Qrons Inc. - Quarter Report: 2017 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

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.

      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).

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QRONS INC.

TABLE OF CONTENTS

 

 

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ITEM 1.  FINANCIAL STATEMENTS

 

QRONS INC.

CONDENSED BALANCE SHEETS

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

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CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

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

 

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QRONS INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

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

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QRONS INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

Note 1 – Description of Business and Basis of Presentation

Organization and nature of business:

 

Qrons Inc.  ("Qrons" and/or the "Company") was incorporated under the laws of the State of Wyoming on August 22, 2016 under the name BioLabMart Inc. Our headquarters are located at 777 Brickell Avenue, Suite 500, Miami, FL 33131.

 

The Company is a preclinical stage biotechnology company developing advanced cell-based solutions to combat neuronal injuries with a laser focus on traumatic brain injuries. The technology could potentially treat a wide range of neurodegenerative diseases. The Company's treatment integrates proprietary, engineered mesenchymal stem cells, 3D printable scaffolding, smart materials and a novel delivery system.

On December 14, 2016, the Company entered into a license and research funding agreement ("License Agreement") with Ariel University R&D Co., Ltd., ("Ariel"), a wholly owned subsidiary of Ariel University of Samaria, based in Ariel, Israel. Under the terms of the License Agreement, Professor Danny Baranes, the principal investigator and his research team will carry out further research relating to cell treatment with conditioned medium for neuronal tissue regeneration and repair. In consideration for payments under the License Agreement, the Company received an exclusive worldwide royalty- bearing license in Ariel patents and know-how to develop and commercialize products based on or incorporating conditioned medium for neuronal tissue regeneration and/or repair, resulting from Ariel's research or technology or the Company's research funding (the "Products").

 

Under the License Agreement, the Company is required to use its best efforts to develop and commercialize the Products in accordance with development milestones set forth in the Agreement.

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.".

Note 2 – Summary of Significant Accounting Policies

Financial Statement Presentation: The unaudited condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").

 

Fiscal year end: The Company has selected December 31 as its fiscal year end.

 

Use of Estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from these estimates.

 

Cash Equivalents: The Company considers all highly liquid investments with maturities of 90 days or less from the date of purchase to be cash equivalents.

 

Research and Development Costs: The Company charges research and development costs to expense when incurred in accordance with FASB ASC 730, "Research and Development". Research and development costs were $10,120 for the nine months ended September 30, 2017 (2016 – Nil).

 

Advertising and Marketing Costs: Advertising and marketing costs are expensed as incurred. The Company incurred $15,657 advertising or marketing costs during the nine months ended September 30, 2017 (2016 - $0).

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QRONS INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

Note 2 – Summary of Significant Accounting Policies (continued)

Related parties: For the purposes of these financial statements, parties are considered to be related if one party has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Company and the party are subject to common control or common significant influence. Related parties may be individuals or other entities.

 

Stock-based compensation: For stock-based compensation the Company follows the guidance codified in the Compensation – Stock Compensation Topic of FASB ASC ("ASC 718"). The Company determines the value of stock issued at the date of grant. It also determines at the date of grant, the value of stock at fair market value or the value of services rendered (based on contract or otherwise) whichever is more readily determinable.

 

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 our derivative liabilities as of September 30, 2017 and December 31, 2016:

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QRONS INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

Note 2 – Summary of Significant Accounting Policies (continued)

Warrants: The Company accounts for common stock warrants in accordance with applicable accounting guidance provided in ASC Topic 815 "Derivatives and Hedging – Contracts in Entity's Own Equity" (ASC Topic 815), as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement.  For warrants classified as equity instruments we apply the Black Scholes model.   Presently all warrants issued and outstanding are accounted for using the equity method.

 

Income taxes: The Company has adopted ASC Topic 740 – "Income Taxes" ASC Topic 740 requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method of ASC Topic 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

 

Basic and Diluted Loss Per Share: In accordance with ASC Topic 280 – "Earnings Per Share", the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common stock outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential common stock had been issued and if the additional shares of common stock were dilutive.

 

Potential common stock consists of the incremental common stock issuable upon the exercise of common stock warrants (using the if-converted method). The computation of basic loss per share for the period ended September 30, 2017 excludes potentially dilutive securities of 566,000 shares underlying share purchase warrants, 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.

 

Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share because the effect of their inclusion would have been anti-dilutive.

		September 30, 2017				December 31, 2016
Stock purchase warrants			566,000				502,000
Convertible Notes			32,178				-
Series A Preferred shares			700				-
			598,878				502,000

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

 

Note 3 – Going Concern

 

The Company has experienced net losses to date, and it has not generated revenue from operations, and will need additional working capital to service debt and for ongoing operations, which raises substantial doubt about its ability to continue as a going concern. Management of the Company has developed a strategy to meet operational shortfalls which may include equity funding, short-term or long-term financing or debt financing, to enable the Company to reach profitable 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.

 

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QRONS INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

Note 4 – Convertible Note – Related Party and Derivative Liabilities

 

On September 1, 2016, the Company entered into a convertible debenture agreement with CubeSquare, LLC ("CubeSquare"), of which our Chief Executive Officer is the managing partner and our President is 25% owner. The Company received proceeds totaling $10,000. The note bears interest at 8% per annum and is due on September 1, 2017. Interest shall accrue from September 1, 2016 and shall be payable on maturity. Interest is payable, at the lender's option, in cash or common stock. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of the greater of (i) $0.0625 per share if the Company's shares are not trading on a public market and; (ii) in the event the Company's shares are listed for trading on a public market, the conversion price shall be equal to a 50% discount to  the average of the five  lowest trading prices during the previous twenty  trading days prior to the date of the notice of conversion from the lender.

On September 28, 2017 the Company and CubeSquare amended the above note to extend the maturity date of the note from September 1, 2017  to September 1, 2018 under the same terms and conditions.

 

On September 27, 2017, the Company entered into another convertible debenture agreement with CubeSquare under which  the Company received proceeds totaling $15,000. The note bears interest at 8% per annum and is due on September 27, 2018. Interest shall accrue from September 27, 2017 and shall be payable on maturity.   Any portion of the principal and unpaid interest under the note is convertible at any time at the option of CubeSquare into shares of common stock of the Company at a conversion price equal to a 50% discount to the average of the five lowest trading prices during the previous twenty trading days prior to the date of the notice of conversion from CubeSquare.

 

The Company analyzed the above amendment and second convertible debenture under ASC 815-10-15-83 and concluded that these two convertible debentures meet the definition of a derivative. We estimated the fair value of the derivative on the inception dates, and subsequently, using the Black-Scholes valuation technique, adjusted for the effect of dilution, because that technique embodies all of the assumptions (including, volatility, expected terms, and risk free rates) that are necessary to fair value complex derivate instruments.

The carrying value of these convertible notes is as follows:

 

 

As a result of the application of ASC No. 815 in period ended September 30, 2017 the fair value of the conversion feature is summarized as follows:

The fair value at the commitment and re-measurement dates for the Company's derivative liabilities were based upon the following management assumptions as of September 30, 2017 and commitment date:
 

		Commitment Date				September 30, 2017
Expected dividends			0				0
Expected volatility		101% ~103%					101% ~ 104%
Expected term		0.92 ~ 1 year				0.92 ~1 year
Risk free interest rate		1.33 %					1.31%

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QRONS INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

Note 5 – License and Research Funding Agreement

 

On December 14, 2016, the Company entered into the License Agreement with Ariel, a wholly owned subsidiary of Ariel University of Samaria ("AU") based in Israel, pursuant to which:

Pursuant to the above noted License Agreement, the Company shall fund the research during the research period in the total amount of $100,000.

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 warrant contains an anti-dilution provision.

In addition to the other payments, the Company will pay Ariel upon the occurrence of the following milestone events, additional payments which 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.

During the year ended December 31, 2016, the Company incurred research and development costs of $156,000, which amount includes the aforementioned funding of $100,000 pursuant to the License Agreement as well as $56,000 recorded as stock based compensation in respect to certain stock awards discussed in Note 6 below. During the nine-month period ended September 30, 2017, the Company paid $5,018 to Ariel for reimbursement of a patent application fee.

Note 6 – Capital Stock

The Company has authorized 100,000,000 shares of common stock, $0.0001 par value and 10,000 shares of a class of preferred stock called the "Series A Preferred Stock", par value $0.001.

Each share of Series A Preferred Stock has a stated value of $1 per share and accrues 4% per annum for determination of liquidation, conversion or redemption. The shares convert at the option of the holder into shares of common stock at the market value of the common stock. The Series A Preferred Stock vote as a single class and maintain 66 2/3% of the total votes as long as any shares of Series A Preferred Stock remain outstanding. The Series A Preferred Stock contains liquidation preference (senior rank to all common) and are not to be amended without the holders' approval.

At inception on August 22, 2016, the Company approved the issuance of 5,060,000 shares of common stock at par value and 1,000 shares of Series A Preferred Stock at par value to Jonah Meer, the Company's Chief Executive Officer, Chief Financial Officer and Secretary, for cash totaling $507 of which $506 was paid in respect to the issuance of the common stock and $1 was paid for the Series A Preferred Stock.

At inception on August 22, 2016, the Company issued 5,060,000 shares of common stock at par value and subsequently issued 1,000 shares of Series A Preferred Stock at par value to Ido Merfeld, the Company's President, for cash totaling $507, of which $506 was paid in respect to the issuance of the common stock and $1 was paid for the Series A Preferred Stock. 

 

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QRONS INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

Note 6 – Capital Stock (continued)

 

The third party valuation report was based on the following inputs as at August 22, 2016: (1) price per share of common stock of $0.0001; (2) 10,120,000 common stock outstanding; (3) A 19.3% premium over the common stock for the voting preferences, representing $600 in control value at issuance; (4) The Series A Preferred Stock voting rights represented 66.7% of the total voting rights; (5) The conversion value is $2,000 (no discount for lack marketability since the common shares are also restricted).

 

On September 4, 2016, the Company's Board of Directors approved the sale and issuance of up to 1,200,000 shares of the Company's common stock, par value $.0001, at a subscription price of $0.25 per share.  In addition to each two shares of common stock purchased, the holder shall receive an immediately exercisable warrant expiring December 31, 2019 to purchase the Company's common stock at a price of $0.40 per share.

During the year ended December 31, 2016, the Company received total proceeds of $251,000 by way of private placement subscriptions for a total of 1,004,000 shares.

During the three months ended March 31, 2017, the Company received total proceeds of $30,000 by way of private placement subscriptions for a total of 120,000 shares.

All costs incurred with respect to the Form S-1 Registration Statement prior to its effective date on May 10, 2017 totaling $22,548 have been allocated to additional paid in capital.

During the nine months ended September 30, 2017, the Company received aggregate proceeds of $32,000 in private placement subscriptions, $2,000 of which was accepted by the Company on July 11, 2017 for 8,000 shares of its common stock at a purchase price of $0.25 per share. In addition to each two shares of common stock purchased, the investor received an immediately exercisable warrant expiring December 31, 2019 to purchase the Company's common stock at a price of $0.40 per share.

On December 14, 2016, the Company's Board of Directors approved compensation for each of its two Science Advisors with a stock award of 440,000 shares of common stock effective as of December 14, 2016 (the "Grant Date").  Under the terms of the stock award, each advisor shall receive 150,000 shares of common stock which vest upon Grant Date.  A further 145,000 shares shall vest each year thereafter until December 14, 2018, provided that such Science Advisor is still acting in said capacity for the Company.  The 300,000 shares issued upon Grant Date were valued at $56,000, or $0.18667 per share, based on price allocation with respect to the aforementioned private placement as to each share of common stock, and recorded the associated cost as research and development expenses.

Share Purchase Warrants

In accordance with authoritative accounting guidance, the fair value of the aforementioned warrants was calculated using the Black-Scholes option-pricing model with the following assumptions at the measurement date(s):

 

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QRONS INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

Note 6 – Capital Stock (continued)

As of September 30, 2017, the following common stock purchase warrants were outstanding:

 

(1) Each two shares of common stock purchased under the private placement provides for one warrant to acquire an additional share of common stock together with the payment of $0.40. 

Note 7 – Income Taxes

The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. The Company applies a statutory income tax rate of 34%.

During 2016, the Company incurred net losses and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $248,104 at September 30, 2017 and $293,078 at December 31, 2016, and will begin to expire in the year 2036.

 

		September 30, 2017				December 31, 2016
Loss carryforwards		$	99,646			$	57,540
Less – stock based compensation			(19,040	)			(19,040	)
Less – changes in derivative liabilities			(16,304	)			-
Less - valuation allowance			(64,302	)			(38,500	)
Total net deferred tax assets		$	-			$	-

Note 8 – Subsequent Events

Subsequent to September 30, 2017, the Company received warrant exercise notices and issued a total of 408,674 shares of common stock in respect to a cashless exercise of warrants from various subscribers under their respective stock purchase warrants.

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

 

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

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

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

Overview

 

The Company raised an aggregate of $281,000 between November 2, 2016 and January 27, 2017 from 37 accredited investors in a private placement offering under Regulation D.

 

The Company has not yet hired any permanent staff and presently relies heavily on its two co-founders, Jonah Meer and Ido Merfeld, who are its sole officers and directors to manage its day to day business.  We currently outsource 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.

On December 14, 2016, the Company entered into a license and research funding agreement ("License Agreement") with Ariel University R&D Co., Ltd., ("Ariel"), a wholly owned subsidiary of Ariel University of Samaria, based in Ariel, Israel ("AU"). Under the terms of the License Agreement, the Company paid Ariel $100,000 to fund and further research for 12 months (with an option to extend such research financing and research period) by Professor Danny Baranes, the principal investigator and his research team relating to cell treatment with conditioned medium for neuronal tissue regeneration and repair. In consideration therefor and for other payments under the License Agreement, the Company received an exclusive worldwide royalty- bearing license in Ariel patents and know-how to develop and commercialize products based on or incorporating conditioned medium for neuronal tissue regeneration and/or repair, resulting from Ariel's research or technology or the Company's research funding (the "Products").

 

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

 

Upon the earliest occurrence of the Company's (or any affiliates of the Company): (i) underwritten public offering with proceeds of at least $25 million, (ii) consolidation, merger or reorganization, or (iii) sale of all or substantially all of its shares or assets, the Company is obligated to issue to Ariel an immediately exercisable warrant for that number of shares equal to 4% of (a) the issued and outstanding shares of the Company at the time of issuance. The License Agreement provides that the Company is obligated, at its expense, to register shares exercised pursuant to the warrant by Ariel within 6 months of a request by Ariel by either "piggyback" or a demand registration.

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

 

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

 

Plan of Operations

RESULTS OF OPERATIONS

Three and Nine Months Ended September 30, 2017

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 and nine month periods ended September 30, 2017 and 2016 is as follows:

Three months ended September 30, 2017 and 2016

During the three months  ended September 30, 2017, the Company incurred $8,406  as research and development expenses as a result of certain purchases of expendable lab supplies and equipment.  No research and development expenses were incurred for the three months ended September 30, 2016. We incurred general and administrative expenses of $31,643 and $2,980 for the three months ended September 30, 2017 and 2016, respectively, which was comprised of rent, office supplies and bank service charges. Such general and administrative expenses also included branding costs of $6,907 and costs related to shareholder expenses of $21,855 in the three months ended September 30, 2017 with no such expenses in the three months ended September 30, 2016. Professional fees totaled $8,170 and $2,500, for the three months ended September 30, 2017 and September 30, 2016, respectively.   Other expenses in the three months ended September 30, 2017 and September 30, 2016 include interest expense relative to the accretion of our convertbile notes of $1,785 and $1,028, respectively, and a loss on the change of the value of derivative liabilities of $47,954 in the three months ended September 30, 2017, with no similar expense in the three months ended September 30, 2016.  We recorded a net loss from operations of $97,958 in the three months ended September 30, 2017 as compared to a net loss of $6,508 in the three months ended September 30, 2016.    The Company was  incorporated on August 22, 2016, and therefore the results for the three months ended September 30, 2016 do not reflect a full three months of operations.

Nine  months ended September 30, 2017 and 2016

During the nine months  ended September 30, 2017, the Company incurred $10,120  as research and development expenses  as a result of certain purchases of expendable lab supplies and equipment.  No research and development expenses were incurred for the nine months ended September 30, 2016.  We incurred general and administrative expenses of $47,252 and $2,980 for the  nine months ended September 30, 2017 and 2016, respectively, which was comprised of rent, office supplies and bank service charges. Such general and administrative expenses also included branding costs of $15,657 and costs related to shareholder expenses of $25,855 in the  nine months ended September 30, 2017 with no such expenses in the nine months ended September 30, 2016. Professional fees totaled $11,297 and $2,500 for the nine months ended September 30, 2017 and September 30, 2016, respectively.   Other expenses in the  nine months ended September 30, 2017 and September 30, 2016 include interest expense relative to the accretion of our convertbile notes of $7,215 and $1,028, respectively, and a loss on the change of the value of derivative liabilties of $47,954 in  nine months ended September 30, 2017, with no similar expense in nine months ended September 30, 2016.  We recorded a net loss from operations of $123,838 in the nine months ended September 30, 2017 as compared to a net loss of $6,508 in the nine months ended September 30, 2016.   The Company was  incorporated on August 22, 2016, and therefore the results for the nine months ended September 30, 2016 do not reflect a full nine months of operations.

Liquidity and Financial Condition

We currently have limited working capital and liquid assets. Our current assets as of September 30, 2017 were $116,468 all of which was cash on hand.  We are in the early stage of development and have no revenues. There are a number of conditions that we must satisfy before we will be able to commercialize our potential product and generate revenue, including successful development of a product candidate, which includes clinical trials, FDA approval, demonstration of effectiveness sufficient to generate commercial orders by customers, establishing production capabilities as well as effective marketing and sales capabilities for our product. We do not currently have sufficient resources to accomplish any of these conditions necessary for us to generate revenue and currently expect to incur increasing operating expenses as we continue to pursue our business plan. We will require substantial additional funds in order to fund our business objectives. We will have to continue to rely on equity and debt financing. There can be no assurance that financing, whether debt or equity, will always be available to us in the amount required at any particular time or for any particular period or, if available, that it can be obtained on terms favorable to us. Without additional financing, we do not believe our resources will be sufficient to meet our operating and capital needs beyond the fourth quarter of 2017.

Working Capital

Cash Flows

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Operating Activities

 

Net cash used in operating activities was $63,226 for the nine-month period ended September 30, 2017 compared to $2,882 for the nine-month period ended September 30, 2016.  Cash used in operating activities is predominantly the result of our net loss, offset by accretion expense of $6,599, a change in the value of derivative liabilities of $47,954, and an increase to accounts payable of $6,059 in the nine-month period ended September 30, 2017.

Investing Activities

 

There were no investing activities during the nine-month periods ended September 30, 2017 and 2016.

 

Financing Activities

 

Net cash provided by financing activities was $24,452 for the nine-month period ended September 30, 2017 compared to  $11,014 for the nine-month period ended September 30, 2016. The Company received proceeds from a private placement offering totaling $32,000 offset by offering costs of $22,548  and proceeds from a convertible note of $15,000 in the nine-month period ended September 30, 2017.   During the nine-month period ended September 30, 2017, the Company received proceeds from a convertible note of $10,000 and proceeds from the issuance of common and preferred stock of $1,014.

Going Concern

 

Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that may 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, 2016 includes an explanatory paragraph stating the Company has negative working capital and has not generated revenues to cover operating expenses.  These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. If we are unable to obtain sufficient funding, our business, prospects, financial condition and results of operations will be materially and adversely affected and we may be unable to continue as a going concern.

 

We will require additional working capital to fund our business objectives.  There can be no assurance that any additional financing will be available or accessible on favorable terms, either by way of an equity financing or debt. If we cannot raise any additional funding we may either have to suspend operations until we do raise the cash, or cease operations entirely.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

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 the Notes to our Financial Statements.  Refer to Note 2 of the Unaudited Condensed Financial Statements included herein.

Recent Accounting Pronouncements

 

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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 September 30, 2017, 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.

Our internal controls are not effective for the following reasons: (i) there is an inadequate segregation of duties consistent with control objectives as management is comprised of only two persons, one of which is the Company's principal executive officer and principal financial officer and, (ii) the Company does not have 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 U.S. GAAP to assist us in the preparation of our financial statements to ensure that these financial statements are prepared in conformity to U.S. 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 reassess this matter in the following year 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. 

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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

 

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable

 

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

 

 

 

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.