members and executive officers:
Our directors are elected for a term of one year and serve until such director's successor is duly elected and qualified. Each executive officer serves at the pleasure of the Board.
The Company has no nominating, audit or compensation committees at this time. The entire Board participates in the nomination and audit oversight processes and considers executive and director compensation. Given the
size of the Company and its stage of development, the entire Board is involved in such decision-making processes. Thus, there is a potential conflict of interest in that our directors and officers have the authority to determine issues concerning
management compensation, nominations, and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our executive officers or directors.
Jonah Meer, Chief Executive Officer, Chief Financial Officer, Secretary and a Director
Mr. Meer has served as our Chief Executive Officer, Chief Financial Officer, Secretary and a Director since the formation of the Company on September 22, 2016. Mr. Meer is an attorney, accountant and entrepreneur.
His career started in 1979 and has been spent both in the financial services industry and in the investment world. He has held many executive and fiduciary roles with numerous private and public companies and entities, including as Chief Operating
Officer of a U.S. broker dealer. Separately he has served on numerous public and private company boards of directors. Since 1998 he has been CEO of jTrade Global LLC (formerly known as jBroker Global Inc.), a software marketing company. In 2005 he
was appointed by the Equity Committee to serve as a Bankruptcy Trustee in the Southern District of New York to wind down a complex liquidating trust, which was finally terminated in 2015. Mr. Meer has founded private investment companies investing
in special situations and alternative investments, , including most recently CubeSquare LLC, a Florida limited liability company (“CubeSquare”) which invests in special situations and alternative investments involving public and pre-public
companies. CubeSquare does not have a controlling interest in any public company and is not registered as an investment advisor. Mr. Meer received his Master of Law degree from New York University, in addition to holding juris doctor and accounting
degrees. As a co-founder and Chief Executive Officer, Mr. Meer is involved with the Company's day to day operations which led to his appointment to the Board.
Ido Merfeld, President and a Director
Mr. Merfeld has served as our President and a Director since the formation of the Company on September 22, 2016. In October 1991, Mr. Merfeld co-founded Ivory Software Systems based in Tel Aviv Israel, a start-up
company specializing in servicing the financial services industry both in Israel and abroad ("Ivory"). Ivory developed and maintains software, infrastructure and products that allow large financial institutions to trade in the global securities
markets on a real time basis. In the last 10 years, he has also been involved in the establishment of several startup companies including the establishment of a new Art Exchange in Luxemburg and a financial education internet company in the UK. In
2014 Mr. Merfeld, resigned as CEO of Ivory to become its Chairman. He now spends time enrolled in the molecular biology department at Ariel University. He previously received his B.A. in Computer Science, Statistics & Economics from Bar-Ilan
University in Israel. As a co-founder and President, Mr.Merfeld is involved with the Company's day to day operations which led to his appointment to the Board.
Board of Advisors
The Company has a Board of Advisors which currently consists of the following eight members.
Scientific Advisors
Professor Danny Baranes is Head of the Department of Molecular Biology at Ariel University, and the Principal Investigator for research in connection with the License
Agreement. Professor Baranes did his post-doctoral fellowship in neuroscience in the lab of the Nobel laureate Dr. Eric Kandel at Columbia University. Professor Baranes continued on to McGill University, and returned to Israel in 2000 where he has
held several positions at Ben Gurion University before joining Ariel University in 2009. He has received numerous international awards, published dozens of articles in leading international scientific journals as well having given numerous lectures
and presentations. Professor Baranes received his PhD. in Biochemistry from Hebrew University.
Dr. Albert Pinhasov is Vice-President and Dean for Research and Development at Ariel University. He is a molecular biologist specializing in the neurobiology of social
behavior. In addition, Dr. Pinhasov was a Postdoctoral Fellow on the Drug Discovery CNS Research Team at Johnson and Johnson Pharmaceutical. He received his PhD in Molecular Biology and Clinical Biochemistry from Tel Aviv University in Israel.
Dr. Motti Ratmansky is the head of the Pain Rehabilitation Clinic at the Lowenstein Rehabilitation Hospital in Israel. He was the former head of the Israeli National
Instruction Unit for combat medics and medical field units, supervising and training combat medics. Dr. Ratmansky received his Medical Degree from the Technion Medical School in Israel.
Professor Chenfeng Ke is Assistant Professor of Chemistry at Dartmouth. Professor Ke received a PhD in Supramolecular Chemistry from Nankai University in 2009 and a BSc in
Chemistry from Nankai University in 2004. He was a Newton Fellow (The Royal Society, UK) at the University of Bristol, from 2009 to 2011 and a Postdoctoral Fellow at Northwestern University from 2011 to 2015.
Dr. Igor Korman is a molecular biologist who holds a medical degree, and a PhD and Doctor of Science
degrees in Clinical Pharmacology. Since 2016, Dr. Korman has headed The Institute for Translational Research at Ariel where he has assembled a team of scientists and started a number of projects in the field of anticancer drug discovery,
3D tissue fabrication for drug development and personalized diagnostics and data analysis for drug repurposing etc. In 2007, Dr Koman was part of the research team of Cleveland Biolabs, Inc. (NASDAQ: CBLI),
a biotech drug development company, and a research leader in the department of Cell Stress Biology at Roswell Park Comprehensive Cancer Center. He began his academic career in 1998 when he joined the research lab in the Department of Molecular
Biology in the University of Illinois at Chicago as a visiting scientist.
Business Advisor
Pavel Hilman is Chairman of HIG Capital AG, a Swiss holding company, Mr. Hilman has extensive experience in the financial industry and private venture investments in the areas
of bio-tech, agri-tech, med-tech, nano-tech and IT. Mr. Hilman currently serves on various executive and advisory Boards and supervisory committees of private and public corporations in the United Kingdom, USA, Switzerland, Israel, Luxemburg,
Poland, Russian Federation and the Ukraine.
Derrick Chambers played in the National Football League (the “NFL”) for three years, from 2000 to 2003 with the Carolina Panthers and
Jacksonville Jaguars. Mr. Chambers also served with the Jaguars for Children at the Burn unit at Baptist Medical Center. After his time in the NFL, Derrick studied at the University of Oxford in England and was a member of the Oxford Rugby team at
St. Peter’s college. Mr. Chambers is a member of the All Souls Codrington Library, a private college at Oxford for scholars from around the world and studied at Oriel College Oxford. Mr. Chambers then studied at the Princeton Theological Seminary
where he served as a Academic-Athletic fellow, which consists of faculty and administrators who mentor student athletes. As a member of the National Football League Players Association, Mr. Chambers is focused on financial literacy and advisory
services for professional athletes and entertainers. Mr. Chambers is a Board member of the Youth Leadership foundation of Washington, D.C.
Michael Maizels for the last 15 years through his consulting firm has provided business development and market strategy services domestically and internationally including
assisting clients with product promotion and differentiation and market positioning. Services include preparing business plans, determining financial requirements, securing licenses and approvals, and coordinating product launches. In 2016, Mr.
Maizels was the vice president and then from 2017 to 2018, chief executive officer of Smartexe Inc., a global software consultancy firm, prior thereto he has held senior positions in project management and sales and account management and founded a
wholesale telecommunication services company. Mr. Maizels has a PhD in philosophy from the University of Cincinnati and various masters degrees in music from the St. Petersburg State Conservatory.
Involvement in legal proceedings
There are no legal proceedings that have occurred within the past ten years concerning our directors, or control persons which involved a criminal conviction, a criminal proceeding, an administrative or civil
proceeding limiting one's participation in the securities or banking industries, or a finding of securities or commodities law violations.
Family relationships
There are no family relationships among any of our officers or directors.
Committees of the Board of Directors
The Company does not have an audit committee. We are not a "listed company" under SEC rules and are therefore not required to have an audit committee comprised of independent directors.
We do not currently have a "financial expert" within the meaning of the rules and regulations of the SEC.
The Company has no nominating or compensation committees at this time. The entire Board participates in the nomination and audit oversight processes and considers executive and director compensation. Given the size
of the Company and its stage of development, the entire Board is involved in such decision-making processes. Thus, there is a potential conflict of interest in that our directors and officers have the authority to determine issues concerning
management compensation, nominations, and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our executive officers or directors.
Code of Ethics
The Company has not as yet adopted a code of ethics applicable to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions as
required by the Sarbanes-Oxley Act of 2002 due to our small size and limited resources and because management's attention has been focused on matters pertaining to raising capital and the operation of the business.
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who beneficially own more than 10% percent of our equity securities ("Reporting Persons") to file
reports of ownership and changes in ownership with the SEC. Based solely on our review of copies of such reports and representations from the Reporting Persons, we believe that during the fiscal year ended December 31, 2019, the Reporting Persons
timely filed all such reports.
Changes in Nominating Process
There are no material changes to the procedures by which security holders may recommend nominees to our Board.
Item 11. Executive Compensation.
Summary Compensation Table
The following table provides certain information regarding compensation awarded to, earned by or paid to our Chief Executive Officer and the other executive officer with compensation exceeding $100,000 during fiscal
2019 and 2018 (each a "Named Executive Officer").
(1) Represents a five-year option to purchase 325,000 shares of common stock at an exercise price of $2.00 per share,
exercisable on December 17, 2019 and the grant date fair value computed in accordance with FASB ASC Topic 718 as described in Note 11 to the financial statements included in this Annual Report on Form 10-K for the year ended December 31,
2019.
(2) Represents a five-year option to purchase 325,000 shares of common stock at an exercise price of $2.00 per share, exercisable on December 10, 2018 and the grant
date fair value computed in accordance with FASB ASC Topic 718 as described in Note 11 to the financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2018.
2016 Stock Option and Stock Award Plan
On December 14, 2016, the Board adopted the Company’s 2016 Stock Option and Stock Award Plan (the "Plan"). The Plan provides for the award of stock options (incentive and non-qualified), stock awards and stock
appreciation rights to officers, directors, employees and consultants who provide services to the Company. The terms of awards under the Plan are made by the Administrator of the Plan appointed by the Company's Board of Directors, or in the absence
of an Administrator, by the Board. The Company has reserved 10 million shares for issuance under the Plan.
Outstanding Equity Awards
The table below reflects all outstanding equity awards made to each Named Executive Officer that were outstanding at December 31, 2019.
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2019
Compensation of Directors
During the year ended December 31, 2019, no compensation has been paid to our directors in consideration for their services rendered in their capacities as directors.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists, as of March 27, 2020, the number of shares of common stock beneficially owned by (i) each person, entity or group (as that term is used in Section 13(d)(3) of the Securities Exchange Act of
1934) known to the Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each of our Named Executive Officers and (iii) all officers and directors as a group. Information relating to beneficial ownership of common
stock by our principal stockholders and management is based upon information furnished by each person using "beneficial ownership" concepts under the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if
that person directly or indirectly has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to dispose or direct the disposition of the security. The person is
also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the SEC rules, more than one person may be deemed to be a beneficial owner of the same securities, and a
person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary interest. Except as noted below, each person has sole voting and investment power with respect to the shares beneficially owned and each
stockholder's address is c/o Qrons Inc., 50 Battery Place, #7T, New York, New York 10280.
The percentages below are calculated based on 13,089,789 issued and outstanding shares of common stock outstanding as of March 27, 2020.
(1) Messrs. Meer and Merfeld are the holders of the Company's issued and outstanding Series A preferred stock. For so long as the Class A preferred stock is issued and outstanding, the holders of Class A Preferred
Stock shall vote together as a single class with the holders of the Company's common stock and the holders of any other class or series of shares entitled to vote with the common stock, with the holders of Class A Preferred Stock being entitled to
66 2/3% of the total votes on all such matters.
(2) Includes currently exercisable options to purchase an aggregate of 950,000 shares of common stock.
(3) Includes currently exercisable options to purchase an aggregate of 1,900,000 shares of common stock.
Change-in-Control Agreements
The Company does not have any change-in-control agreements with any of its executive officers.
Item 13. Certain Relationships and Related Transactions and Director Independence.
Certain Relationships and Related Transactions
On September 1, 2016, the Company entered into a convertible debenture agreement with CubeSquare (the “$10,000 Debenture”). Jonah Meer, our Chief Executive Officer is the managing member of CubeSquare. Ido Merfeld,
our President, is a 25% owner of CubeSquare. Under the debenture agreement, CubeSquare loaned $10,000 to the Company. Cube Square had agreed to loan the Company an additional $15,000 on the same terms and conditions if requested by the Company. The
loan bears interest at 8% per annum (which will increase to 12% if an event of default as described in the debenture agreement occurs) and was due on September 1, 2017, or immediately upon an event of default. Interest is payable, at CubeSquare's
option, in cash or common stock. Any portion of the loan and unpaid interest are convertible at any time at the option of CubeSquare into shares of common stock of the Company at a conversion price per share of the greater of (i) $0.0625, if the
Company's shares are not trading on a public market, and (ii) if the Company's shares are listed for trading on a public market, an amount equal to a 50% discount to the average of the five lowest trading prices during the previous twenty trading
days. So long as the loan is outstanding, the Company may not merge, reorganize, restructure, reverse split its stock, consolidate or sell all or substantially all of its assets without giving seven days prior written notice to CubeSquare, in which
case, CubeSquare can put the note to the Company at 125% of the then outstanding principal and interest. The debenture agreement also provides for anti-dilution protection (with certain exceptions) if the Company engages in other transactions at a
lower price per share. The Company has the right to redeem the loan for 6 months, in whole or in part, at 125% of the principal amount being redeemed and accrued interest thereon. The Company must reserve 150% of the number of shares issuable upon
conversion of the loan. The Company may not engage in short sales. Except upon 61 days prior written notice to the Company, CubeSquare may not convert the loan if as a result of such conversion, CubeSquare and its affiliates would own in excess of
9.9% of the total issued and outstanding shares of the Company.
On September 27, 2017, the Company entered into an 8% convertible debenture in the amount of $15,000 with CubeSquare (the “$15,000 Debenture”), with the same terms as the $10,000 Debenture described above, due
September 27, 2018. The maturity date of the $15,000 Debenture was extended to September 27, 2019 pursuant to a First Amendment to 8% Convertible Debenture, dated September 9, 2018 and further extended to September 27, 2020 pursuant to a Second
Amendment to 8% Convertible Debenture, dated September 27, 2019.
The maturity date of the $10,000 Debenture was extended to September 1, 2018 pursuant to a First Amendment to 8% Convertible Debenture, dated September 28, 2017, was further extended to September 1, 2019 pursuant to
a Second Amendment to 8% Convertible Debenture, dated September 9, 2018 and was further extended to September 1, 2020 pursuant to a Third Amendment to 8% Convertible Debenture dated September 1, 2019.
On December 10, 2018, we granted an immediately exercisable five-year option to purchase 325,000 shares of common stock at an exercise price of $2.00 per share to each of Jonah Meer and Ido Merfeld.
On May 1, 2019, we issued a promissory 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. The
Note will become immediately due and payable, upon the occurrence of an event of default, which includes (i) failure to pay any obligation under the Note within two business days of demand therefor (ii) the Company filing a petition or answer or
consent seeking relief under any federal or state bankruptcy law or other similar law, or its consent to such proceedings and the appointment of a receiver or liquidator or similar entity of a substantial part of the Company's assets, or the
Company making a general assignment for the benefit of creditors. Interest on the Note upon an event of default will be 13% per annum. The Note may be prepaid, at the option of the Company, in whole or in part, at any time, without premium or
penalty.
On August 8, 2019 and August 20, 2019, Jonah Meer and Ido Merfeld each made a $50,000 advance to the Company, respectively.
On December 19, 2019, we granted an immediately exercisable five-year option to purchase 325,000 shares of common stock at an exercise price of $2.00 per share to each of Jonah Meer and Ido Merfeld.
Between October 20, 2019 and December 9, 2019, Jonah Meer made an aggregate of $85,000 unsecured, non-interest bearing advances to the Company.
Jonah Meer currently provides the Company with space for its principal executive office at 50 Battery Place, #7T, New York, New York 10280 at no cost.
Insider Transactions Policies and Procedures
The Company does not currently have an insider transaction policy.
Director Independence
Our Board of Directors does not include any independent directors.
Item 14. Principal Accounting Fees and Services.
Audit Fees
Audit fees consist of fees for professional services rendered for the audit of the Company's consolidated financial statements included in the Company's Annual Report on Form 10-K and the review of financial
statements included in the Company's Quarterly Reports on Form 10-Q. The aggregate fees billed for professional services rendered by our principal accountant, Heaton & Company, PLLC (doing business as Pinnacle Accountancy Group of Utah), for
audit and review services for the years ended December 31, 2019 and December 31, 2018 were $14,250 and $10,750, respectively.
We incurred no non-audit related fees, tax fees or other fees for professional services rendered by our principal accountant for the years ended December 31, 2019 and 2018.
Administration of the Engagement; Pre-Approval of Audit and Permissible Non-Audit Services
We have not yet established an audit committee. Until then, there are no formal pre-approval policies and procedures. Nonetheless, the auditors engaged for these services are required to provide and uphold estimates
for the cost of services to be rendered. The percentage of hours expended on Heaton & Company, PLLC's respective engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons
other than the principal accountant's full-time, permanent employees was 0%.