Qrons Inc. - Quarter Report: 2018 June (Form 10-Q)

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Form 10-Q

Yes [X]  No [  ]

 

Yes [X] No [  ]

 

Yes [  ]  No [X ]

 

As of July 31, 2018, there were 12,804,125 shares of the registrant's common stock outstanding.

 

 

 

 

PART I -- FINANCIAL INFORMATION

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

 

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

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

 

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 implant, smart materials and a novel delivery system.

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.

Ariel Agreements

On December 14, 2016, the Company entered into a license and research funding agreement ("License Agreement") with Ariel Scientific Innovations Ltd., formerly known as Ariel University R&D Co., Ltd., ("Ariel"), a wholly owned subsidiary of Ariel University, 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.

In lieu of extending the research financing and research period under the License Agreement beyond the initial 12 months, on December 14, 2017, the Company entered into a 12-month services agreement with Ariel (the "Services Agreement") pursuant to which a team at Ariel under the direction of Prof. Danny Baranes will conduct molecular biology research activities involving the testing of scaffold materials for the Company. On April 12, 2018, the Services Agreement was amended to provide for additional services as the Company may request.

On March 6, 2018, the Company entered into an additional services agreement with Ariel for the services of Professor Gadi Turgeman and his neurobiology research team in their lab.

Dartmouth Agreements

On October 17, 2017, the Company entered into an option agreement with the Trustees of Dartmouth College which provides for, among other things, the grant to the Company of a one-year exclusive option to negotiate a worldwide, royalty bearing, exclusive license with Dartmouth for 3D printable materials in the field of human and animal health. During the option period, the Company agreed to use all commercially reasonable resources to evaluate the intellectual property and provide quarterly milestone reports and a commercialization plan upon exercise of the option. Pursuant to the agreement, the Company agreed to finance the prosecution of patents by Dartmouth to protect its intellectual property.  Further, the agreement provides for the payment by the Company of an option fee and certain license fees and royalty payments based upon the Company's product sales, as part of a final negotiated license agreement. The Company exercised its option on March 26, 2018 to negotiate definitive license terms, as it continues further evaluation and research.

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 $132,972 and $1,174 for the six months period ended June 30, 2018 and June 30, 2017, respectively.

Stock-Based Compensation and Other Share-Based Payments: The expense attributable to the Company's Directors is recognized over the period the amounts are earned and vested, and the expense attributable to the Company's non-employees is recognized when vested, as described in Note 7, Stock Plan.

Fair Value of Financial Instruments

FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. FASB ASC 820 describes three levels of inputs that may be used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level of input that is significant to the fair value measurement of the instrument.

The following table provides a summary of the fair value of our derivative liabilities as of June 30, 2018 and December 31, 2017:

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 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 six-month period ended June 30, 2018 and 2017 excludes potentially dilutive securities of underlying share purchase warrants, convertible notes, stock options and preferred shares, because their inclusion would be antidilutive. As a result, the computations of net loss per share for each period presented is the same for both basic and fully diluted.

 

Note 2 – Summary of Significant Accounting Policies (continued)

Basic and Diluted Loss Per Share: (continued)

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:

Note 3 – Going Concern

The Company has experienced net losses to date, and it has not generated revenue from operations.  While the Company has recently raised proceeds, it does not believe its resources will be sufficient to meet its operating and capital needs beyond the fourth quarter of 2018. The Company expects it will require additional capital to fully implement the scope of its proposed business operations, which raises substantial doubt about its ability to continue as a going concern.  The Company will have to continue to rely on equity and debt financing. There can be no assurance that financing, whether debt or equity, will always be available to the Company in the amount required at any particular time or for any particular period or, if available, that it can be obtained on favorable terms.

The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amount and classification of liabilities that might cause results from this uncertainty.

Note 4 – Convertible Note – Related Party and Derivative Liabilities

On September 1, 2016, the Company entered into a convertible debenture agreement with CubeSquare, LLC ("CubeSquare"), of which our Chief Executive Officer is the managing partner and our 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 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 Note 1 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 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.

The Company analyzed the amendment to Note 1 and Note 2 under ASC 815-10-15-83 and concluded that these two convertible debentures meet the definition of a derivative. We estimated the fair value of the derivative on the inception dates, and subsequently, using the Black-Scholes valuation technique, adjusted for the effect of dilution, because that technique embodies all of the assumptions (including, volatility, expected terms, and risk-free rates) that are necessary to fair value complex derivate instruments.

The carrying value of these convertible notes is as follows:

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 June 30, 2018 and commitment date:

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.

During the year ended December 31, 2017, the Company incurred total research and development costs of $1,179,777, which amount includes the aforementioned value of 119,950 shares of common stock at $335,860 pursuant to the License Agreement, as well as $812,000 recorded as stock-based compensation in respect to certain stock awards discussed in Note 6 – Commitments below, granted to various members of the Company's scientific advisory board.

In lieu of extending the research financing and research period under the License Agreement with Ariel beyond the initial 12 months, on December 14, 2017, the Company entered into a 12-month services agreement with Ariel (the "Services Agreement") pursuant to which a team at Ariel University under the direction of Professor Danny Baranes will conduct molecular biology research activities involving the testing of scaffold materials for the Company. As compensation for such services, the Company paid Ariel (i) $17,250 on December 19, 2017 and an additional $17,250 on April 26, 2018.  On April 12, 2018, the Services Agreement was amended to provide for the payment by the Company of an additional monthly fee, commencing March 2018, of up to 8,000 Israeli shekels as compensation for additional costs which the Company may request.

On March 6, 2018, the Company entered into an additional service agreement with Ariel for the services of Professor Gadi Turgeman and his stem cells research team in their lab pursuant to which the Company paid Ariel $20,580 on March 19, 2018 and will be required to pay $20,580 by August 21, 2018.

On December 14, 2017, the Company entered into a 12-month services agreement pursuant to which a team at Ariel under the direction of Prof. Danny Baranes will conduct molecular biology research activities involving the testing of scaffold materials for the Company. As compensation for the services provided, the Company will pay Ariel (i) $17,250 within five business days of the execution of the Services Agreement, and (ii) $17,250 by May 1, 2018.

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

During the year ended December 31, 2017, $17,250 was paid and on April 26, 2018, the remaining installment of $17,250 was paid. During the year ended December 31, 2017, $1,438 was expensed, and during the six months ended June 30, 2018 $17,250 was expensed, and the remaining $15,812 will be expensed in a subsequent period.

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 a service agreement for the services of Professor Gadi Turgeman and his stem cells research team in their lab. As compensation for the services provided, the Company paid Ariel $20,580 on March 19, 2018, and is required to pay Ariel an additional $20,580 by August 21, 2018.

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

During the six months ended June 30, 2018, $20,580 was paid and recorded as prepaid expenses, of which $13,720 was expensed in the six-month period ended June 30, 2018, and the remaining $6,860 will be 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 as described below, and the Company and Advisors have entered into agreements with the following terms and conditions:

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 are expected to vest during 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 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.

As of June 30, 2018, total unrecognized compensation remaining to be recognized in future periods totaled $103,572.

A summary of the activity for the Company's stock options for the six-month period ended June 30, 2018 and for the year ended December 31, 2017, is as follows:

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.

On January 23, 2018, the Company issued 10,000 shares for advisory services (Note 6(4)). The shares were valued at fair market value on the date of issuance for a total of $28,000 or $2.80 per share.

 

On December 13, 2017, 119,950 shares were issued to Ariel as an exercise of warrants pursuant to a License Agreement (Note 5 – License and Research Funding Agreement). These shares were valued at $335,860 or $2.80 per share, based on fair market value, and the associated cost was recorded as research and development expenses.

 

On December 14, 2017, the Company issued 290,000 shares to two Scientific Advisors as a stock award, valued at $812,000, or $2.80 per share, based on fair market value, and recorded the associated cost as research and development expenses. (Note 7 – Stock Plan).

During the year ended December 31, 2017 the Company received warrant exercise notices in respect of 512,000 warrants from various subscribers and issued a total of 442,960 shares of common stock on a cashless exercise basis as per the cashless exercise formula in the warrant.

Share Purchase Warrants

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

 

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.

The Company has evaluated subsequent events from the balance sheet date through the date that the financial statements were issued and determined that there are no additional subsequent events to disclose.

 

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

 

The 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 implant, smart materials and a novel delivery system.  

The Company raised an aggregate of $281,000 between November 2, 2016 and January 27, 2017 from 37 accredited investors and $500,000 in January 2018 from an accredited investor in private placement offerings under Regulation D and Regulation S under the Securities Act of 1933, respectively. 

The Company's common stock was approved by the Financial Industry Regulatory Authority ("FINRA") for quotation on the OTC pink sheets under the symbol "BLMB" as of July 3, 2017. On July 6, 2017, the Company's board of directors and shareholders approved an amendment to its Articles of Incorporation changing the name of the Company from "BioLabMart Inc." to "Qrons Inc. The Secretary of State of the State of Wyoming approved such name change, effective August 8, 2017.  FINRA announced the Company's name change to Qrons Inc. on its Daily List on August 9, 2017. The new name and symbol, "QRON", became effective on August 10, 2017.

License Agreement with Ariel

On March 6, 2018, the Company entered into an additional service agreement with Ariel for the services of Professor Gadi Turgeman and his stem cells research team in their labpursuant to which the Company paid Ariel $20,580 on March 19, 2018 and will be required to pay $20,580 by August 21, 2018.

Option Agreement with Dartmouth

On October 17, 2017, the Company entered into an option agreement with the Trustees of Dartmouth College ("Dartmouth") which provides for, among other things, the grant to the Company of a one-year exclusive option to negotiate a worldwide, royalty bearing, exclusive license with Dartmouth for 3D printable materials in the field of human and animal health. The option agreement provided the opportunity to evaluate the intellectual property, potential products and markets and for further research to develop the intellectual property. The Company exercised its option on March 26, 2018 to negotiate definitive license terms, as it continues further evaluation and research.

Sponsored Research Agreement with Dartmouth

On July 12, 2018, the Company entered into a one-year sponsored research agreement (the "Sponsored Research Agreement"), with Dartmouth pursuant to which the Company will 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.

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

The 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.

Plan of Operations

To date, we have not yet developed any candidate for product development nor generated any revenue from the sales of products or services.

In the next 12 months, we plan on establishing additional research teams with each team focusing on a specific area of research in conformance with our multidisciplinary approach to integrate the biological, chemical and mechanical challenges of treating traumatic brain injury to enable the development of what we believe to be our novel stem cell delivery system, via an implantable product.

We also plan to further develop our proprietary, neuro-regenerative mesenchymal stem cell lines as it relates to our product candidate and to continue working with Dartmouth in our development of innovative 3D printable biocompatible advanced materials and stem cell delivery techniques.

On January 15, 2018, Ariel filed a US provisional patent application related to our neural cell development research. A U.S. provisional patent application provides the means to establish an early effective filing date for a later filed non-provisional patent application. It does not mature into an issued patent unless the applicant files a regular non-provisional patent application within one year. On January 22, 2018, Ariel refiled the provisional patent application. Subject to positive efficacy findings, we currently intend to file for a non-provisional application within one year of the filing of the provisional application.

Qrons initiated a provisional patent application filing with the U.S. Patent and Trademark Office on April 9, 2018 entitled 'Techniques for Promoting Neuronal Recovery'.

As our research progresses if and when we achieve functional supporting results, we or Ariel intend to file for additional patents. Under the License Agreement Ariel shall be responsible for the preparation, filing, prosecution and protection of its patents. Such preparation shall be done in consultation with the Company, provided expenses in excess of $1,000 will require Company pre-approval. The Company shall reimburse Ariel for all documented patent-related expenses. We currently estimate the cost of such patent preparation and filing to be approximately $7,000 which we intend to fund with the Company's operating capital.

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

 

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

RESULTS OF OPERATIONS

Three Months Ended June 30, 2018 and June 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 months ended June 30, 2018 and 2017 is as follows:

Operating Expenses

Total operating expenses for the three months ended June 30, 2018 were $683,257 compared to total operating expenses of $19,369 for the three months ended June 30, 2017. During the three months ended June 30, 2018, the Company incurred $92,075 of research and development expenses which included payroll of $32,592, service fees related to certain research and development agreements of $18,915, patent consultation and filing fees of $14,880, other associated expenses of $8,970 and purchases of expendable lab supplies and equipment of $16,718, compared to $938 of research and development expenses for the three months ended June 30, 2017, which consisted of purchases of expendable lab supplies. The Company incurred general and administrative expenses of $583,213 for the three months ended June 30, 2018 compared to general and administrative expenses of $15,304 for the three months ended June 30, 2017. The increase in general and administrative expense during the three months ended June 30, 2018 was primarily due to stock-based compensation costs of $353,430 related to the issuance of stock options to our officers, and $196,763 for stock awards and shares for services to members of our advisory board and investor relations consultants. Professional fees totaled $7,969 for the three months ended June 30, 2018 compared to professional fees of $3,127 during the three months June 30, 2017.   Other expense includes a gain of $1,547 as a result of the change in value of our derivative liabilities and interest expense, including accretion of our convertible notes of $6,933. Other expense was $2,730 in the three months ended June 30, 2017, which represents interest expense related to the accretion of our convertible notes, as well as accrued interest. We had a net loss of $688,643 in the three months ended June 30, 2018 compared to a net loss of $22,099 in the three months ended June 30, 2017.

Six Months Ended June 30, 2018 and June 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 six months ended June 30, 2018 and 2017 is as follows:

Operating Expenses

Total operating expenses for the six months ended June 30, 2018 were $1,171,885 compared to total operating expenses of $20,450 for the six months ended June 30, 2017. During the six months ended June 30, 2018, the Company incurred $132,972 of research and development expenses which included payroll of $54,293, service fees related to certain research and development agreements of $31,170, patent consultation and filing fees of $10,856 and purchases of expendable lab supplies and equipment of $16,996, compared to $1,714 of research and development expenses for the six months ended June 30, 2017 which consisted of purchases of expendable lab supplies. The Company incurred general and administrative expenses of $1,009,764 for the six months ended June 30, 2018 compared to general and administrative expenses of $15,609 for the six months ended June 30, 2017. The increase in general and administrative expense during the six months ended June 30, 2018 was primarily due to stock-based compensation costs of $706,860 related to the issuance of stock options to our officers, and $224,738 for stock awards and shares for services to members of our advisory board and investor relations consultants. Professional fees totaled $29,149 for the six months ended June 30, 2018 compared to professional fees of $3,127 during the six months June 30, 2017.    Other expense included a gain of $3,563 as a result of the change in value of our derivative liabilities and interest expense, including accretion of our convertible notes of $13,791. Other expense was $5,430 in the six months ended June 30, 2017, which represents interest expense related to the accretion of our convertible notes, as well as accrued interest. We had a net loss of $1,182,113 in the six months ended June 30, 2018 compared to a net loss of 25,880 in the six months ended June 30, 2017.

Our current assets as of June 30, 2018 were $367,062 which consisted of $338,895 in cash and cash equivalents and $28,167 of prepaid expenses.  We are in the early stage of development, have experienced net losses to date and have not generated revenue from operations which raises substantial doubt about our ability to continue as a going concern. There are a number of conditions that we must satisfy before we will be able to commercialize 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.  We will require substantial additional funds for operations, the service of debt and to fund our business objectives. We will have to continue to rely on equity and debt financing. There can be no assurance that financing, whether debt or equity, will always be available to us in the amount required at any particular time or for any particular period or, if available, that it can be obtained on terms favorable to us. While we secured financing in the amount of $500,000 in January 2018, without additional financing, we do not believe our resources will be sufficient to meet our operating and capital needs beyond the fourth quarter of 2018.

 

Net cash used in operating activities was $218,872 for the six-month period ended June 30, 2018 compared to $23,618 for the six-month period ended June 30, 2017.  Cash used in operating activities was predominantly the result of our net loss, offset by non-cash items including compensation in the form of stock options totaling $781,598, stock awards totaling $28,000, and stock-based compensation of $150,000 in respect to shares issued under the terms of an investor relations agreement, accretion expense of $12,794, and a gain from the change in the value of derivative liabilities of $3,563.  Changes in operating assets and liabilities includes an increase to accounts payable of $5,769, an increase to prepaid expenses of $12,355 and an increase to accounts payable related party of $998 during the six months ended June 30, 2018.  During the six months ended June 30, 2017 cash used in operating activities was also a result of our net loss of $25,880, offset by an increase to accounts payable of $1,234, accretion of debt discount totaling $5,028 and an increase to prepaid expenses of $4,000.

There were no investing activities during the six-month periods ended June 30, 2018 and 2017.

Net cash provided by financing activities was $500,000 for the six-month period ended June 30, 2018 compared to $9,452 for the six-month period ended June 30, 2017. The Company received proceeds from a private placement offering totaling $500,000 in the six-month period ended June 30, 2018 as compared to $32,000 in the six months ended June 30, 2017, which included financing costs of $22,548, with no similar expense in the current six-month period ended June 30, 2018.

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, 2017 includes an explanatory paragraph stating 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.  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.

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

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. 

 

PART II – OTHER INFORMATION

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.

There were no sales of equity securities sold during the period covered by this Report.

SIGNATURES