Qrons Inc. - Quarter Report: 2021 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

000-55800

(Commission File Number)

QRONS INC.

(Exact name of registrant as specified in its charter)

(212)-945-2080

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 

Yes ☒   No ☐

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).

Yes ☐    No ☒

As of August 13, 2021, there were 13,289,789 shares of the registrant’s common stock outstanding.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 QRONS INC.

CONDENSED BALANCE SHEETS

(Unaudited)

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

QRONS INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

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

QRONS INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(Unaudited)

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

QRONS INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

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

QRONS INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

June 30, 2021 and 2020

Note 1 – Description of Business and Basis of Presentation

Organization and Nature of Business:

Qrons Inc.  (“Qrons” or the “Company”) was incorporated under the laws of the State of Wyoming on August 22, 2016 under the name BioLabMart Inc.

On July 6, 2017, the board of directors and a majority of the Company’s shareholders approved an amendment to the Company’s Articles of Incorporation to change the name of the Company from “BioLabMart Inc.” to “Qrons Inc.” On August 8, 2017, the Company filed Amended Articles of Incorporation with the State of Wyoming to effectuate such name change. The Company’s common stock was approved by the Financial Industry Regulatory Authority (“FINRA”) for quotation on the OTC pink sheets under the symbol “BLMB” as of July 3, 2017. FINRA announced the Company’s name change to Qrons Inc. on August 9, 2017. The new name and symbol change to “QRON” for the OTC Market was effective August 10, 2017. The Company’s common stock was upgraded from the Pink Market and commenced trading on the OTCQB Venture Market on August 12, 2019.

The Company is an innovative biotechnology company dedicated to developing biotech products, treatments and technologies to combat neuronal diseases, which are an enormous social and economic burden on society. The Company seeks to engage in strategic arrangements with companies and institutions that are developing breakthrough technologies in the fields of artificial intelligence, machine learning, molecular biology, stem cells and tissue engineering, for deployment in the fight against neuronal diseases. The Company’s search is currently focused on researchers based in Israel, a country which is world-renowned for biotech innovations.

The Company’s principal executive office is located at 50 Battery Place, #7T, New York, New York 10280.

Note 2 – Summary of Significant Accounting Policies

Financial Statement Presentation:  The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”), including the instructions to Form 10-Q and Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”), have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, they do not include all the information and notes necessary for comprehensive financial statements and should be read in conjunction with our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.

In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the three and six-month periods have been made. Results for the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year. 

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 $23,186 and $174,459 for the six-month periods ended June 30, 2021 and 2020, respectively.

QRONS INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

June 30, 2021 and 2020

Note 2 – Summary of Significant Accounting Policies (continued)

Advertising and Marketing Costs: Advertising and marketing costs are expensed as incurred. The Company incurred $15,000 and $23,500 in advertising and marketing costs during the six-month periods ended June 30, 2021 and 2020, respectively.

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

Stock-Based Compensation and Other Share-Based Payments: The Company records stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation, using the fair value method on grant date. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the equity instruments issued. 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

ASC 820, Fair Value Measurements, 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. 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. 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 June 30, 2021 and December 31, 2020:

QRONS INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

June 30, 2021 and 2020

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 815 Derivatives and Hedging, as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement.  For warrants classified as equity instruments the Company applies the Black Scholes model and expenses the fair value as financing costs. For warrants classified as derivative financial instruments the Company applies the Monte Carlo model to value the warrants. 

Income taxes: The Company has adopted ASC 740, Income Taxes, which requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method of ASC 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 260, Earnings Per Share, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common stock outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential common stock had been issued and if the additional shares of common stock were dilutive.

Potential common stock consists of the incremental common stock issuable upon the exercise of common stock warrants (using the if-converted method), convertible notes, classes of shares with conversion features, and stock awards and stock options. The computation of basic loss per share for the three and six months ended June 30, 2021 and 2020 include potentially dilutive securities of underlying share purchase warrants, convertible notes, stock options and preferred shares, because the Company reported net income in the current three months ended June 30, 2021. As a result, the computations of net loss per share for each period reflected both basic and fully diluted loss per share.

The table below reflects the potentially dilutive securities at each reporting period which have been included in the computation of diluted net loss per share:

New Accounting Pronouncements: Certain new accounting pronouncements that have been issued are not expected to have a material effect on the Company’s financial statements. 

QRONS INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

June 30, 2021 and 2020

Note 3 – Going Concern

The Company has experienced net losses to date and has not generated revenues from operations. While the Company raised proceeds of $100,000 during the six months ended June 30, 2021 through issuance of a convertible promissory note, and $211,000 during the year ended December 31, 2020 by way of private placement offerings to accredited investors, loans and advances from its officers and directors and third-party short term loans, it does not believe its resources will be sufficient to meet its operating and capital needs beyond the fourth quarter of 2021. The Company expects it will require additional capital to fully implement the scope of its proposed business operations, which raises substantial doubt about its ability to continue as a going concern.  The Company will have to continue to rely on equity and debt financing, and continued support from its officers and directors. There can be no assurance that financing, whether debt or equity, will be available to the Company in the amount required at any particular time or for any particular period or, if available, that it can be obtained on favorable terms. In addition, if the Company is unable to obtain adequate financing due to the continued effect of COVID-19 on the capital markets, 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.

Covid-19 Pandemic

The COVID-19 pandemic has had an adverse impact on the research and development of our product candidates. Research facilities at Dartmouth were subject to closures as well as laboratories at Ariel in Israel during fiscal 2020.  This resulted in our discontinuing our research at these Universities and was part of our decision to adjust our research to be collaborative and to seek aligning with third parties to advance our expanded goals.  We do not currently know the full extent of potential delays of research in the future as a result of the continuing pandemic restrictions.

COVID-19 has also caused significant disruptions to the global financial markets, which severely impacts our ability to raise additional capital. We terminated our employees in April 2020 in an effort to conserve resources as we evaluate our business development efforts.  The ultimate impact on us and our research relationships is currently uncertain. We may be required to further reduce operations or cease operations if we are unable to finance our operations.

Management is actively monitoring the situation but given the daily evolution of the COVID-19 outbreak, the Company is not able to fully estimate the effects of the COVID-19 outbreak on its planned 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.

Note 4 – Convertible Note – Related Party and Derivative Liabilities

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

QRONS INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

June 30, 2021 and 2020

Note 4 – Convertible Note – Related Party and Derivative Liabilities (continued)

On September 29, 2017, the Company and CubeSquare amended Note 1 to extend the maturity date from September 1, 2017 to September 1, 2018; on September 9, 2018, the Company further amended Note 1 to extend the maturity date to September 1, 2019; on November 6, 2019, the Company further amended Note 1 to extend the maturity date to September 1, 2020; and on October 30, 2020, the Company further amended Note 1 to extend the maturity date to September 1, 2021, under the same terms and conditions. 

On September 27, 2017, the Company entered into a second convertible debenture agreement with CubeSquare under which the Company received proceeds of $15,000 (Note 2). Note 2 bears interest at 8% per annum and was due on September 27, 2018. Interest accrues from September 27, 2017 and is payable on maturity.   Any portion of the principal and unpaid interest under the note is convertible at any time at the option of CubeSquare  into shares of common stock of the Company at a conversion price equal to a 50% discount to the average of the five lowest trading prices during the previous twenty trading days prior to the date of the notice of conversion from CubeSquare. On September 9, 2018, Note 2 was amended to extend the maturity date to September 27, 2019. On November 6, 2019, Note 2 was amended to extend the maturity date to September 27, 2020 and on October 30, 2020 Note 2 was amended to extend the maturity date to September 27, 2021.

The Company analyzed the amendment to Note 1 and Note 2 under ASC 815-10-15-83 and concluded that these two convertible Notes meet the definition of a derivative. The Company estimated the fair value of the derivative at each report date using the Black-Scholes valuation model to value the derivative liability related to the variable conversion rate.

The carrying value of these convertible notes is as follows:

Schedule of interest on the convertible note

As of June 30, 2021 and December 31, 2020, the unpaid interest balance under Accounts payable and accrued liabilities – related party was $8,441 and $7,449, respectively.

As a result of the application of ASC 815, the fair value of the derivative liability associated with 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 June 30, 2021 and December 31, 2020 and the commitment date:

QRONS INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

June 30, 2021 and 2020

Note 5 – Convertible Note and Derivative Liabilities

(1) 8% Convertible notes with warrants issued in December 2019 and February 2020

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) $0.50, (b) the lowest price at which the Company has converted any convertible security of the Company (to the holder or to any third party) within 30 trading days prior to the date of delivery of the applicable Notice of Conversion; and (c) so long as lower than (a) or (b), such price per share of common stock as the Company and the holder may agree from time to time.  In connection with the 8% convertible note issuance, we issued warrants to purchase an aggregate of 70,000 shares of common stock at an exercise price of $1.00.

On February 19, 2020 we issued and sold in a private offering 8% convertible notes in the principal amount of $10,000, due on February 19, 2022. Such notes are convertible into shares of common stock at a conversion price per share equal to the lesser of: (a) $0.50; (b) the lowest price at which the Company has converted any convertible security of the Company within 30 trading days prior to the date of delivery of the applicable notice of conversion; and (c) such other as the Company and the holder may agree.  In connection with the 8% convertible note issuance, we issued warrants to purchase an aggregate of 10,000 shares of common stock at an exercise price of $1.00.

The carrying value of these convertible notes is as follows:

Interest expenses associated with the convertible notes are as follows:

As of June 30, 2021 and December 31, 2020, the unpaid interest balance under Accounts payable and accrued liabilities was $9,942 and $7,373, respectively.

The convertible notes qualify for derivative accounting and bifurcation under ASC 815. The derivative liability of the $80,000 convertible notes was calculated using the Black-Scholes pricing model to be $72,689.

As a result of the application of ASC 815, as of June 30, 2021 and 2020, the fair value of the derivative liability associated with the conversion feature is summarized as follows:

QRONS INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

June 30, 2021 and 2020

Note 5 – Convertible Note and Derivative Liabilities (continued)

(1) 8% Convertible notes with warrants issued in December 2019 and February 2020 (continued)

The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of December 31, 2020 and June 30, 2021 and the commitment date:

(2) 8% Convertible note with warrants issued on June 15, 2021

On June 15, 2021, the Company entered into a note purchase agreement with Quick Capital, LLC (“Quick Capital”) pursuant to which the Company issued a twelve-month convertible promissory note in the principal amount of $115,000 for a $100,000 investment (the “Note”), which included an original issuance discount of 10% and a $3,500 credit for legal and transaction costs. In connection with this convertible note issuance, Quick Capital was also issued a five-year warrant (the “Warrant”) to purchase up to an aggregate of 115,000 shares of the Company’s common stock at an exercise price of $1.00 per share (the “Warrant Shares”) subject to adjustments for dilutive issuances at lower prices.

The Note is convertible into shares of common stock at a conversion price of $0.50 per share. If delivery of the Conversion Shares is not timely made, the Company is obligated to pay Quick Capital $2,000 for each day that the delivery is late as liquidated damages. The conversion price of the Note will be reduced if the Company issues common stock or grants derivative securities for consideration at a price less than the conversion price to the amount of the consideration of such dilutive issuance (“full ratchet reset”). The Note may not be prepaid.

The Company is subject to significant cash penalties if the Company defaults on the notes or in the event shares are not issued timely when a notice of conversion is provided. If an event of default occurs, the Note will become immediately due and payable in an amount equal to 150% of the then outstanding principal amount of the Note plus any interest or amounts owing to Quick Capital. The default provisions are based on the type of default and include a penalty of 50% of the principal plus accrued interest due (the “Default Sum”) and a parity value of the Default Sum based on the effective conversion of the Note on the date of payment of the default and the maximum stock value during the period between the default date and the payment date.

The Company valued the embedded default derivative liability of the Note and the Warrant liability, including the full ratchet reset feature, using Monte Carlo models.

The carrying value of the Note is as follows:

Interest expenses associated with the conversion is as follows:

QRONS INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

June 30, 2021 and 2020

Note 5 – Convertible Note and Derivative Liabilities (continued)

(2) 8% Convertible note with warrants issued on June 15, 2021

As a result of the application of ASC 815 as of June 30, 2021 and June 15, 2021, the fair value of the derivative liability associated with 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 June 30, 2021 and the commitment date:

Note 6 – Unsecured Short-Term Advance from Third Party

On June 20, 2019, the Company received $100,000 from a third party in the form of an unsecured, demand, non-interest-bearing, short-term advance to meet its operating needs. The advance remains outstanding at June 30, 2021 and December 31, 2020.

Note 7 – Related Party Transactions

(1) Demand Loan from related party

On May 1, 2019, the Company issued a promissory note (the “Note”) to CubeSquare in the principal amount of $50,000. The Note bears interest at the rate of 8% per annum and is due and payable by the Company upon demand from CubeSquare. We recorded interest expenses of $997 and $1,983 for the three and six months ended June 30, 2021, respectively.  We recorded interest expenses of $998 and $1,995 for the three and six months ended June 30, 2020, respectively. As of June 30, 2021 and December 31, 2020, the unpaid interest balance under Accounts payable and accrued liabilities – related party was $8,657 and $6,674, respectively.

(2) Advances from Related Parties

During the year ended December 31, 2019, the Company received $135,000 from Jonah Meer, its Chief Executive Officer, in the form of an unsecured, demand, non-interest-bearing, short-term advance to help meet its operating needs. During the year ended December 31, 2020, the Company received an additional $70,000 from Jonah Meer.

On August 20, 2019, the Company received $50,000 from Ido Merfeld, its President, in the form of an unsecured, demand, non-interest-bearing, short-term advance to help meet its operating needs. During the year ended December 31, 2020, the Company received an additional $21,000 from Ido Merfeld.

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

QRONS INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

June 30, 2021 and 2020

Note 7 – Related Party Transactions (continued)

(3) Others

Jonah Meer, the Company’s Chief Executive Officer, made payments to various vendors during the years ended December 31, 2019 and 2020. The balance payable to Mr. Meer of $22,993 and $28,475 is reflected in accounts payable, related party as of June 30, 2021 and December 31, 2020, respectively.

During the year ended December 31, 2019, Ido Merfeld, the Company’s President, made payments to various vendors in the aggregate amount of $1,169.  The balance payable to Mr. Merfeld of $1,169 is reflected in accounts payable, related party as of June 30, 2021 and December 31, 2020, respectively.

Note 8 – License and Research Funding Agreement / Royalty Agreement

Ariel Scientific Innovation Ltd.

On November 30, 2019, the Company entered into a royalty and license fee sharing agreement (the “Royalty Agreement”) with Ariel Scientific Innovations Ltd., a wholly owned subsidiary of Ariel University, in Ariel, Israel (“Ariel”), which, among other things, superseded and terminated the original license and research funding agreement, dated December 14, 2016, as amended, between the Company and Ariel (the “License Agreement”). Upon the occurrence of an Exit Event, as such term is described in the Royalty Agreement, including an underwritten public offering of the Company’s shares with proceeds of at least $25 million, a consolidation, merger or reorganization of the Company, and a sale of all or substantially all of the shares and/or the assets of the Company, Ariel has the right to require the Company to issue up to 3% of the then issued and outstanding shares of its common stock. The issuance of any such shares in the future will result in dilution to the interests of other stockholders. In consideration for the parties’ agreement to terminate the License Agreement and for future general scientific collaboration between the parties, the Company agreed to pay Ariel a royalty of 1.25% of net sales (as defined in the Royalty Agreement) of products sold by the Company, or its affiliates and licensees for fifteen years from the first commercial sale in a particular country.

Services agreements which the Company had with Ariel related to laboratory access, molecular biology and neurobiology research, and other services terminated during the year ended December 31, 2020. During 2020, Ariel refunded to the Company certain previously advanced and unused funds.

Note 9 – Intellectual Property License Agreement and Sponsored Research Agreement

Dartmouth College – IP License Agreement

On October 2, 2019, the Company entered into the Intellectual Property License Agreement pursuant to which Dartmouth granted the Company an exclusive world-wide license under the patent application entitled “Mechanically Interlocked Molecules-based Materials for 3D Printing” in the field of human and animal health and certain additional patent rights to use and commercialize licensed products and services. The license grant includes the right of the Company to sublicense to third parties subject to the terms of the Agreement.

The Agreement provided for: (i) a $25,000 license issue fee; (ii) an annual license maintenance fee of $25,000, until the first commercial sale of a licensed product or service; (iii) an earned royalty of 2% of net sales  of licensed products and services by the Company or a sublicensee; (iv) 15% of consideration received by the Company under a sublicense; and (v) beginning in the first calendar year after the first commercial sale, an annual minimum royalty payment of $500,000, $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.

QRONS INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

June 30, 2021 and 2020

Note 9 – Intellectual Property License Agreement and Sponsored Research Agreement (continued)

Dartmouth College – IP License Agreement (continued)

Failure to timely make any payment due under the Agreement will result in interest charges to the Company of the lower of 10% per year or the maximum amount of interest allowable by applicable law.

The Agreement may be terminated by Dartmouth if the Company is in material breach of the Agreement which is not cured after 30 days of notice thereof or if the Company becomes insolvent. Dartmouth may terminate the Agreement if the Company challenges a Dartmouth patent or does not terminate a sublicensee that challenges a Dartmouth patent, except in response to a valid court or governmental order. The Company may terminate the Agreement at any time upon six months written notice to Dartmouth.

If the Company or any sublicensee or affiliate institutes or participates in a licensed patent challenge, the then current earned royalty rate for licensed products covered by Dartmouth patents will automatically be increased to three times the then current earned royalty rate.

On March 23, 2021, the United States Patent and Trademark Office issued U.S. Patent No. 10,954,315 to the Trustees of Dartmouth College which is directed to mechanically interlocked, molecules-based materials for 3-D printing. The patent’s inventors are Professor Chenfeng Ke, a member of the Company’s Scientific Advisory Board and Qianming Lin, Professor Ke’s assistant. The patent grant is the culmination of the Intellectual Property License Agreement between the Company and Dartmouth with respect to an exclusive world-wide license of intellectual property related to 3D printable materials in the fields of human and animal health. 

The Company recorded $12,500 as license fees during the three and six months ended June 30, 2021, and 2020 with respect to such annual fee.

Dartmouth College – Sponsored Research Agreement

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 will be owned by such party and intellectual property jointly invented or developed shall be jointly owned. On November 4, 2019, the parties entered into an amendment to the Sponsored Research Agreement which extended the term of the Agreement through July 14, 2020. The Sponsored Research Agreement expired by its terms in July 2020.

Note 10 – Commitments

(1)  Science Advisory Board Member Consulting Agreements (the “ Consulting Agreements”)

As part of its ongoing program of research and development, the Company has retained distinguished scientists and other qualified individuals to advise the Company with respect to its technology and business strategy and to assist it in the research, development and analysis of the Company’s technology and products. In furtherance thereof, the Company has retained certain Advisors as members of its Scientific Advisory Board and Business Advisory Board as described below, and the Company and Advisors have entered into Consulting Agreements with the following terms and conditions:

QRONS INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

June 30, 2021 and 2020

Note 10 – Commitments (continued)

(1)  Science Advisory Board Member Consulting Agreements (the “ Consulting Agreements”) (continued)

(2)   Business Advisory Board Agreements

On February 10, 2020, the Company entered into a one-year advisory board member consulting agreement with Michael Maizel to serve on the Company’s Advisory Board as a business advisor. The Advisory Board Agreement automatically renews for up to two additional one-year periods, unless earlier terminated by either party upon 30 days’ prior written notice to the other party. In consideration for serving on the Advisory Board, the Company granted an option to purchase 50,000 shares of common stock under the 2016 Stock Option and Award Plan subject to certain vesting terms. Due to continuing Covid-19 pandemic concerns, on August 17, 2020, the Company notified Mr. Maizel of the termination of this agreement. Mr. Maizel’s 25,000 vested options were forfeited unexercised in  January 2021.

Note 11 – Stock Plan

2016 Stock Option and Stock Award 

On December 14, 2016, the Board adopted the Company’s 2016 Stock Option and Stock Award Plan (the “Plan”). The Plan provides for the award of stock options (incentive and non-qualified), stock awards and stock appreciation rights to officers, directors, employees and consultants who provide services to the Company. The terms of awards under the Plan are made by the Board. The Company has reserved 10 million shares for issuance under the Plan. 

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

On November 15, 2017, under the 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 that such Advisors are providing services to the Company at the time of exercise. During the year ended December 31, 2020, 13,334 shares subject to such options expired unexercised.

QRONS INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

June 30, 2021 and 2020

Note 11 – Stock Plan (continued)

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

On April 16, 2018, under the 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  providing services to the Company at the time of exercise. In April 2021, 10,000 vested options expired unexercised.

On August 15, 2018, under the 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  providing services to the Company at the time of exercise.  

On July 1, 2019, under the 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 providing services to the Company at the time of exercise.  

On February 10, 2020 under the Plan, 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 a Business Advisor (Note 10(2) above). 25,000 of such shares subject to the option were immediately exercisable and expire on February 10, 2023, and 25,000 shares vest on February 10, 2021 and expire on February 10, 2024. On July 15, 2020, 25,000 unvested options were forfeited. In January 2021, 25,000 vested options were forfeited.

(b) Stock Options granted to Employees:

On December 10, 2018, the Board awarded an employee the following three-year stock options under the Plan: (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 employee is  providing services to the Company at the time of exercise.  On March 23, 2020, the options previously vesting on December 10, 2020 shall vest immediately with an expiration date of March 23, 2023.

On December 10, 2019, the Board awarded an employee, the following three-year stock options under the Plan: (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 employee is  providing services to the Company at the time of exercise.  On March 23, 2020, the Company accelerated the vesting provision such that options previously vesting on December 10, 2020 and December 10, 2021 immediately vested and expire on March 23, 2023.

On December 10, 2020, under the Plan, the Board awarded an employee, an immediately exercisable three-year stock option to purchase 100,000 shares of the common stock of the Company at an exercise price of $2.00 per share.

QRONS INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

June 30, 2021 and 2020

Note 11 – Stock Plan (continued)

Stock Options: (continued)

(b) Stock Options granted to Employees (continued)

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 June 30, 2021 and December 31, 2020, total unrecognized compensation remaining to be recognized in future periods totaled $0 and $6,100, respectively.

(c) Stock Options granted to Officers:

On June 25, 2019, the Company appointed John N. Bonfiglio, PhD as its chief operating officer, effective July 1, 2019. As compensation, Dr. Bonfiglio was granted a three-year stock option to purchase 100,000 shares of common stock at an exercise price of $2.00 per share, 50,000 of which shares vested upon grant and 25,000 shares vest on each of July 1, 2020 and July 1, 2021, provided Dr. Bonfiglio is in the employ of the Company on such dates. Mr. Bonfiglio was terminated as chief operating officer as of November 30, 2019.  Accordingly, all unvested stock options terminated on such date. In January, 2021, 50,000 vested options were forfeited.

On December 10, 2019, the Board granted five-year options to purchase 325,000 shares of common stock to each of its two officers.  The options have an exercise price of $2.00 per share and are immediately exercisable.

On December 10, 2020, the Board granted five-year options to purchase 325,000 shares of common stock to each of its two officers.  The options have an exercise price of $2.00 per share and are immediately exercisable.

There was no compensation recognized in the three  and six months ended June 30, 2021 and 2020 related to stock option grants.  As of June 30, 2021, and December 31, 2020, there was no unrecognized compensation remaining to be recognized in future periods. 

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):

QRONS INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

June 30, 2021 and 2020

Note 11 – Stock Plan (continued)

A summary of the activity for the Company’s stock options at June 30, 2021 and December 31, 2020, is as follows:

Note 12 – Capital Stock

Authorized:

The Company has authorized 100,000,000 shares of common stock, par value $0.0001, and 10,000 shares of preferred stock which is designated as Series A Preferred Stock, par value $0.001.

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 June 30, 2021 and December 31, 2020.

Common Stock

In August 2020, the Company sold an aggregate of 200,000 shares of its common stock with a five-year warrant to purchase an aggregate of 100,000 shares of common stock at an exercise price of $1.00 per share (the “Warrant Shares”) to investors in a private offering for aggregate gross proceeds of $100,000. The proceeds will be used for general corporate purposes. The Warrant Shares have “piggyback” registration rights and the warrant has a provision for cashless exercise. In addition, the warrant may not be exercised if it would result in beneficial ownership by the holder and his affiliates of more than 9.99% of the Company’s outstanding shares of common stock.

QRONS INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

June 30, 2021 and 2020

Note 12 – Capital Stock (continued)

Common Stock (continued)

There was a total of 13,289,789 shares of common stock issued and outstanding as of June 30, 2021 and December 31, 2020.

Common Stock Purchase Warrants

As of June 30, 2021 and December 31, 2020, the following common stock purchase warrants were outstanding:

(1) During the year ended December 31, 2019, the Company granted certain convertible notes holders warrants to purchase an aggregate of 70,000 shares of common stock at an exercise price of $1.00. The fair value of the warrants was $36,410 and recorded as financing cost.

(2) During the year ended December 31, 2020, the Company granted a convertible note holder a warrant to purchase 10,000 shares of common stock at an exercise price of $1.00. The fair value of the warrant was $3,400 and recorded as financing cost.

(3) Each two shares of common stock purchased in a private offering included one warrant to purchase an additional share of common stock at an exercise price of $1.00.

(4) ) On June 15, 2021, the Company granted a convertible note holder a warrant to purchase 115,000 shares of common stock at an exercise price of $1.00 subject to adjustments for full ratchet resets for dilutive issuances at lower prices.

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):

Note 13 – Subsequent Events

The Company has evaluated events for the period from June 30, 2021 through the date of the issuance of these financial statements and determined that there are no additional events requiring disclosure.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains predictions, estimates and other forward-looking statements relating to future events or our future financial performance. In some cases, you   can identify forward-looking statements by terminology such as “may”, “should”, “intends”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, or “continue” or the negative of these terms or other comparable terminology. Forward-looking statements involve known and unknown risks, uncertainties and other factors  including the risks set forth in the section entitled “Risk Factors” in our Post-Effective Amendment No. 1 to our Registration Statement on Form S-1, as filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2018, that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements

Forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Report. You should read this Report with the understanding that our actual future results may be materially different from what we expect.

All forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made, except as required by federal securities and any other applicable law.

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

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements for the three and six months ended June 30, 2021 and the notes thereto appearing elsewhere in this Report and the Company’s audited financial statements for the fiscal year ended December 31, 2020, as filed with the SEC in its Annual Report on Form 10-K on March 31, 2021, along with the accompanying notes. As used in this Quarterly Report, the terms “we”, “us”, “our” and the “Company” means Qrons Inc.

The Company has relied primarily on its two co-founders, Jonah Meer, Chief Executive Officer, and Ido Merfeld, President, who are its sole directors to manage its day-to-day business and has outsourced 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.

Plan of Operations

We are an innovative biotechnology company dedicated to developing biotech products, treatments and technologies that create a platform to combat neuronal diseases. We seek to engage in strategic arrangements with companies and institutions that are developing breakthrough technologies in the fields of artificial intelligence and machine learning, , molecular biology, stem cells and tissue engineering, for deployment in the fight against neuronal diseases. Our search is focused on researchers based in Israel, a country which is world-renowned for biotech innovations.

To date, the Company has collaborated with universities and scientists in the fields of regenerative medicine, tissue engineering and 3D printable hydrogels to develop a treatment that integrates proprietary, engineer mesenchymal stem cells (“MSCs”), 3D printable implant, smart materials and a novel delivery system and has two product candidates for treating penetrating and non-penetrating (concussion-like) traumatic brain injuries, both integrating proprietary, anti-brain inflammation synthetic hydrogel and modified MSCs.

We have not generated any revenue from the sale of products.

Results of Operations

Three Months Ended June 30, 2021 and June 30, 2020

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 Income (Loss)

We had a net income of $34,574 in the three months ended June 30, 2021 compared to a net loss of $16,731 in the three months ended June 30, 2020, as follows:

Operating Expenses

Total operating expenses for the three months ended June 30, 2021 were $42,798 compared to total operating expenses of $13,589 for the three months ended June 30, 2020. The increase in operating expenses during the three months ended June 30, 2021 is due to increased operating activities and research and development activities in the current three month period, including expenditures on updated corporate messaging and a redesigned website. . During the three months ended June 30, 2021, the Company incurred $11,350 of  research and development expenses which included service fees related to certain research and development agreements of $3,100 and technology licensing fees of $8,250 compared to $2,891 of research and development expenses which included payroll of $21,961,  service fees related to certain research and development agreements of $29,717, a credit offsetting prior accrued fees associated with a sponsored research agreement of $45,704,  purchases of expendable lab supplies and equipment of $133, technology licensing fees of $7,991 and a credit from prior accrued research and development fees of $11,207in the three months ended June 30, 2020. The Company incurred general and administrative expenses of $23,148 for the three months ended June 30, 2021 compared to general and administrative expenses of $3,805 for the three months ended June 30, 2020. The increase in general and administrative expense during the three months ended June 30, 2021 was primarily due to an increase in overall operating activities during the three months ended June 30, 2021, including an increase in OTC listing expenses and corporate messaging costs, including a redesigned website. Professional fees were $8,300 for the three months ended June 30, 2021, which reflect an increase in legal fees compared to professional fees of $6,893 during the three months ended June 30, 2020.

Other Income (Expense)

Other income in the three months ended June 30, 2021 was $77,372, which included an increase of $189,130, as a result of the change in value of derivative liabilities, and interest expense of $111,758 which is comprised of accretion of convertible notes of $13,657, a day one loss  on the valuation of a convertible note of $94,332 and accrued interest on convertible notes payable of $3,769. Other expense in the three months ended June 30, 2020 was $3,142, which included an increase of $9,672 as a result of the change in value of  derivative liabilities, and interest expense of $12,814 which is comprised of accretion of convertible notes of $8,930 and accrued interest on convertible notes payable of $3,884.

Six Months Ended June 30, 2021 and June 30, 2020

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

We had a net loss of $200,735 in the six months ended June 30, 2021 compared to $256,863 in the six months ended June 30, 2020, as follows:

Operating Expenses

Total operating expenses for the six months ended June 30, 2021 were $81,161 compared to total operating expenses of $232,527 for the six months ended June 30, 2020. The decrease in operating expenses during the six months ended June 30, 2021 is due to substantially decreased research and development activities as a result of the impact of COVID 19. During the six months ended June 30, 2021, the Company incurred $23,186 of  research and development expenses which included service fees related to certain research and development agreements of $6,200, technology licensing fees of $16,500, and purchases of expendable lab supplies and equipment of $486, compared to $174,459 of  research and development expenses which included payroll of $79,274,  service fees related to certain research and development agreements of $104,979, a credit offsetting prior accrued fees associated with a sponsored research agreement of $26,809, legal and filing fees related to patents of $588, purchases of expendable lab supplies and equipment of $445, and technology licensing fees of $15,982 during the six months ended June 30, 2020. The Company incurred general and administrative expenses of $34,035 for the six months ended June 30, 2021 compared to general and administrative expenses of $27,551 for the six months ended June 30, 2020. The slight increase in general and administrative expense during the six months ended June 30, 2021 was primarily due to corporate messaging costs including a redesigned website. Professional fees were $23,940 for the six months ended June 30, 2021, which reflect a decrease in legal and audit fees compared to professional fees of $30,517 during the six months ended June 30, 2020.

Other Income (Expense)

Other expense in the six months ended June 30, 2021 was $119,574, which included a gain of $3,170 as a result of the change in value of derivative liabilities, and interest expense of $122,744, which is comprised of accretion of convertible notes of $22,490, a day one loss on the valuation of a convertible note of $94,332 and accrued interest on convertible notes payable of $5,922. Other expense in the six months ended June 30, 2020 was $24,336 and included gain of $2,762 as a result of the change in value of  derivative liabilities, and interest expense of $27,098, which is comprised of accretion of  convertible notes of $17,321, financing costs of $3,400 and accrued interest on convertible notes of $6,377.

Operating Activities

Net cash used by operating activities was $73,249 for the six months ended June 30, 2021 compared to $144,498 for the six months ended June 30, 2020.  Net cash used in operating activities for the six months ended June 30, 2021 was primarily the result of  net loss, offset by non-cash items, including compensation in the form of stock options for research and development expense totaling $6,200,  accretion of debt discount of $22,490, an increase  from the change in  derivative liabilities of $3,170, a day one loss on certain convertible notes of $94,332 and changes to  operating assets and liabilities, including an increase to prepaid expenses of $4,000, an increase to accounts payable of $14,141 and a decrease to accounts payable-related parties of $2,507.  Net cash used in operating activities for the six months ended June 30, 2020 was primarily the result of  net loss, offset by non-cash items including compensation in the form of stock options for research and development expense totaling $97,271, warrants granted as financing costs valued at $3,400, accretion of debt discount of $17,321, an increase  from the change  in  derivative liabilities of $2,762 and changes to  operating assets and liabilities, including a decrease to prepaid expenses of $48,614, reduction to accounts payable of $56,048 and an increase to accounts payable-related parties.

Investing Activities

There were no investing activities during the six months ended June 30, 2021 and 2020.

Financing Activities

Net cash provided by financing activities was $100,000 for the six months ended June 30, 2021 compared to $86,000 for the six months ended June 30, 2020. During the six months ended June 30, 2021 the Company received net proceeds of $100,000 from a convertible note.  During the six months ended June 30, 2020 the Company received $76,000 in proceeds from related parties in the form of short-term advances from its officers and $10,000 in proceeds from convertible note.

Liquidity and Capital Resources

As of June 30, 2021, we had cash of $84,383. We are in the early stage of development and have experienced net losses to date and have not generated revenue from operations which raises substantial doubt about our ability to continue as a going concern. There are a number of conditions that we must satisfy before we will be able to commercialize potential products and generate revenue, including successful development of product candidates, which includes clinical trials, FDA approval, demonstration of effectiveness sufficient to generate commercial orders by customers, establishing production capabilities as well as effective marketing and sales capabilities for our product. We do not currently have sufficient resources to accomplish any of these conditions necessary for us to generate revenue and expect to incur increasing operating expenses. We will require substantial additional funds for operations, the service of debt and to fund our business objectives. There can be no assurance that financing, whether debt or equity, will be available to us in the amount required at any particular time or for any particular period or, if available, that it can be obtained on terms favorable to us. If additional funds are raised by the issuance of equity securities, such as through the issuance and exercise of warrants, then existing stockholders will experience dilution of their ownership interest. If additional funds are raised by the issuance of debt or other equity instruments, we may be subject to certain limitations in our operations, and issuance of such securities may have rights senior to those of the then existing stockholders. We currently have no agreements, arrangements or understandings with any person or entity to obtain funds through bank loans, lines of credit or any other sources.

As we monitor the full impact of the COVID-19 outbreak, we continue exploring sources of debt and equity financings as well as available grants. We are currently exploring and are in discussions for potential strategic alternatives in the biotechnology field which could advance our MSCs and neurodegenerative research.  There can be no assurance the necessary financing will be available or that a suitable strategic partner will be identified. In such event, we may explore relationships with third parties to develop or commercialize products or technologies that we have not previously sought to develop or commercialize, decide to exit our existing business, cease operations altogether or pursue an acquisition of our company. However, without additional financing, we do not believe our resources will be sufficient to meet our operating and capital needs beyond the fourth quarter of 2021.

Quick Capital Financing

On June 15, 2021, the Company entered into a note purchase agreement with Quick Capital, LLC, a Wyoming limited liability company (“Quick Capital”), pursuant to which the Company issued Quick Capital a twelve-month convertible promissory note in the principal amount of $115,000 (the “Note”) for a $100,000 investment, which included an original issuance discount of 10% and a $3,500 credit for Quick Capital’s legal and transaction costs. In connection with the Note issuance, Quick Capital was also issued a five-year warrant (the “Warrant”) to purchase up to an aggregate of 115,000 shares of the Company’s common stock at an exercise price of $1.00 per share (the “Warrant Shares”). If there is no effective registration statement covering the Warrant Shares, Quick Capital may exercise the Warrant on a cashless basis. The Note is convertible into shares of common stock at a conversion price of $0.50 per share. The Note may not be converted and the Warrant may not be exercised if after giving effect to such conversion or exercise, as the case may be, Quick Capital and its affiliates would beneficially own more than 4.99% of the outstanding common stock of the Company. For twelve months following the issuance of the Quick Note, Quick Capital will have the right of first refusal to participate in future financings proposed to the Company on the same terms and participation rights to purchase up to $115,000 of securities in other offerings. The conversion price of the Note will be reduced if the Company issues common stock or grants derivative securities for consideration at a price less than the conversion price to the amount of the consideration of such dilutive issuance.  The Note contains certain restrictive covenants limiting the Company’s ability to make distributions or dividends, repurchase its securities, incur debt, sell assets, make loans, or engage in exchange offers. If an event of default (as described in the Note) occurs, the Note will become immediately due and payable in an amount equal to 150% of the then outstanding principal amount of the Note plus any interest or amounts owing to Quick Capital. Quick Capital is entitled to the same terms of future financings of the Company that are more favorable than the terms of the Quick Note.

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 might be necessary should we be unable to continue in operation. Our report from our independent registered public accounting firm for the fiscal year ended December 31, 2020 includes an explanatory paragraph stating the Company has recurring losses and limited operations which raise substantial doubt about its ability to continue as a going concern.  If the Company is unable to obtain adequate capital, the Company may be required to reduce the scope, delay, or eliminate some or all of its planned operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

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

Research and Development Costs: The Company charges research and development costs to expense when incurred in accordance with FASB ASC 730, Research and Development. Research and development costs were $23,186 and $174,459 for the six-month periods ended June 30, 2021 and 2020, respectively.

Stock-Based Compensation and Other Share-Based Payments: The Company records stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation, using the fair value method on grant date. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the equity instruments issued. 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.

Advertising and Marketing Costs: Advertising and marketing costs are expensed as incurred. The Company incurred $15,000 and $23,500 in advertising and marketing costs during the six months  ended June 30, 2021 and June 30, 2020, respectively.

Warrants: The Company accounts for common stock warrants in accordance with applicable accounting guidance provided in ASC 815 Derivatives and Hedging, as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement.  For warrants classified as equity instruments the Company applies the Black Scholes model and expenses the fair value as financing costs. 

Recent Accounting Pronouncements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of June 30, 2021, 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 and procedures are not effective for the following reasons: (i) there is an inadequate segregation of duties consistent with control objectives as management is comprised of only two persons, one of which is the Company’s principal executive officer and principal financial officer and, (ii) the Company does not have a formal audit committee with a financial expert, and thus the Company lacks the board oversight role within the financial reporting process.

In order to mitigate the foregoing material weakness, we have engaged an outside accounting consultant with significant experience in the preparation of financial statements in conformity with GAAP to assist us in the preparation of our financial statements to ensure that these financial statements are prepared in conformity with GAAP. We will continue to monitor the effectiveness of this action and make any changes that our management deems appropriate.

We would need to hire additional staff to provide greater segregation of duties. Currently, it is not feasible to hire additional staff to obtain optimal segregation of duties. Management will continue to reassess this matter to determine whether improvement in segregation of duty is feasible. In addition, we would need to expand our board to include independent members.

Going forward, we intend to evaluate our processes and procedures and, where practicable and resources permit, implement changes in order to have more effective controls over financial reporting.

Changes in Internal Control over Financial Reporting

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

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

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

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

There were no sales of equity securities during the period covered by this Report that were not registered under the Securities Act and were not previously reported in a Current Report on Form 8-K filed by the Company.

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.