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 months ended March 31, 2020 and the notes thereto appearing
elsewhere in this Report and the Company's audited financial statements for the
fiscal year ended December 31, 2019, as filed with the SEC in its Annual Report
on Form 10-K on March 30, 2020, along with the accompanying notes. As used in
this Quarterly Report, the terms "we", "us", "our", and the "Company" means
BioLabMart Inc. prior to August 8, 2017 and Qrons Inc. since August 8, 2017.
Overview
The Company was incorporated under the laws of the State of Wyoming on August
22, 2016 as BioLabMart Inc. and changed its name to Qrons Inc. on August 8,
2017.
The Company is a preclinical stage biotechnology company developing advanced
stem cell synthetic hydrogel-based solutions to combat neuronal injuries and
focused on achieving a breakthrough in the treatment of traumatic brain injuries
("TBIs") for both concussions and penetrating injuries, an unmet medical need.
We believe that our approach is pushing the boundaries of science by using the
latest advances in molecular biology and chemistry. The Company collaborates
with universities and scientists in the fields of regenerative medicine, tissue
engineering and 3D printable hydrogels to develop a treatment that integrates
proprietary, engineered mesenchymal stem cells ("MSCs"), 3D printable implant,
smart materials and a novel delivery system.
To date, the Company has two product candidates for treating penetrating and
non-penetrating (concussion-like) TBIs, both integrating proprietary, anti-brain
inflammation synthetic hydrogel and modified MSCs. QS100TM is an injury
specific, 3D printable, implantable MSCs-synthetic hydrogel, to treat
penetrating brain injuries and QS200TM is an injectable MSCs-synthetic hydrogel
for the treatment of diffused injuries commonly referred to as concussions.
As described below, while continuing research under the Company's sponsored
research agreement (the "Sponsored Research Agreement") with the Trustees of
Dartmouth College ("Dartmouth") to develop innovative 3D printable,
biocompatible advanced materials, the Company entered into an intellectual
property license agreement (the "Intellectual Property Agreement") with
Dartmouth pursuant to which Dartmouth granted the Company an exclusive
worldwide, royalty bearing license for such 3D printable materials in the field
of human and animal health and certain additional patent rights to use and
commercialize licensed products and services.
In addition, the Company is engaged in laboratory research relating to neuronal
tissue regeneration and/or repair in Israel in connection with service
agreements with Ariel University R&D Co., Ltd., now known as Ariel Scientific
Innovations Ltd., a wholly owned subsidiary of Ariel University, in Ariel,
Israel ("Ariel"). The Company is the sole owner of any intellectual property
developed from such research.
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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. The Company currently outsources all
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.
The Company's common stock was approved by the Financial Industry Regulatory
Authority ("FINRA") for quotation on the OTC pink sheets under the symbol "BLMB"
as of July 3, 2017. FINRA announced the Company's name change to Qrons Inc. on
its Daily List on August 9, 2017. The new name and symbol, "QRON", became
effective on 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 common stock will
continue to be traded under the symbol "QRON".
Intellectual Property Agreement with Dartmouth
Pursuant to an option agreement with Dartmouth entered into on October 17, 2017,
on October 2, 2019 the Company entered into the Intellectual Property Agreement
pursuant to which, effective September 3, 2019 (the Effective Date"), 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 Company will pay Dartmouth: (i) a $25,000 license issue fee; (ii) an annual
license maintenance fee of $25,000, commencing on the first anniversary of the
Effective Date until the first commercial sale of a licensed product or service;
(iii) an earned royalty of 2% of net sales (as defined in the Agreement) 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 as
of the first commercial sale, an annual minimum royalty payment of $500,000 in
the first calendar year after the first commercial sale, $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.
Under the Agreement, the Company must diligently proceed with the development,
manufacture and sale of licensed products and licensed services, including
funding at least $1,000,000 of research in each calendar year beginning in 2019
and ending with the first commercial sale of a licensed product; filing an
IND/BLA (or equivalent) with the FDA or a comparable European regulatory agency
before the four-year anniversary of the Effective Date, make the first
commercial sale of a licensed product before the twelve-year anniversary of the
Effective Date and achieve annual net sales of at least $50,000,000 by 2033. If
the Company fails to perform any of these obligations, Dartmouth has the option
to terminate the Agreement or change the exclusive license to a nonexclusive
license.
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.
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Sponsored Research Agreement with Dartmouth
On July 12, 2018, the Company entered into a one-year Sponsored Research
Agreement with Dartmouth (the "Sponsored Research Agreement") pursuant to which
the Company will fund research conducted by Dartmouth of mutual interest to the
parties in accordance with the Agreement. Intellectual property invented or
developed solely by a party shall be owned by such party and intellectual
property jointly invented or developed shall be jointly owned. Dartmouth shall
retain an irrevocable worldwide right to use intellectual property owned by it
resulting from its research under the Sponsored Research Agreement on a
non-exclusive royalty-free basis for research and education purposes.
If either party desires to obtain patent and copyright protection for
intellectual property created under the Sponsored Research Agreement, such party
shall notify the other party and the parties shall agree upon intellectual
property protection strategy and cost allocation. Each party shall have the
right to grant licenses under jointly-owned patents to third parties, subject to
the Company's option to the exclusive right to license Dartmouth intellectual
property and/or Dartmouth's ownership in jointly-owned intellectual property
upon notification to Dartmouth in accordance with the terms of the Agreement and
at the Company's cost. If the Company exercises its option to license
intellectual property, Dartmouth shall negotiate exclusively with the Company
for 180 days (or such additional period as agreed upon by the parties) for such
licenses. The Company will be required to reimburse Dartmouth for the costs of
patent prosecution and maintenance in the United States and any foreign country
and demonstrate reasonable efforts to commercialize the technology.
The Sponsored Research Agreement may be terminated earlier than one year upon
written agreement of the parties, a material breach which is not cured within 30
days of notice thereof, if Professor Ke no longer conducts the research under
the Agreement and a successor acceptable to both parties is not available, or in
the event of an unauthorized assignment of the Company's rights and obligations
under the Agreement.
On November 4, 2019, the Company and Dartmouth entered in the First Amendment to
the Sponsored Research Agreement to extend the term of the Agreement and provide
for an additional year of funding through July 14, 2020.
Royalty and License Fee Sharing Agreement with Ariel
On November 30, 2019, the Company entered into a royalty and license fee sharing
agreement (the "Royalty Agreement") with Ariel which, among other things,
superseded and terminated the license and research funding agreement, dated
December 14, 2016, as amended, between the Company and Ariel (the "License
Agreement"). Services agreements with Ariel (as described below) related to
laboratory access and other services were not affected by such termination.
From and after 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 common
stock of the Company. 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.
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Services Agreements with Ariel
On December 14, 2017, the Company entered into a 12-month services agreement
with Ariel (the "Services Agreement") pursuant to which a team at Ariel
University, with Professor Danny Baranes acting as Principal Investigator, will
conduct molecular biology research activities involving the testing of implant
materials for the Company. If Professor Baranes ceases to provide services, the
Company must be notified and a replacement acceptable to the Company must be
found within 30 days or the Company may terminate the Services Agreement. As
compensation for such services, the Company paid Ariel (i) $17,250 on December
19, 2017 and (ii) $17,250 on April 26, 2018. On April 12, 2018, the Services
Agreement was amended to provide for the payment by the Company of an additional
monthly fee, commencing March 2018, of up to 8,000 Israeli shekels as
compensation for additional costs which the Company may request.
The Services Agreement may be terminated by a non-breaching party upon a
material breach that is not cured within 30 days by the other party. The
Services Agreement may also be terminated by the Company upon thirty days'
written notice to Ariel. Ariel must keep confidential information of the Company
confidential for five years after the term of the Services Agreement.
On March 6, 2018, the Company entered into an additional service agreement with
Ariel for the services of Professor Gadi Turgeman and his neurobiology research
team in their lab pursuant to which the Company paid Ariel $20,580 on each of
March 19, 2018 and August 22, 2018. Effective March 6, 2019, this additional
service agreement was amended to extend the term for an additional twelve-month
period until March 6, 2020 for total compensation of $41,160 to be paid to Ariel
in quarterly installments of $10,290 commencing on the execution of the
amendment and on each of June 1, 2019, September 1, 2019 and December 1, 2019.
Plan of Operations
To date, we have 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, we intend to
file for additional patents.
However, there is substantial doubt that we can continue as an on-going business
unless we obtain additional capital to pay our expenditures. We have not
generated revenues from the sales of products and we do not currently have
sufficient resources to accomplish all of the conditions necessary for us to
generate revenue. We will continue exploring sources of debt and equity
financings as well as available grants.
Covid-19 Pandemic
We rely on our employees and, our 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. As a result of
such pandemic, the laboratory at Ariel has been closed and Professor Chenfeng
Ke's research laboratory at Dartmouth has been closed since approximately
mid-March 2020. We are currently continuing lab research offsite, compiling
test results and working on perfecting our intellectual property. We also
recently entered into an agreement with Dartmouth for the allocation of rights
resulting from certain 3D printing research under a research grant from the
State of New Hampshire. However, we do not currently know the full affect of
COVID-19 on our operations or the 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 gave
30- days' notice of termination of employment to our employees on March 23, 2020
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.
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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 currently able to estimate the effects of the COVID-19
outbreak on its operations or financial condition. 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.
Results of Operations
Three Months Ended March 31, 2020 and March 31, 2019
Revenue
We have not generated any revenue since our inception and do not expect to
generate any revenue from the sale of products in the near future.
Net Loss
Our net loss for the three months ended March 31, 2020 and March 31, 2019 is as
follows:
For Three Months Ended
March 31,
2020 2019
Net sales $ - -
Operating expenses:
Research and development expenses 171,568 165,154
Professional fees
23,624 15,586
General and administrative expenses 23,746 82,774
Total operating expenses 218,938 263,514
Income (loss) from operations (218,938 ) (263,514 )
Other income (expense)
Interest expense (14,284 ) (496 )
Change in derivative liabilities (6,910 ) 2,549
Total other income (expense) (21,194 ) 2,053
Net (loss) $ (240,132 ) (261,461 )
Operating Expenses
Total operating expenses for the three months ended March 31, 2020 were $218,938
compared to total operating expenses of $263,514 for the three months ended
March 31, 2019. During the three months ended March 31, 2020, the Company
incurred $171,568 of research and development expenses which included payroll of
$57,314, service fees related to certain research and development agreements of
$76,179, fees associated with a sponsored research agreement of $29,185, legal
and filing fees related to patents of $587, purchases of expendable lab supplies
and equipment of $312 and technology licensing fees of $7,991, compared to
$165,154 of research and development expenses which included payroll of $52,192,
service fees related to certain research and development agreements of $60,044,
fees associated with a sponsored research agreement of $18,146, legal and filing
fees related to patents of $17,838, software fees of $1,374 and purchases of
expendable lab supplies and equipment of $15,560. The Company incurred general
and administrative expenses of $23,746 for the three months ended March 31, 2020
compared to general and administrative expenses of $82,774 for the three months
ended March 31, 2019. The substantial decrease in general and administrative
expense during the three months ended March 31, 2020 was primarily due to a
decrease in stock-based compensation costs from $37,500 in the three months
ended March 31, 2019 to $0 in the three months ended March 31, 2020 , and a
reduction in advertising and marketing costs from $48,387 in the three months
ended March 31, 2019 to $19,500 in the three months ended March 31,
2020. Professional fees were $23,624 for the three months ended March 31, 2020,
which reflect an increase in professional accounting fees in the three months
ended March 31, 2020 compared to professional fees of $15,586 during the three
months ended March 31, 2019. Other expense in the three months ended March 31,
2020 was $21,194 and included a loss of $6,910 as a result of the change in
value of derivative liabilities and interest expense of $14,284 which is
comprised of accretion of convertible notes of $8,390, financing costs of
$3,400 and accrued interest on notes of $2,494. Other income of $2,053 in the
three months ended March 31, 2019, includes a gain of $2,549 as a result of the
change in value of derivative liabilities over the three months ended March 31,
2019, and interest expenses of $496.
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We had a net loss of $240,132 in the three months ended March 31, 2020 compared
to a net loss of $261,461 in the three months ended March 31, 2019.
Working Capital
March 31, December 31,
2020 2019
Current Assets $ 49,811 $ 123,290
Current Liabilities 727,111 631,412
Working Capital (deficiency) $ 677,300 $ 508,122
Cash Flows
At March At March
31, 2020 31, 2019
Net cash (used in) operating activities $ (109,064 ) (135,102 )
Net cash provided by investing activities - -
Net cash provided by financing activities $ 65,000 40,000
Net increase (decrease) in cash during period (44,064 ) (95,102 )
Operating Activities
Net cash used in operating activities was $109,064 for the three months ended
March 31, 2020 compared to $135,102 for the three months ended March 31, 2019.
Cash used in operating activities for the three months ended March 31, 2020 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 $67,554, warrants granted as financing costs valued at $3,400,
accretion of debt discount of $8,390, a change in our derivative liabilities of
$6,910 and changes to our operating assets and liabilities including a decrease
to prepaid expenses of $29,415 and increases to our accounts payable and
accounts payable - related parties. Cash used in the three months ended March
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
expense totaling $45,442, stock awards totaling $37,500, a gain from the change
in derivative liabilities of $2,549 and changes to our operating assets and
liabilities including an increase to prepaid expenses of $30,378 and increases
to our accounts payable and accounts payable-related parties.
Investing Activities
There were no investing activities during the three months ended March 31, 2020
and 2019.
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Financing Activities
Net cash provided by financing activities was $65,000 for the three months ended
March 31, 2020 compared to $40,000 for the three months ended March 31, 2019. We
received no proceeds from private placement offerings in the three months ended
March 31, 2020 as compared to $40,000 in the three months ended March 31, 2019.
During the three months ended March 31, 2020 we received $55,000 in proceeds
from related parties in the form of short-term advances from our officers with
no comparative transactions during the three months ended March 31, 2019.
During the three months ended March 31, 2020 we also received $10,000 in the
form of convertible notes with no similar financing in the three months ended
March 31, 2019.
Liquidity and Capital Resources
As of March 31, 2020, we had cash of $22,961. 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. 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.
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 further 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.
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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 $171,568 and $165,154 for
the three months ended March 31, 2020 and 2019, respectively.
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 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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