Our Management's Discussion and Analysis contains forward-looking statements
relating to future events or our future financial performance. In some cases,
you can identify forward-looking statements by terminology such as "may",
"should", "intends", "expects", "plans", "anticipates", "believes", "estimates",
"predicts", "potential", or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors which may cause our or our
industry's actual results, levels of activity or performance to be materially
different from any future results, levels of activity or performance expressed
or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity or performance. You should not place undue reliance on these
statements, which speak only as of the date of this Annual Report. These
cautionary statements should be considered with any written or oral
forward-looking statements that we may issue in the future. You should read this
Annual Report on Form 10-K 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.
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The management's discussion and analysis of our financial condition and results
of operations are based upon our audited financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP").
The following discussion and analysis of financial condition and results of
operations of the Company is based upon, and should be read in conjunction with,
the audited financial statements and related notes elsewhere in this Annual
Report on Form 10-K.
Plan of Operation
We have not generated any revenue from the sale of products.
To date, the Company has two product candidates for treating penetrating and
non-penetrating (concussion-like) TBIs. We have completed an in-vivo efficacy
experiment with QS100TM for treating penetrating brain injuries in an animal
model that was successful in substantiating our theories and practices regarding
cell regeneration. We have completed animal in-vivo efficacy experiments with
QS200TM for treating concussions and other diffused axonal injuries. Subject to
the impact of the COVID-19 pandemic as described below, in the next 12 months,
we plan on completing development of our product candidates. This will require
us to continue working with Dartmouth under the Sponsored Research Agreement in
our development of innovative 3D printable biocompatible advanced materials and
stem cell delivery techniques. At our research facilities located in Ariel's
labs our Stem Cells Team will continue development of our proprietary,
neuro-regenerative MSC lines. Upon completion of the development of our product
candidates we will begin testing for efficacy. This will require us to establish
an Efficacy Team, in preparation to reach clinical trials.
As our research progresses, if and when we achieve functional supporting
results, the Company intends to file for additional patents.
We will continue exploring sources of additional debt and equity financings as
well as available grants.
There is substantial doubt that we can continue as an on-going business unless
we obtain additional capital to pay our expenditures. We do not currently have
sufficient resources to accomplish all of the conditions necessary for us to
generate revenue.
Results of Operations
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.
Operating Expenses
For the years ended December 31, 2019 and December 31, 2018:
For the Year ended
December 31,
2019 2018
Operating expenses:
Research and development expenses $ 651,476 $ 919,706
Professional fees
75,677 44,147
General and administrative expenses 789,279 2,941,092
Total operating expenses $ 1,516,432 $ 3,904,945
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Total operating expenses for the year ended December 31, 2019 were $1,516,432 as
compared to $3,904,945 for the year ended December 31, 2018. During the year
ended December 31, 2019, the Company incurred $651,476 of research and
development expenses which included payroll of $223,766, service fees related to
certain research and development agreements of $292,044, fees associated with a
sponsored research agreement of $80,006, legal and filing fees related to
patents of $21,760, software fees of $1,374, technology licensing fees of $8,333
and purchases of expendable lab supplies and equipment of $24,193, compared to
research and development expenses of $919,706, which included payroll of
$130,991, service fees related to certain research and development agreements of
$677,235, fees associated with a sponsored research agreement of $27,220, legal
and filing fees related to patents of $24,212, publication and software fees of
$6,971 and purchases of expendable lab supplies and equipment of $53,077 during
the fiscal year ended December 31, 2018. The Company incurred general and
administrative expenses of $789,279 for the year ended December 31, 2019
compared to general and administrative expenses of $2,941,092 for the year ended
December 31, 2018. The substantial decrease in general and administrative
expense during the 2019 fiscal year was primarily due to stock-based
compensation costs of $2,673,011 related to the issuance of stock options to our
officers and certain advisors during the year ended December 31, 2018, with only
$409,495 in stock-based compensation to officers and advisors in the year ended
December 31, 2019. Professional fees were $75,677 for the year ended December
31, 2019 compared to professional fees of $44,147 during fiscal 2018. The
increase in professional fees in the year ended December 31, 2019 is the
result of certain specialized contract and tax advice. Other expenses were
$30,340 in the year ended December 31, 2019, which included a gain of $12,234 as
a result of the change in value of derivative liabilities and interest expense
of $42,574, of which $36,410 relates to financing costs with respect to the
issuance of warrants in the year ended December 31, 2019 in connection with
convertible note financings, accretion of convertible notes of $945 and
interest charges on convertible notes of $5,219. Other expenses were $26,083 in
the year ended December 31, 2018, which represents a loss of $5,737 as a result
of the change in value of our derivative liabilities and interest expense of
$20,346, including accretion of our convertible notes of $18,335 and $2,011 as
incurred interest charges.
Net Loss
We had a net loss of $1,546,772 in the year ended December 31, 2019 compared to
a net loss of $3,931,028 in the year ended December 31, 2018.
Statement of Cash Flows
The following table summarizes our cash flows for the period presented:
For the Year ended
December 31,
2019 2018
Net cash provided (used by) operating activities $ (546,837 ) $ (488,905 )
Net cash provided from (used by) investing activities
- -
Net cash provided from financing activities 470,000 575,000
Increase (decrease) in cash and cash equivalents $ (76,837 ) $ 86,095
During the year ended December 31, 2019 we used cash of $76,837 as compared to
the year ended December 31, 2018, where our net cash increased by $86,095.
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Cash Used in Operating Activities
Cash used in operating activities for the year ended December 31, 2019 totaled
$546,837 as compared to $488,905 used in the year ended December 31, 2018.
Cash used in operating activities for the year ended December 31, 2019 was
primarily the result of our net loss, offset by non-cash items including
compensation in the form of stock options for research and development expenses
totaling $219,095, stock awards for advisory and consulting services of
$126,875, stock options granted for management and advisory services of
$409,495, common stock issued for services of $74,500, warrants granted as
financing costs of $36,410 and changes to our operating assets and liabilities
including an increase to prepaid expenses and increases to our accounts payable
and accounts payable-related parties. Cash used in the year ended December 31,
2018 was primarily the result of our net loss, offset by non-cash items
including compensation in the form of stock options for research and development
expense totaling $529,019, stock awards totaling $28,000, stock-based
compensation of $150,000 related to shares issued under the terms of an investor
relations agreement, stock options recorded as management and advisory expenses
totaling $2,673,011, and changes to our operating assets and liabilities
including an increase to prepaid expenses and increases to our accounts payable
and accounts payable-related parties. In the year ended December 31, 2018, we
also recorded $18,335 as the non-cash accretion of the debt discount related to
certain convertible notes compared to $945 in the year ended December 31, 2019,
and changes to our derivative liabilities reflecting a gain of $12,234 in the
year ended December 31, 2019 compared to a loss of $5,737 in the year ended
December 31, 2018.
Cash Provided by Investing Activities
There was no cash provided by investing activities for the years ended December
31, 2019 and December 31, 2018.
Cash Provided by Financing Activities
During the year ended December 31, 2019, financing activities provided cash of
$470,000, including proceeds from private offerings of common stock of $65,000,
proceeds from convertible notes of $70,000, short term advances from third
parties of $100,00, loans from our offices and directors of $50,000 and related
party advances of $185,000. During the year ended December 31, 2018, financing
activities provided cash of $575,000 which consisted entirely of proceeds from
private offerings of common stock.
Liquidity and Capital Resources
As of December 31, 2019, we had cash of $67,025. 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. We will have to continue to
rely on equity and debt financing. There can be no assurance that financing,
whether debt or equity, will always be available to us in the amount required at
any particular time or for any particular period or, if available, that it can
be obtained on terms favorable to us. Additionally, the continued spread of
COVID-19 and uncertain market conditions will limit the Company's ability to
access capital. Without additional financing, we do not believe our resources
will be sufficient to meet our operating and capital needs beyond the second
quarter of 2020.
Covid-19 Pandemic
We rely on our employees and agreements with Ariel and Dartmouth for our
research and development. The recent COVID-19 pandemic could have an adverse
impact on the research and development of our product candidates. Professor
Chenfeng Ke's research laboratory at Dartmouth is currently subject to a
six-week closure. We do not currently know the full extent of potential delays
of research under our service and research agreements.
COVID-19 has also caused significant disruptions to the global financial
markets, which severely impacts our ability to raise additional capital. We have
given notice of termination of employment to our current employees in an effort
to conserve resources as we evaluate our business development efforts. We may
be required to substantially reduce operations or cease operations if we are
unable to finance our operations. The ultimate impact on us and our significant
contracted relationships is currently uncertain.
The full impact of the COVID-19 outbreak continues to evolve as of the date of
this report, is highly uncertain and subject to change. Management is actively
monitoring the situation but given the daily evolution of the COVID-19 outbreak,
the Company is not able to estimate the effects of the COVID-19 outbreak on its
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.
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Going Concern
Our financial statements have been prepared assuming that we will continue as a
going concern and, accordingly, does 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, 2019 includes an explanatory paragraph stating the Company has not
generated revenues sufficient to cover operating expenses and will need
additional capital to service its debt obligations. Also, if the Company is
unable to obtain adequate capital due to the continued spread of COVID-19, 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 currently have no off-balance sheet arrangements.
Critical Accounting Policies
The preparation of our financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, management evaluates its
estimates and judgments which are based on historical experience and on various
other factors that are believed to be reasonable under the circumstances. The
results of their evaluation form the basis for making judgments about the
carrying values of assets and liabilities. Actual results may differ from these
estimates under different assumptions and circumstances. Our significant
accounting policies are more fully discussed in the Notes to our Financial
Statements.
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 $651,476 for the year ended
December 31, 2019. Research and development costs were $919,706 for the year
ended December 31, 2018
Stock-Based Compensation and Other Share-Based Payments: The expense
attributable to the Company's directors is recognized over the period in which
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.
Warrants: The Company accounts for common stock warrants in accordance with
applicable accounting guidance provided in ASC Topic 815 "Derivatives and
Hedging - Contracts in Entity's Own Equity" (ASC Topic 815), as either
derivative liabilities or as equity instruments depending on the specific terms
of the warrant agreement. For warrants classified as equity instruments we
apply the Black Scholes model. Presently all warrants issued and outstanding
are accounted for using the equity method.
Recent Accounting Pronouncements
Recent accounting pronouncements, other than below, issued by the Financial
Accounting Standards Board ("FASB"), (including its EITF, the AICPA and the
SEC), did not or are not believed by management to have a material effect on the
Company's present or future financial statements.
In June 2018, an accounting update was issued by FASB to simplify the accounting
for nonemployee share-based payment transactions resulting from expanding the
scope of ASC Topic 718, Compensation-Stock Compensation, to include share-based
payment transactions for acquiring goods and services from nonemployees. An
entity is required to apply the requirements of ASC Topic 718 to nonemployee
awards except for specific guidance on inputs to an option pricing model and the
attribution of cost (that is, the period of time over which share-based payment
awards vest and the pattern of cost recognition over that period). The
amendments in the accounting update specify that ASC Topic 718 applies to all
share-based payment transactions in which a grantor acquires goods or services
to be used or consumed in a grantor's own operations by issuing share-based
payment awards. The amendments also clarify that ASC Topic 718 does not apply to
share-based payments used to effectively provide (1) financing to an issuer or
(2) awards granted in conjunction with selling goods or services to customers as
part of a contract accounted for under ASC Topic 606, Revenue from Contracts
with Customers. The amendments in this accounting update are effective for
public business entities for fiscal years beginning after December 15, 2018,
including interim periods within that fiscal year. Early adoption is permitted,
but no earlier than an entity's adoption date of ASC Topic 606.
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