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
prospectus, as filed with the Securities and Exchange Commission (the "SEC") on
March 28, 2022, 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 unaudited 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 the notes to the unaudited financial
statements appearing elsewhere in this Report and the Company's audited
financial statements for the fiscal year ended December 31, 2021, as filed with
the SEC in its Annual Report on Form 10-K on March 11, 2022, 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.
As a result of the Company's multidiscipline research effort in the field of
supramolecular and polymeric materials chemistry and neuronal tissue
engineering, on April 3, 2022, the Company filed a US provisional patent
application for inventions of therapeutic polypseudorotaxane hydrogels, thereby
providing the Company with the option to, in the future, seek protection for
these inventions globally. The patent application relates generally to the
treatment of pathological central nervous system conditions such as traumatic
injury or neurodegenerative disease and the applications of uses of hydrogels in
the treatment of such conditions.
We have not generated any revenue from the sale of products.
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Results of Operations
Three Months Ended June 30, 2022 and June 30, 2021
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 net income of $71,672 in the three months ended June 30, 2022 compared
to net income of $34,574 in the three months ended June 30, 2021, as follows:
Three Months ended
June 30,
2022 2021
Net sales $ - $ -
Operating expenses:
Research and development expenses 8,414 11,350
Professional fees 9,039 8,300
General and administrative expenses 13,611 23,148
Total operating expenses 31,064 42,798
Income (loss) from operations (31,064 ) (42,798 )
Other income (expense)
Interest expense (27,914 ) (111,758 )
Change in fair market value of derivative liabilities 130,650 189,130
Total other income (expense)
102,736 77,372
Net income (loss) $ 71,672 $ 34,574
Operating Expenses
Total operating expenses for the three months ended June 30, 2022 were $31,064
compared to total operating expenses of $42,798 for the three months ended June
30, 2021. The decrease in operating expenses during the three months ended June
30, 2022 is due to an decrease in general and administrative fees from $23,148
for the three months ended June 30, 2021 to $13,611 for the three months ended
June 30, 2022, as well as a decrease in research and development expenses from
$11,350 for the three months ended June 30, 2021 to $8,414 for the three months
ended June 30, 2022, offset by a small increase in professional fees from $8,300
during the three months ended June 30, 2021 to $9,039 for the three months ended
June 30, 2022. 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 as compared to $8,414 in research and development fees
for the three months ended June 30, 2022 which included licensing fees of $6,250
and software license and equipment costs of $2,164. The decrease in general and
administrative fees for the three months ended June 30, 2022 is due to a
decrease in branding and marketing expenses in the three month period ended June
30, 2022.
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Other Income (Expense)
Other income in the three months ended June 30, 2022 was $102,736, which
included an increase of $130,650 as a result of the change in value
of derivative liabilities, offset by interest expense of $27,914 which is
comprised of accretion of convertible notes of $24,024 and accrued interest on
convertible notes payable of $3,890. 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 1 loss on
the valuation of convertible notes of $94,332 and accrued interest on
convertible notes payable of $3,769.
Six Months Ended June 30, 2022 and June 30, 2021
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 $192,456 in the six months ended June 30, 2022 compared to
$200,735 in the six months ended June 30, 2021, as follows:
For the Six Months Ended
June 30,
2022 2021
Net sales $ - $ -
Operating expenses:
Research and development expenses 17,346 23,186
Professional fees 53,905 23,940
General and administrative expenses 23,369 34,035
Total operating expenses 94,620 81,161
Income (loss) from operations (94,620 ) (81,161 )
Other income (expense)
Interest expense (62,531 ) (122,744 )
Change in fair market value of derivative liabilities (35,305 ) 3,170
Total other income (expense)
(97,836 ) (119,574 )
Net (loss) $ (192,456 ) $ (200,735 )
Operating Expenses
Total operating expenses for the six months ended June 30, 2022 were $94,620
compared to total operating expenses of $81,161 for the six months ended June
30, 2021. The increase in operating expenses during the six months ended June
30, 2022 is due to a substantial increase in professional fees from $23,940 in
the six months ended June 30, 2021 to $53,905 in the six months ended June 30,
2022 due to an increase in legal and accounting fees in connection with the
Company's filing of a registration statement and prospectus in the six months
ended June 30, 2022, offset by a decrease in research and development activities
and general and administrative expenses. During the six months ended June 30,
2022 the Company incurred $17,346 of research and development expenses which
included service fees related to certain research and development agreements of
$4,327, technology licensing fees of $12,500 and purchases of lab supplies and
equipment of $519 as compared to $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 lab
supplies and equipment of $486 in the six months ended June 30, 2021. The
decrease in general and administrative fees for the three months ended June 30,
2022 from $34,035 for the six months ended June 30, 2021 to $23,369 in the six
months ended June 30, 2022 is due to a decrease in branding and marketing
expenses.
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Other Income (Expense)
Other expense in the six months ended June 30, 2022 was $97,836 and included a
loss of $35,305 as a result of the change in value of derivative liabilities and
interest expense of $62,531, which is comprised of accretion of convertible
notes of $53,315 and accrued interest on convertible notes of $9,216. Other
expense in the six months ended June 30, 2021 was $119,574, which included an
increase 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 1 loss on the valuation of a convertible note of $94,332
and accrued interest on convertible notes payable of $5,922.
Operating Activities
Net cash used in operating activities was $76,711 for the six months ended June
30, 2022 compared to $73,249 for the six months ended June 30, 2021. Net cash
used in operating activities for the six months ended June 30, 2022 was
primarily the result of net loss, offset by non-cash items, accretion of debt
discount of $53,315, an increase in derivative liabilities of $35,305 and
changes to operating assets and liabilities, including an increase to accounts
payable of $26,545 and an increase to accounts payable-related parties of $580.
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, a
decrease in derivative liabilities of $3,170, a day 1 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.
Investing Activities
There were no investing activities during the six months ended June 30, 2022 and
2021.
Financing Activities
Net cash provided by financing activities was $100,000 for the six months ended
June 30, 2021 compared to $50,000 for the six months ended June 30, 2022. 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, 2022 the
Company received $50,000 in proceeds from a related party in the form of
unsecured advances.
Liquidity and Capital Resources
As of June 30, 2022, we had cash of $8,354. 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.
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As we continue to monitor the 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 third quarter of 2022.
Offering
The Company filed a registration statement on Form S-1 with the SEC on January
11, 2022, to offer and sell up to 2,500,000 shares of common stock in a
self-underwritten primary offering at a fixed price of $0.70 per share which was
declared effective on January 11, 2022. To date, no shares have been sold and
there can be no assurance that the Company will be successful in selling any of
the shares being offered.
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, 2021 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 $17,346 and $23,186 for the six
months ended June 30, 2022 and 2021, 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 9, Stock Plan.
Advertising and Marketing Costs: Advertising and marketing costs are expensed as
incurred. The Company incurred no advertising and marketing costs during the six
months ended June 30, 2022 and 2021.
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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.
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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