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 nine months ended September 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.
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Results of Operations
Three Months Ended September 30, 2021 and September 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 $79,880 in the three months ended September 30, 2021
compared to a net loss of $153,933 in the three months ended September 30, 2020,
as follows:
For the Three Months Ended
September 30,
2021 2020
Net sales $ - $ -
Operating expenses:
Research and development expenses 9,076 33,441
Professional fees 11,868 9,010
General and administrative expenses 9,363 20,977
Total operating expenses 30,307 63,428
Loss from operations (30,307 ) (63,428 )
Other income (expense)
Interest expense (43,526 ) (12,460 )
Change in derivative liabilities (6,047 ) (78,045 )
Total other income (expense) (49,573 ) (90,505 )
Net loss $ (79,880 ) $ (153,933 )
Operating Expenses
Total operating expenses for the three months ended September 30, 2021 were
$30,307 compared to total operating expenses of $63,428 for the three months
ended September 30, 2020. The decrease in operating expenses during the three
months ended September 30, 2021 is due to a decrease in research and development
expenses from $33,441 for the three months ended September 30, 2020 to $9,076
for the three months ended September 30, 2021, and a decrease in general and
administrative expenses from $20,977 during the three months ended September 30,
2020 to $9,363 for the three months ended September 30, 2021, offset by a small
increase in professional fees from $9,010 for the three months ended September
30, 2020 to $11,868 for the three months ended September 30, 2021. During the
three months ended September 30, 2020, the Company incurred $33,441 of research
and development expenses which included service fees related to certain research
and development agreements of $19,840, legal and filing fees related to patents
of $5,610 and technology licensing fees of $7,991 as compared to $9,076 in
research and development fees for the three months ended September 30, 2021
which includes licensing fees of $6,250 and software license and equipment costs
of $2,826. The decrease in general and administrative expense during the three
months ended September 30, 2021 was primarily due to a decrease in overall
operating activities during the three months ended September 30, 2021.
Other Income (Expense)
Other expense in the three months ended September 30, 2021 was $49,573, which
included a loss of $6,047 as a result of the change in value of derivative
liabilities, and interest expense of $43,526 which is comprised of accretion
of convertible notes of $37,779 and accrued interest on convertible notes
payable of $5,747. Other expense in the three months ended September 30, 2020
was $90,505, which included a loss of $78,045 as a result of the change in value
of derivative liabilities, and interest expense of $12,460 which is comprised of
accretion of convertible notes of $8,931 and accrued interest on convertible
notes payable of $3,529.
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Nine Months Ended September 30, 2021 and September 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 $280,615 in the nine months ended September 30, 2021
compared to a net loss of $410,796 in the nine months ended September 30, 2020,
as follows:
For the Nine Months Ended
September 30,
2021 2020
Net sales $ - $ -
Operating expenses:
Research and development expenses 32,262 207,900
Professional fees 35,808 39,526
General and administrative expenses 43,398 48,528
Total operating expenses 111,468 295,954
Loss from operations (111,468 ) (295,954 )
Other income (expense)
Interest expense (166,270 ) (39,559 )
Change in derivative liabilities (2,877 ) (75,283 )
Total other income (expense) (169,147 ) (114,842 )
Net loss $ (280,615 ) $ (410,796 )
Operating Expenses
Total operating expenses for the nine months ended September 30, 2021 were
$111,468 compared to total operating expenses of $295,954 for the nine months
ended September 30, 2020. The decrease in operating expenses during the nine
months ended September 30, 2021 is due to substantially decreased research and
development activities as a result of the impact of COVID 19. During the nine
months ended September 30, 2021, the Company incurred $32,262 of research and
development expenses which included service fees related to certain research and
development agreements of $6,200, technology licensing fees of $18,750, software
licensing fees of $6,826 and purchases of expendable lab supplies and equipment
of $486, compared to $207,900 of research and development expenses which
included payroll of $79,274, service fees related to certain research and
development agreements of $124,820, a credit offsetting prior accrued fees
associated with a sponsored research agreement of $26,809, legal and filing fees
related to patents of $6,197, purchases of expendable lab supplies and equipment
of $445 and technology licensing fees of $23,973, during the nine months ended
September 30, 2020. The Company incurred general and administrative expenses of
$43,398 for the nine months ended September 30, 2021 compared to general and
administrative expenses of $48,528 for the nine months ended September 30, 2020.
Professional fees were $35,808 for the nine months ended September 30, 2021,
which reflect a slight decrease in legal and audit fees compared to professional
fees of $39,526 during the nine months ended September 30, 2020.
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Other Income (Expense)
Other expense in the nine months ended September 30, 2021 was $169,147, which
included a loss of $2,877 as a result of the change in value of derivative
liabilities, and interest expense of $166,270, which is comprised of accretion
of convertible notes of $60,269, financing costs of $94,332 and accrued interest
on convertible notes payable of $11,669. Other expense in the nine months ended
September 30, 2020 was $114,842 and included a loss of $75,283 as a result of
the change in value of derivative liabilities, and interest expense of $39,559
which is comprised of accretion of convertible notes of $26,350, financing costs
of $3,400 and accrued interest on convertible notes of $9,809.
Operating Activities
Net cash used in operating activities was $100,458 for the nine months ended
September 30, 2021 compared to $185,567 for the nine months ended September 30,
2020. Net cash used in operating activities for the nine months ended September
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 of $6,200, accretion of debt discount of $60,269, an increase from the
change in derivative liabilities of $2,877, non-cash interest expense of
$94,332 and changes to operating assets and liabilities, including an increase
to prepaid expenses of $2,000, an increase to accounts payable of $22,399 and a
decrease to accounts payable-related parties of $3,920. Net Cash used in
operating activities for the nine months ended September 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 totalling
$117,111, warrants granted as financing costs valued at $3,400, accretion of
debt discount of $26,350, a loss from the change in derivative liabilities of
$75,284 and changes to operating assets and liabilities, including a decrease to
prepaid expenses of $54,522, a decrease to accounts payable of $62,483 and an
increase to accounts payable-related parties of $11,045.
Investing Activities
There were no investing activities during the nine months ended September 30,
2021 and 2020.
Financing Activities
Net cash provided by financing activities during the nine months ended September
30, 2021 totaled $100,000 in proceeds from convertible notes. Net cash provided
by financing activities during the nine months ended September 30, 2020 totaled
$211,00, which was comprised of $101,000 in proceeds from related parties in the
form of short-term advances from its officers $100,000 in proceeds from a
private placement and $10,000 in proceeds from a convertible note.
Liquidity and Capital Resources
As of September 30, 2021, we had cash of $57,174 and prepaid expenses totalling
$2,000. 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 second quarter of 2022.
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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 favourable 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 $32,262 and $207,900 for
the nine-month periods ended September 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.
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Advertising and Marketing Costs: Advertising and marketing costs are expensed as
incurred. The Company incurred $18,107 and $24,307 in advertising and marketing
costs during the nine months ended September 30, 2021 and September 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.
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QRONS INC. 
