UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
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| Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
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For the Fiscal Year Ended December 31, 20182021
Or
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| Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
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☐ Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
For the transition period fromto
Commission File Number: 333-209325
Brain Scientific Inc.BRAIN SCIENTIFIC INC.
(Exact nameName of registrant as specifiedRegistrant in its charter)Its Charter)
Nevada | | 81-0876714 |
(State or other jurisdictionOther Jurisdiction of
incorporation
Incorporation or organization)
Organization) | | (I.R.S. Employer
Identification No.)
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6700 Professional Parkway
205 East 42Lakewood Ranch, Florida 34240
nd Street, 14th Floor
New York, New York 10017
(Address of principal executive offices) (Zip
(917) 388-1578
(Registrant’s Telephone Number, Including Area Code)
Registrant’s telephone number, including area code: (646) 388-3788
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class | | Trading Symbol(s) | | Name of each exchange on which
registered |
| N/A | | N/A | | N/A |
Securities registered pursuant to Sectionsection 12(g) of the Act: None.
Common Stock, $0.001 par value
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrantregistrant: (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 (§(Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)submit). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”filer”, “smaller reporting company,”company”, and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.Act).
Large accelerated filer ☐ | ☐
| Accelerated filer ☐ | ☐
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| Non-accelerated filer ☒ | ☒
| Smaller reporting company ☒ | ☒
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| Emerging Growth Company | growth company ☒ |
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 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant based on the closing sales price, or the average bid and asked price on such stock, as June 30, 20182021 was $3,505.$7.78M based on the closing price of $0.39 per share of registrant’s common stock as quoted on the OTC Marketplace on that date.
TheIndicate the number of shares outstanding of each of the registrant’s common stock outstanding as of April 1, 2019 was 19,205,624 sharesissuer’s classes of common stock, as of the latest practicable date: 50,578,003 shares of Common Stock, $0.001 par value, $0.001 per share.at March 28, 2022.
Documents Incorporated by Reference
None
BRAIN SCIENTIFIC INC.
TABLE OF CONTENTS
BASIS OF PRESENTATION
On September 21, 2018, Brain Scientific Inc. (formerly known as All Soft Gels Inc.), a Nevada corporation, completed its acquisition of Memory MD, Inc., a Delaware corporation, whereby, among other things, Brain Scientific Inc. acquired 100% of Memory MD, Inc. in exchange for the issuance of shares of common stock and Memory MD, Inc. became the wholly-owned subsidiary of Brain Scientific Inc. (the “Company”), was incorporated under the laws of the state of Nevada on November 18, 2013 under the name All Soft Gels Inc. The Company on October 1, 2021 acquired Piezo Motion Corp (“Piezo”), a privately held Delaware corporation formed in January 2020. Upon completion of the acquisition, Piezo is treated as the surviving entity and accounting acquirer although the Company was the legal acquirer. Accordingly, the Company’s historical financial statements are those of Piezo, the surviving entity and accounting acquirer. The Company has two lines of operations The MemoryMD subsidiary group is involved in cloud computing, data analytics and medical device technology in the Neurology and brain monitoring industries seeking to commercialize its EEG devices and caps. The Piezo subsidiary group is focused on the ultrasonic standing wave-type piezo motor technology for rotary and linear motion and has experience in the research and development, as well as the manufacturing, of piezo motors for high-tech industries across the globe.
Reverse Merger and Corporate Restructure
On June 11, 2021, the Company entered into a merger agreement (the “Merger Agreement”) with Piezo and BRSF Acquisition Inc. to acquire Piezo (the “Acquisition”). The transactions contemplated by the Merger Agreement were consummated on October 1, 2021 and, pursuant to the terms of the Merger Agreement, all outstanding shares of Piezo were exchanged for 29,520,454 shares of the Company’s common stock and Piezo became the Company’s wholly owned subsidiary.
The Merger was effected pursuant to the Merger Agreement. The Merger is being accounted for as a reverse merger whereby Piezo is the acquirer for accounting purposes. Piezo is considered the acquiring company for accounting purposes as upon completion of the Merger, Piezo’s former stockholders held a majority of the voting interest of the combined company.
The financial information, including the operating and financial results and audited financial statements included in this Annual Report on Form 10-K are that of the Company as it exists following the Acquisition.Piezo Merger.
In this Annual Report on Form 10-K, unless otherwise specified, all dollar amounts are expressed in United States dollars. Except as otherwise indicated by the context, references in this report to “Company”, “we,”“we”, “us” and “our” are references to Brain Scientific Inc., formerly known as All Soft Gels Inc., as combined with Memory MD, Inc.Piezo Motion Corp., and reflects the prior operations and financial condition of Memory MD, Inc.Piezo Motion Corp. before the Acquisition. References to All Soft Gels or All Soft Gels Inc. refer to Brain Scientific prior to the Acquisition, and references to MemoryMD or MemoryMD Inc. refer to that company prior to the Acquisition.Merger.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including in documents that may be incorporated by reference intoin to this Report, contains forward-looking statements that involve substantial risks and uncertainties. The forward-looking statements are contained principally in the sections entitled “Risk Factors,” “Management'sFactors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,”“Business” but are also contained elsewhere in this Report. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “target,” “seek,” “contemplate,”“may”, “might”, “will”, “could”, “would”, “should”, “expect”, “intend”, “plan”, “objective”, “anticipate”, “believe”, “estimate”, “predict”, “project”, “potential”, “target”, “seek”, “contemplate”, “continue”, and “ongoing,” or“ongoing”. Or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Report, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain. Forward-looking statements include statements about:
| ● | ourOur plans to develop and commercialize our proposed and developing products, technologies, and services (“Products”).
this includes both those from Memory MD, Inc. (“Neurology Products”) and Piezo Motion Corp. (“Motion Products”); |
| ● | ourOur plans for and our expectations regarding the pre-clinical testing and clinical trialswork required for approval of our Neurology Products that will be required by the U.S.still under development or require pre-approval from US Food and Drug Administration (“FDA”) or foreign regulatory bodies;
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| ● | the timing and availability of data from pre-clinical tests or clinical trials;
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| the timing of our planned regulatory filings;
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| theThe timing of and our ability to obtain and maintain regulatory approval of our Neurology Products;
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| ● | The clinical utility of our Neurology products; |
| ● | The market viability of our Motion Products; |
| ● | Our ability to obtain reimbursement coverage for our Neurology Products; |
| ● | Our expectations about the willingness of healthcare professionals to recommend our Neurology Products to their patients; |
| ● | Our expectations about the willingness of manufacturers to move from current motors to our piezo motors; |
| ● | The timing of our planned regulatory filings; |
| ● | Our expectations regarding international opportunities for commercializing our Products under development; |
| ● | the clinical utility of our Products under development;
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| our ability to develop our Products with the benefits we hope to offer as compared to existing technology, or at all;
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| ourOur ability to develop future generations of our Products;
Products |
| ● | ourOur future development priorities;
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| ● | our ability to obtain reimbursement coverage for our Products;
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| our expectations about the willingness of healthcare providers to recommend our Products to their patients;
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| ourOur future commercialization, marketing and manufacturing capabilities and strategy;
strategy’ |
| ● | ourOur ability to comply with applicable regulatory requirements;
requirements |
| ● | ourOur ability to maintain our intellectual property position;
position. |
Forward-looking statements are based on management'smanagement’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and management'smanagement’s beliefs and assumptions are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. You should refer to the “Risk Factors” section commencing on page 12X of this Report for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all.
These forward-looking statements speak only as of the date of this Report. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks and other information we describe in the reports we will file from time to time with the SEC after the date of this Report.
CAUTIONARY NOTE REGARDING INDUSTRY DATA
Unless otherwise indicated, information contained in this Annual Report on Form 10-K concerning our company,Company, our business, the services we provide and intend to provide, our industry and our general expectations concerning our industry are based on management estimates. Such estimates are derived from publicly available information released by third party sources, as well as data from our internal research, and reflect assumptions made by us based onupon such data and our knowledge of the industry, which we believe to be reasonable.
PART 1
ITEM 1 – BUSINESS
The CompanyHistory
We were initially organized on November 18, 2013 as a Nevada limited liability company under the name Global Energy Express LLC by the filing of articles of organization with the Secretary of State of the State of Nevada. On December 18, 2015, the Companywe converted from a Nevada limited liability company under the name Global Energy Express LLC to a Nevada corporation under the name All Soft Gels Inc. by the filing of articles of conversion and articles of incorporation with the Secretary of State of the State of Nevada in accordance with Nevada Revised Statutes (“NRS”) 92A.205 and NRS Chapter 78. Prior to the Acquisition, onNevada. On September 18, 2018, the Companywe changed itsour name from All Soft Gels Inc. to Brain Scientific Inc. and changed itsour ticker symbol on the OTC Pink market to “BRSF”.
PriorOn September 21, 2018, we entered into a merger agreement (the “Merger Agreement”) with MemoryMD, Inc. and AFGG Acquisition Corp. to acquire MemoryMD, Inc. (the “Acquisition”). The transactions contemplated by the Merger Agreement were consummated on September 21, 2018 and, pursuant to the terms of the Merger Agreement, all outstanding shares of MemoryMD were exchanged for shares of our common stock. Accordingly, we acquired 100% of Memory MD, Inc. in exchange for the issuance of shares of our common stock and MemoryMD, Inc. became our wholly-owned subsidiary. In conjunction with the Acquisition, we ceased all direct operations and assigned all of our assets and liabilities from prior to the Acquisition, and assumed and commenced the Company was engaged in marketingbusiness of MemoryMD as the sale of a soft gel liquid capsule named All Soft Gels Kre-Alkalyn Liquid Gels. As of immediately prior to the closingsole business of the Acquisition,Company.
On June 11, 2021, we entered into an Assignmentanother merger agreement (the “Piezo Merger Agreement”) with Piezo Motion Corp. and AssumptionBRSF Acquisition Corp. to acquire Piezo. (the “Piezo Acquisition”). The transactions contemplated by the Piezo Merger Agreement with Chromium 24 LLC, pursuantwere consummated on October 1, 2021. Pursuant to which Chromium 24 LLC assumedthe terms of the Piezo Merger Agreement, all outstanding shares of Piezo were exchanged for shares of our remaining assetscommon stock. Accordingly, we acquired 100% of Piezo in exchange for the issuance of shares of our common stock and liabilities through the closing of the Acquisition. Accordingly, as of the closing of the Acquisition, we had no assets or liabilities. Following the Acquisition, the Company is now a neurodiagnostic and predictive technology platform company seeking to provide a centralized platform for data acquisition and analysis of electroencephalography (“EEG”) data that combines cutting-edge medical device technologies with cloud-based telehealth services. The Company is primarily focused on establishing diagnostic protocols to identify pathological risk factors involving the brain, and driving novel insights into cognitive health that support early treatment of neurological disorders.Piezo became our wholly-owned subsidiary.
Our principal executive office is located at 205 East 42nd Street, 14th Floor, New York, New York 10017,6700 Professional Parkway, Lakewood Ranch, Florida 34240 and our telephone number is (646) 388-3788.(917) 388-1578. Our website address is www.brainscientific.com. The information on our website is not part of this Annual Report on Form 10-K.
The Company
The Company is a MedTech company with two cutting edge product lines: Neurology and Motion Products. Since October 1, 2021, the Company has had two subsidiaries, each of which is focused on one of our complimentary Product lines. The Neurology Products of Memory MD are designed for neurology-focused medical devices. The Motion Products of Piezo are piezoelectric motors which are fast, precise, tiny and powerful. The piezo motors are designed for and expected to have valuable and beneficial uses as motors within medical devices and devices outside of the MedTech industry. We have developed twelve motor platforms and an ultra-precise micro dosing pump, each of which is presently available commercially. We are also currently developing additional motion products that leverage our patented intellectual property.
Our initial Neurology Products are intended to allow for simplifying and making more ambulatory the completion of electroencephalography (“EEG”). Further, the NeuroCap and NeuroEEG Products, both 510K FDA cleared, are focused on providing efficient tools to the EEG medical market. Our technology allows a miniature, wireless, clinical device capable of recording an EEG and provides the data to medical staff without the bulky hardware or necessitating a neurology technician to place the cap. The NeuroEEG™ Hardware Platform for data collection and NeuroCap™ Software-like Consumables for data collection are anticipated to have strong margins, utilizing a distribution network to provide access to hospitals, neurologists, and general practitioners as well as the various telehealth and teleneurology companies.
Product
The NeuroEEG connects wirelessly to the computer, allowing freedom of movement for the patient and Services Pipelineenabling telemedicine applications. Currently, a shortage of EEG testing equipment and technicians exists in some areas. Other technology may require a specialized technician to apply the gel and electrodes individually. A neurology technician may be more expensive and in shorter supply. They may not be staffed and available 24/7 for some hospitals.
Piezo has recently completed an extensive engineering program culminating in the development and initial launch of a unique line of small rotary and linear piezomotor products (the ‘Blue Series’), control electronics and associated software. Piezo’s motor product line utilizes engineering polymers making them suitable for equipment and for high volume OEM applications. While there are several types of piezomotor on the market, the design and technology employed by Piezo is very new and combines key advantages, such as superior precision and power density with affordability and ease-of-manufacture.
Piezo’s Blue Series piezomotors are available in a variety of sizes and configurations and are divided into twelve core motor platforms which include rotary motors (Models RBS, RAS) and linear motors (Models LCS, LBS and LAS). These core motor models differ in output specification and are further divided into variants/versions which include versions having hollow-shaft and solid-shaft rotors, versions having integrated magnetic and/or optical encoders and versions which are non-magnetic and suitable for use within medical MRI. For each motor product line Piezo has developed hardware control electronics together with motion control software including firmware and operating software.
The Company’s primaryCompany is now positioned to build on its MedTech platform, as well as having Motion Products which are able to serve other market segments. Over the past year, the Company has made a concerted effort to solidify its manufacturing and sales distribution channels for both Neurology and Motion Products.
Recent Developments
COVID-19 Pandemic
From a market perspective with our Neurology Products, the COVID-19 pandemic has created an on-going opportunity. As the variants of COVID-19 continue to emerge, an interest exists in various stagesuse of sanitary medical products, such as NeuroCap, Further, continued stress exists on medical staff across the US. We believe tools which allow for more generalized practitioners to provide EEG testing will become more necessary and relevant within healthcare settings.
The COVID-19 pandemic has created challenges for the supply chain on both our Neurology and our Motion Products. Delays in receiving parts have been up to 8 weeks for key components of both Products. At present, we are not seeing a reduction in these issues for 2022.
Russian Invasion of Ukraine
On February 24, 2022, Russia invaded Ukraine. Our Piezo research and development group in Kyiv has not been able to operate from the offices since that time. The team from Kyiv are all working remotely. We do not know when they will have access to the office. Further, we have engineering resources capable of performing the work done in Kyiv from the United States.
We operate a 100% fully-owned subsidiary of Memory MD, Inc., MemoryMD Russia, in Russia. Memory MD Russia is still operating as follows:a medical device distributor. However, we anticipate that the economic sanctions will impact the business. At present, we are unable to determine the full impact of the situation. Further, the political situation may result in our inability to continue operations as a 100% fully-owned subsidiary of a U.S. company. This will not impact the operations of Memory MD, Inc. in the U.S. or internationally.
NeuroEEGNeurology: Industry Overview
The NeuroEEGElectroencephalography, or EEG, is a 16 channel, portable,method to identify and evaluate the electrical activity of the brain. The ability to do this dates back to the mid-to-late 19th century when scientists began to study the brain activity of various animals such as rabbits, dogs, and monkeys. The 1920’s saw the first example of these involving humans, when in 1924 German physiologist and psychiatrist Hans Berger recorded the first human EEG.
One of the first discoveries was the EEG’s ability to identify the potential for epileptic seizures. As science and scientists began to understand the workings of the EEG, they could identify more beneficial applications of the technology working in combination with other tests. These include applications related to the following:
| ● | Brain activity after a stroke |
| ● | Dementia, including Alzheimer’s Disease |
| ● | Traumatic Head Injury (sports and non-sports related) |
| ● | Sleep Disorders (e.g. Insomnia, Restless Leg Syndrome, Narcolepsy) |
The EEG may also be used to determine the electrical activity of the brain of an individual involved in a trauma or experiencing addiction, as well as the brain activity of comatose individuals.
It is here in the advancement of technology where we believe our products and technology will play a key role in the use and development of EEG related activities.
Neurology: Our Products, Services and Product Roadmap
Our data acquisition platform is composed of three main parts:
| 1. | Hardware - NeuroEEG™ and NeuroCap™, our two products on the market. |
| 2. | Software - professional software for registering and analyzing EEG data. |
| 3. | NeuroNet Cloud - The database where brain data can be stored and analyzed. |
NeuroEEG
NeuroEEG™ is an FDA cleared 16-channel, clinical-grade device, intended for prescription use to acquire, record, transmit, and display electrical brain activity for patients of all ages. portable, versatile, and compact and can easily be deployed across any number of different patient settings. Easy setup on NeuroEEG™ lets clinical staff of any level set up and run the EEG test under the supervision of a physician. Its wireless system digitizes and records electrophysiological activity which acquires, displays,at 500Hz and securely storesis further supported by advanced artifact filtering allowing for the cleanest signal possible. The intuitive nature of the device democratizes EEG as a viable diagnostic tool that can be implemented across environments that were formerly inaccessible through traditional EEG solutions. NeuroEEG™ is designed for use in hospitals, private practices, mobile (ambulatory care & emergency medical service vehicles), field applications (clinical trials), and athletic environments.
NeuroEEG™ is non-invasive and is intended to acquire, display and store the electrical activity of a patient’s brain on a computer in a non-invasive manner. This wireless system digitizes and records electrophysiological activity at 500Hz.(PC or laptop). The generated data then serves as a clinical assessment aid forwithin a clinical practice, rehabilitation institution, diagnostic center, neurosurgical clinic, operating room, intensive care unit, and emergency room environment. Data acquired by NeuroEEG™ is to be performed under the diagnosisdirection and interpretation of neurological disease. Key features of the NeuroEEG include its small size and weight, its portability, its wireless Bluetooth connectivity, and its real-time data processing and transmission.
a licensed medical professional. This device does not provide any diagnostic conclusion about a subject's condition. The software utilized by the NeuroEEG is designed to provide analytics capabilitiesbe used with our NeuroCap Product.
NeuroCap
The NeuroCap™ is an FDA cleared disposable, soft layered cap with an integrated electrode circuit that is designed to address existing problems of conventional EEG systems. The silver embedded wiring is pre-gelled, so it requires no prepping of the skin before application. NeuroCap™ makes it possible for health practitionersmedical staff of all levels to better manageperform EEG data acquisition and analysis. It allows thetests, without having to laboriously apply electrodes one-by-one or spend considerable time cleaning an EEG signal to be recorded and displayed on a computer screenheadset after each use.
The NeuroCap™ works in accordanceparallel with the selected protocol scheme.NeuroEEG™ amplifier device to successfully carry out EEG tests. However, the NeuroCap™ can also work with other EEG devices and not just our NeuroEEG. NeuroCap’s electrode placement follows standard alignment pursuant to the international 10-20 system. The system also allowsacquisition of electrical brain activity is carried out by non-invasive pre-gelled passive Ag/AgCl scalp (cutaneous) electrodes, ensuring maximum comfortability for the userwearer. Benefits of NeuroCap™ include:
| ● | The NeuroCap™ has 22 electrodes and 19 active EEG channels for performing high-quality routine EEG tests. |
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| ● | NeuroCap™’s disposable EEG headset helps reduce the risk of contagions and cross-contamination. |
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| ● | NeuroCap™’s pre-gelled electrodes reduce patient discomfort and concern over messy gels. |
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| ● | NeuroCap™’s malleable structure and adjustable Velcro straps allows full adjustability during placement in patients with head injuries. |
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| ● | NeuroCap™’s easy to follow numbered straps makes application easy by healthcare workers of all skill levels. Set up can be accomplished in about 5 minutes. User-friendly and requires minimal training. |
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| ● | NeuroCap™ can stay on patient’s head for up to 4 hours. |
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| ● | NeuroCap™ is reimbursable. |
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| ● | NeuroCap™ can be used overnight when no techs are available, or with COVID patients to limit exposure time |
Initial sales of NeuroCap™ have been made to annotate events, such as exhibited patient behavior, or unique occurrences, such as muscle contractions, involuntary patient movement, falls,a small number of hospitals and other events, while the EEG test is running. In addition, in-depth EEG assessment functions are expected to be available, including spectrum and correlation analysis, topographic mapping, pathological activity search by segments and video monitoring.
The Company commenced pre-sellingclinics. After completion of the NeuroEEG and expectsmerger, operations were transferred to deliver on its first purchase order by mid-2019.
NeuroCap
The NeuroCap, to be used in conjunction with the NeuroEEG, isLakewood Ranch, Florida. In 2022, a 19 channel, 22 electrode disposable cap with fixed electrodes along the headpiece to ensure consistent placement. Key benefits of the NeuroCap include the elimination of the need for an EEG technician, rapid set-up (under five minutes) compared to existing products on the market, as well as superior infection control.
We received our first purchaser order for the NeuroCap from a distributor of medical supplies for testing purposes and commenced shipping product in the fourth quarter of 2018 to several hospitals and other customers.
The MemoryMD Cloud AI Platform
manufacturing agreement was entered into. The Company is designingmoving and new distribution agreements were entered into to start selling the MemoryMDNeuroCap™ within the United States and internationally.
NeuroNet Cloud AI Platform
Our NeuroNet Cloud infrastructure is being designed to provide artificial intelligencefor a robust platform to store and manage all forms of data that performs automatic analysismay be received from internal and external entities such as Electronic Health Records(“EHRs”), Electronic Medical Records (“EMRs”), Internet of Things (“IoT “) devices and 3rd party apps, clinical applications and other forms of patient data. This infrastructureThe NeuroNet Cloud is expectedalso being designed to receive inputs from different sourcesprovide for streamlined connectivity, allowing secure access to patient data for purposes of evaluation and reporting by outside clinical specialists, such as medical databases, normative data sets, and other patient health information. By using machine-learning algorithms, the system is expected to improve in accuracy, providing for more advanced diagnostics as additional brain imagesneurologists.
We are acquired.
The Company expects to launch its Cloud AI Platform by March 31, 2020.
TeleNeurology Infrastructure
The Company isalso developing a HIPAA-compliant data storage and patient management cloud infrastructure to provide teleneurology services. The infrastructure is being designed so neurologists will be able to remotely access patient EEG and clinical data to evaluate patient conditions. We believe that such an infrastructure removes the need for direct contact with the patient, opening up underserved geographic locations with an undersupply of physicians to meet growing demand for neurological care as aging patient populations continues to grow.
The Company expects Data will be acquired via the 22 channel NeuroCap™ and will be wirelessly transmitted to launch its TeleNeurology Infrastructurethe cloud, via the NeuroEEG™, as batch data (fully transferred before being consumed) or in real-time (data is consumed as it is being produced).Data can then be consumed by a doctor or specialist who can recover the data, replay, and provide feedback, such as a report, on the selected patient data. This infrastructure is configurable to match unique workflows of healthcare operators.
As designed, the NeuroNet Cloud would then be able to cross-reference multiple points-of-data including:
| ● | Electronic Health Records |
We expect to have a fully working model of the NeuroNet Cloud by the end of 2019.2023, subject to the availability of funds.
Board-Certified Neurologist NetworkArtificial Intelligence Infrastructure
The CompanyOur infrastructure is also being designed to gather and mine brain-imaging data. Clinicians and researchers will be able to access data profiles of their patients and generate risk assessment and treatment plans to address neurological conditions. This data could also be useful in establishing correlations between a myriad of brain scans, allowing us to further understand connections about the brain that have not been discovered.
Artificial intelligence infrastructure in the processCompany cloud refers to all modules used to perform automatic analysis of establishing a pool of state-licensed, board-certified neurologists who would be available at all times, to make an independent diagnosis, based onpatient data. This infrastructure can receive inputs from many different sources such as medical databases, normative data sets, and other patient health information. By using machine-learning algorithms, the data generated by the NeuroEEG and NeuroCap. This networksystem is being designed to provide national coverageimprove accuracy, providing for more advanced diagnostics as additional brain images are acquired.
The infrastructure is being designed to combine neural networks with state-of-the-art tree search and pattern classification systems to build robust neurological health profiles of patient brain scans. These models are expected to be self-learning, so the United States covering all 50 states.more data supplied to it, to more “educated” it is expected to be.
We believe we will achieve better patient outcomes at a reduced cost through robust modelling and correlational analysis of brain imaging and other biometric data. Significant patterns recognized by the system are designed to help medical professionals detect nuances in an individual brain, allowing them to tailor more personalized treatment plans for their patients. The NeuroNet Cloud is being designed to handle millions of brain images to create robust models that correlate health records, behaviors, and other neurological factors.
Neurology: Intellectual Property
Protection of our intellectual property is a strategic priority for our business. We rely on a combination of patents, trademarks, copyrights, trade secrets as well as nondisclosure and assignment of invention agreements, material transfer agreements, confidentiality agreements and other measures to protect our intellectual property and other proprietary rights.
Patents and trademarks are significant to our business to the extent that a Product or an attribute of a Product represents a unique design or process. Patent protection of our Products restricts competitors from duplicating these unique designs and features. To protect our proprietary secrets and competitive technologies, we have obtained and are seeking to further obtain patent, trade secret, trademark and other intellectual property protection on our Products whenever appropriate. As of the date of this filing,Annual Report on Form 10-K, the Company has applied for one international patent titled “Apparatus And Method For Conducting Electroencephalography” (Application No.: PCT/US18/18570), one U.S. nonprovisional patent titled “Apparatus And Method For Conducting Electroencephalography” (Application No.: 15/898,611), one Chinese patent titled “Apparatus and Method for Conducting Electroencephalography” (Application No.: 201880002338.7), and ownsone European patent titled “Apparatus And Method For Conducting Electroencephalography” (Application No.: 18757492.6), all of which relate to our NeuroCap. All such applications are pending and, if granted, would expire in 2037. We have also applied for one provisional U.S. patent application titled “Full Head Apparatus and Electrodes for Conducting Electroencephalography” (Application No.: 63/115,810) in the name of Brain Scientific, Inc.; and one provisional U.S. patent application titled “Integrated Brain Machine Interface Platform with Graphene Based Electrodes” (Application No.: 63/070,749) in the name of Memory MD, Inc.
We also own two United States trademarks.
Weregistered trademarks (Neuro EEG and NeuroCap) and have pending applications for two additional trademark registrations (Brain Scientific and Memory MD). In May 2018, we entered into a Patent Assignment and License Back Agreement with Boris Goldstein, our Chairman, Secretary and Executive Vice President, Dmitriy Prilutskiy, Stanislav Zabodaev and Medical Computer Systems Ltd. Pursuant to the agreement, among other things, Messrs. Goldstein, Prilutskiy and Zabodaev assigned all of their rights to a patent entitled “Apparatus And Method For Conducting Electroencephalography” (Application No.: 15/898,611), to us, and in return, we granted to Medical Computer Systems Ltd., an unaffiliated entity who also provides manufacturing services to us, a limited, royalty-free, fully paid-up, worldwide, nonexclusive license (without the right to sublicense or assign), to the patent, to practice, make and use the inventions, ideas and information embodied therein, and to make, use, offer to sell, sell, lease or import products, services, processes, methods and materials embodying or deriving from the inventions, ideas and information from the patent and any activities derived directly therefrom; provided, however, that if and upon FDA approval of a Product, Medical Computer Systems’ aforementioned rights shall be limited to manufacturing and sales solely to our Companyus or on our behalf provided that we purchase from Medical Computer Systems (and Medical Computer Systems makes available for sale) a minimum of 20,000 units of Products per calendar year on reasonable terms and conditions to be determined by the parties in good faith; and provided further, however, that Medical Computer Systems can without any limitation sell products embodying or deriving from the inventions, ideas and information from the patent in (i) the territories that made up the former USSR (excluding the Baltic countries) and (ii) Japan. In furtherance of the foregoing first proviso, in the event we fail to purchase the annual minimum order for a particular calendar year, Medical Computer Systems’ limitation to manufacture and sell Products only to our Companyus pursuant to this proviso shallwill be suspended for the next calendar year.
IndustryNeurology: Market Overview
MedTech Industry
The Company competesWe compete within the domestic and global medical device industry, referred to as the “MedTech” industry, which industry, on a global scale, is expected to reach an estimated $594.5 billion by 2024, and it is forecast to grow at a compound annual growth rate (“CAGR”) of 5.3% from its worldwide sales of $386.8 billion in 20162020 to $521.9 billion in 2022. 2024, according to Statistsa.
The MedTech industry is characterized by rapid change resulting from technological advances and scientific discoveries. We believe that U.S. medical device companies are highly regarded on a global scale for their innovations and high-technology products, which innovations and products are produced due to a significant investment in research and development. As of 2015, the U.S. MedTech industry was valued at more than $140 billion, which, at the time, accounted for approximately 45% of the
The global market,EEG system and the U.S. MedTech industry is projected to grow to $173 billion by the end of 2019. During the last decade, the U.S. MedTech industry experienced unprecedented advancement in innovative and developed technologies, leading to the birth of new therapies and overall growth in the broader healthcare industry. Investment in medical device research and development more than doubled in recent decades, and research and development investment in the domestic sector remains more than twice the average for all U.S. manufacturers. For the foreseeable future, the U.S. is expected to continue to play a leading role in medical device research and development. After declining in 2009, research and development spending rebounded to $2.9 billion in 2010 and $7.3 billion in 2011. From 2013 to 2020, larger medical device companies have and are expected to continue to increase their research and development budgets by approximately 3%, while the rest of the industry has and is expected to continue to increase spending for this element by more than 5%.
The Company’s Specific SubSection in the MedTech Industry
The Company seeks to operate within subsectors of the MedTech industry recognized as the diagnostic imagining subsector and the neurology subsector, which subsectors rank 3rd and 14th, respectively, of the top 15 MedTech subsectors measured by global sales. The Company believes that such statistics from 2016 - 2017 demonstrate the significant demand for medical device products in the MedTech sectors in which the Company seeks to operate in. By 2022, the subsectors of the MedTech industry which the Company expects to operate in, along with its anticipated direct competitors, the diagnostic imaging and the neurology subsectors, are expected to make up 11.4% of the entire MedTech industry which, by 2022,market is expected to reach $521.9$1.59 billion by 2026, growing at a CAGR of 8.7% during the forecast period according to Grand View Research. We believe the increasing incidence and prevalence of neurological disorders, rising awareness about neurodegenerative disorders, high incidence of epilepsy, sleeping disorders, Parkinson’s, and the increasing applications of brain monitoring in sales.clinical trials are driving the growth of this market. In 2018, standalone devices were estimated to generate the most revenue as they gained adoption in hospitals and specialized centers. These customers make our primary target market for our neurology devices.
The United States had the highest revenue share of the EEG system/device market according to Grand View Research. It is our plan to target the US market primarily, though we are pursuing sales globally through our master agent LOK Corporation as well. Statista estimates the U.S. EEG market size at $355M in 2024, growing at a 5.6% CAGR over the forecast period.
Brain monitoring is a complex process, requiring expensive and advanced devices and equipment that are mainly found only in hospitals. Hospitals also see a considerably larger inflow of patients as compared to small clinics and other end users. Additionally, brain monitoring devices can pose a considerable burden in terms of maintenance expenses on healthcare facilities; we believe that in general hospitals, more than other end users, are able to bear such costs. Hence, brain monitoring devices are mostly used in hospitals, which consequently account for the largest market share.
U.S. Healthcare Market
The National Health Expenditure Accounts (NHEA) are the official estimates of total health care spending in the United States. U.S. health care spending grew 9.7 percent in 2020, reaching $4.1 trillion or $12,530 per person. As a share of the nation's Gross Domestic Product, health spending accounted for 19.7%.
Digital health innovations are driving growth and opportunity in three major verticals of healthcare:
| ● | Remote Patient Monitoring. Devices and applications that allow care providers to keep tabs on chronically ill, recently released, and overall “high-risk” patients (also referred to as remote patient management, or RPM). Wearable patches that diagnose heart conditions, sensors that monitor asthma medication intake, and glucose monitors that send diabetics’ data straight to their smartphones are just a few examples. |
| ● | Telehealth. Doctor access and advice, from outside the confines of an office visit. It could be mental health counselling from across the country, diagnosis and prescription writing in pediatrics without taking a sick child to the office, alternatives to primary care physician visits, and other, similar events. |
| ● | Behavior Modification. Platforms that help patients change their habits and adopt healthier lifestyles, with the primary aim of preventing illness and a clinically validated methodology of doing so. That includes smoking cessation tools and diabetes prevention through digital weight loss and coaching, among other technologies. |
Athletic Performance Market
Athletic performance encompasses the treatment and prevention of injuries related to athletics and exercise.
The growth of this market can be attributed to increased participation in athletic activities, thus leading to an increased risk of injuries. Also, government support for participation in athletics to combat high obesity rates is expected to boost participation in athletics.
Our business plan includes positioning our products and services as a go-to choice in diagnostic tools for brain-related sports injuries. The EEG with cortical brain maps is highly capable of identifying post-concussion syndrome. Concussions and traumatic brain injuries caused by contact sports are a growing widespread issue among athletes. The Center for Disease Control and Prevention has reported that 1.6 million to 3.8 million concussions occur each year, and UPMC Sports Medicine estimates 5 in 10 concussions go unreported or undetected with 2 in 10 high school athletes who play contact sports getting a concussion in a given year.
If left undetected, concussions can lead to long-term brain damage and may even be fatal. Without professional doctors to survey the true damage of the head impact, athletes often ignore head impacts and later suffer from the consequences. Since an estimated 90% of diagnosed concussions do not include a loss of consciousness according to NIH, many head impact injuries are dismissed. To prevent these outcomes, it is critical that coaches and players are aware of the dangers of contact sports and are able to conduct a proper concussion evaluation. The growing number of sports related brain injuries suggests that there is an unmet demand for a quick assessment and delivery of brain damage, which we believe our products and services can provide.
Education Enhancement
Global education and training expenditures are estimated to reach approximately $10 trillion by 2030 according to HolonIQ, as population growth and technology in developing markets is expected to fuel a massive expansion in education, and training.
The growth in the market is due to an increase in the attendance of students, the promotion of online learning, a rise in tuition costs, an escalation of graduation rates, and an expansion of scientific research. Parents are willing to spend on education for their children and government-initiated awareness programs promote the importance of education. The US is one of the most efficient, and therefore desired, destinations for educational purposes. In the United States, higher growth opportunity and better career prospects reinforce the need for education and research.
Since analysis of EEGs are useful in recognizing cognitive differences, the brain scans of potential customers in this space can be a steppingstone for further research. Furthermore, the cognitive measurements of EEGs are useful in assessing the effectiveness of an educational program. Conclusions drawn from the analysis can then be further applied in the classroom in the future. The goal of selling to the education market is to have the opportunity to measure baseline EEGs of students. The baseline EEGs can serve in multiple studies, including those that evaluate the best methods of teaching and learning in the classroom. Some additional uses of EEGs within the education market include research and analysis into the brain images of students with learning disabilities.
Clinical Trials
The global healthcare Contract Research Organization (CRO) market size is expected to reach over $61.6 billion by 2027, registering a CAGR of over 6.6% over the same period, primarily resulting from the increasing cost of drug development, according to FutureWise Research. Rising cost of clinical trials and challenges pertaining to patient recruitment have led biopharmaceutical companies to turn to regions like Central and Eastern Europe, Asia Pacific, Latin America, and Middle East for cost savings and quick patient recruitment.
Clinical trials assess the safety and efficacy of a new drug, therapy, surgical procedure, medical device, or other intervention and are essential tools in conducting research. When used in clinical trials, we expect our products and services will give a fast and accurate analysis that may speed the clinical trial process. Moreover, clinical imaging is the technique and process of capturing images of the human body for clinical purposes to reveal, diagnose or examine diseases. Our EEG is a clinical imaging tool that can acquire millions of clinical images stored on a cloud infrastructure. A vast number of clinical images can assist in revealing, diagnosing, and examining neurological conditions.
The Global Telemedicine Market/Industry
In addition to the MedTech industry, we are also seeking to participate within the rapidly expanding global telemedicine industry/market. This industry focuses on the delivery of healthcare services, consultations and advice to patients wherever they are through the means of technology, software mediated video and data portals. We believe that there is and will continue to be significant demand for such services given the need to match physicians with patients in remote areas or without having patients travel long distances to access the care they need. We also believe that there is a major need within this industry to also provide point of care diagnostic, which we are seeking to develop as a niche, especially within neurology. This industry
The global telemedicine market was estimated at USD 70.4 billion in 2021 and is currently estimatedexpected to expand at a compound annual growth rate (CAGR) of 19.5% from 2022 to 2030.
Telemedicine has been extensively used during the COVID-19 pandemic as it aids in decreasing contact with healthcare facilities, healthcare staff, and patients, in order to minimalize the risk of COVID-19.
According to a report published by the Agency for Healthcare Research and Quality (AHRQ), the implementation of telehealth or telemedicine solutions improves care delivery to patients.
Factor such as, rising emergency medical incidents and ageing world population are anticipated to drive such growth. North America is anticipated to account for a significant portion of market share, and the U.S. is expected to be approximately $22 billion butthe largest telemedicine market in North America over this period. The Europe telemedicine market is also expected to grow substantially, due to factors such as rising cost of healthcare and rising prevalence of chronic diseases, while Asia-Pacific is projected to grow atrecord the fastest growth over such period.
Neurology: Market Dynamics
Driver: Growing incidence of traumatic brain injuries
A traumatic brain injury or TBI is non-degenerative, non-congenital damage to the brain from an external mechanical force, possibly leading to permanent or temporary impairment. TBI is a major public health concern. According to the Journal of Neurosurgery, TBI is a leading cause of morbidity and mortality, with approximately 15% CAGR69 million people suffering TBI annually worldwide. Estimated incidence is highest in regions with good data such as North America and Europe, indicating that better testing would likely uncover a higher global TBI incidence.
TBI, if ignored, can lead to $45 billionpermanent disabilities or death. Close monitoring and immediate therapy for related abnormalities are crucial to reducing the rate of mortality or morbidity associated with TBIs. As intercranial pressure monitoring or ICP is the most common cause of death in patients with severe TBI, ICP monitoring is considered as the standard of care. The growing incidence of TBIs is, therefore, likely to support market growth.
Opportunity: Increasing Expanding therapeutic applications of brain monitoring devices
Apart from applications in neurological disorders, neurodegenerative diseases, and psychiatric disorders, brain monitoring devices are also used in other therapeutic areas like insomnia, post-traumatic stress disorder or PTSD, and sleep apnea. Quantitative EEG analysis is widely used to investigate the neurophysiological characteristics of insomnia. EEG biofeedback is a training process that has been scientifically proven to aid in the management of PTSD.
A number of research studies have demonstrated the effectiveness of neurofeedback for PTSD in adults. For instance, a research study published by 2023.the NCBI in 2016 demonstrated that 24 sessions of neurofeedback significantly reduced PTSD symptoms in adult sample populations. Similar studies are also being conducted in children. Such positive research outcomes suggest that neurofeedback is a promising approach in the treatment of PTSD. This is especially important because existing treatments can be quite difficult to tolerate and have limited effectiveness for many individuals with PTSD. In addition, EEG is routinely used to measure and record brain wave activity for the diagnosis and treatment of sleep apnea. These extended applications of brain monitoring devices are expected to provide growth opportunities for players operating in this market.
Challenge: Shortage of trained professionals
Trained medical personnel are required to effectively operate devices involved in the complex process of brain monitoring. The positioning of electrodes on the scalp and the insertion of muscular needles require accuracy and can be performed only by highly trained personnel. In addition, the sub-sectorresults generated by brain monitoring machines are complex and can only be interpreted by qualified technicians or skilled professionals. Without these fundamental skills, end users will face difficulties in maximizing the utility of teleneurology,their brain monitoring equipment. The presence of which we intendhighly skilled medical personnel and staff is, therefore, vital for the effective use of brain monitoring equipment.
Currently, there is a shortage of skilled medical personnel in both developed and developing countries. It has been estimated that the United States will see a shortage of up to participate,nearly 122,000 physicians by 2032 as demand for physicians continues to grow faster than supply, Furthermore, according to the American Association of Colleges of Nursing, there is a projected shortage of registered nurses in the fastest growing sub-sector within telemedicine at an approximately 17% CAGRUS, and it is expected to intensify by 2030. Moreover, the shortage of trained and experienced neurodiagnostic technologists globally has compelled hospitals to cross-train other allied health professionals to perform neurodiagnostic examinations. This presents a key challenge for the growth of the global brain monitoring devices market.
We believe the market remains fragmented as many medical practices rely on dated technology and complicated brain monitoring solutions. We also believe that the overpricing and technological barriers currently isexisting in the 4th largest sub-sector overall within global telemedicine.market make our innovative EEG platform truly disruptive by being both user friendly and cost effective.
Neurology: Competition
Our Products face a mixture of competitors ranging from large manufacturers with multiple business lines to small manufacturers offering a limited selection of products and services. Many of the competitors whom we directly compete with include companies who develop or intend to develop medical EEG products with FDA clearance to support clinical diagnosis of brain disorders. Our indirect competitors offer similar products and services, but target audiences in the clinical research and consumer solutions markets, as opposed to the medical solution market the Company targets.that we target. These indirect competitors are largely focused on the development of EEG products for research, consumer, and athletic application.
Major shifts in industry market share have occurred in connection with product problems, physician advisories, safety alerts, and publications about MedTech products, reflecting the importance of product quality, product efficacy, and quality systems in the medical device industry. In addition, in the current environment of managed care, economically motivated customers, consolidation among health care providers, increased competition, and declining reimbursement rates, the Company anticipateswe anticipate an increasing need to compete on the basis of price and quality. In order to continue to compete effectively, we must continue to create or acquire advanced technology, incorporate this technology into our current and future proprietary Products, obtain regulatory approvals in a timely manner, maintain high-quality manufacturing processes, and successfully market these Products. Some of these initiatives include, but are not limited to, creating integrated cloud solutions that connect specialists with generalists for simple data transfer and analysis, streamlining clinical diagnoses with new medical devices, and opening up revenue streams from secondary healthcare markets, such as primary care medical professionals who utilize EEG analyses in their practices.
The medical device companies who we deem as competitors include the following, along with a description of their business based on publicly available information:
| ● | Cadwell Industries Inc. – Cadwell is an international medical device company that specializes in the manufacturing of neurodiagnostic and electrodiagnostic medical equipment and supplies. |
| ● | Natus Medical Incorporated – Natus is a global market leader that provides diagnostic, therapeutic and surgical solutions built on a strong heritage in neurodiagnostics, neurocritical care and neurosurgery. Natus Neuro delivers clinician-led products that improve outcomes and enhance care for neuro patients through leading-edge equipment, service, education, and supplies. Natus Neuro’s comprehensive neurodiagnostic solutions enhance the diagnosis of neurological conditions such as epilepsy, sleep disorders and neuromuscular diseases. |
| ● | Nihon Kohden Corporation – Nihon Kohden is a Tokyo-based leading manufacturer, developer and distributor of medical electronic equipment, which include EEGs, EMG measuring systems, ECGs, patient monitors and clinical information systems, with subsidiaries in the U.S., Europe and Asia. |
| ● | BioSerenity, Inc. – BioSerenity is an innovative medical technology company focused on Healthcare as a Service, the Internet of Medical Things or IoMT, A.I. and real-world evidence in Neurology, Sleep Medicine, and Cardiology. BioSerenity provides remote diagnostic solutions to healthcare providers and patients in the US, Europe and the Caribbean. |
| ● | Ceribell, Inc. – Ceribell is headquartered in Mountain View, CA. Ceribell is focused on making EEG widely available, more efficient, and more cost-effective to improve the diagnosis and treatment of patients at risk for seizures. |
| ● | Zeto, Inc. – Zeto is a privately held medical technology company located in Santa Clara, CA focused on transforming the way electroencephalography or EEG is performed at hospitals and clinics. Zeto's revolutionary platform brings the traditional EEG procedure to the 21st century. The company plans to leverage its hardware and software technology to improve noninvasive monitoring of brain's electrical activity and achieve better outcomes for neurological conditions such as epilepsy, sleep disorders, autism, stroke and concussion. |
| ● | Advanced Brain Monitoring, Inc. – Advanced Brain Monitoring is a California- based private company specializing in developing neurological medical devices. The company specializes in two specific areas: neurotechnology and sleep medicine. Advanced Brain Monitoring primarily is a medical device and software company that sells its products to clinical trials and pharmaceutical companies, ignoring several profitable and addressable markets. |
| ● | Elmiko Biosignals sp. z o.o. – Elmiko Medical is a Warsaw-based private company specializing in designing and developing medical electronics and IT solutions. Elmiko primarily sells their products and services to scientific institutes, medical universities, hospitals, and private clinics across the world. |
| ● | Contec – Contec is a China-based private medical device company focusing on research, manufacturing, and distribution of medical instrument since 1996. Contec currently has over 20 products in its portfolio focusing on the medical-technology industry ranging from stethoscopes to EEGs. |
| ● | Electrical Geodesics, Inc. – EGI is an Oregon-based medical-device company founded in 1992, EGI specializes in making dense array EEG (dEEG) for research laboratories. |
| ● | Masimo Corporation – Masimo is a California-based public (NASDAQ: MASI) medical technology company that develops and manufactures innovative noninvasive patient monitoring technologies, including medical devices and a wide array of sensors. Masimo has a wide array of products, ranging from pulse oximetry to EEGs. The company serves mainly the sleep study, clinical trial, and athletic performance markets. |
| ● | NeuroSky, Inc. – NeuroSky is a health and wellness tracking and analysis company that is advancing health solutions through consumer wearables and mobile devices, including biosensor technologies. |
| ● | Oculogica, Inc. – Oculogica, Inc. is a private company looking to better learn and treat concussions, having developed an eye tracking technology that works to detect concussions, the severity of the concussion, and the treatment for the concussion. |
| ● | Picofemto LLC - Picofemto LLC is a healthcare company focusing on assisting clinicians and research professionals with a web platform that analyzes raw primary medical data at the point of evaluation. They have developed a cloud-based service called Cliniscan, which allows the clinician and researcher to work in the cloud with a wide range of biomedical modalities. |
| ● | Satoris, Inc. – Satoris, Inc. is a molecular diagnostics company, engaging in the development and commercialization of neurodiagnostic tests for Alzheimer's disease. Satoris plans to have their product managed and treat neurodegenerative diseases through diagnostic tests. These tests are developed through data of molecular biology and bioinformatics. |
| ● | CAS Medical Systems, Inc. – CAS Medical Systems, Inc. is a developer of innovative, non-invasive vital signs monitoring technologies and products that deliver patient data. |
| ● | Emotiv Systems, Inc. – Emotiv Systems, Inc. is a bioinformatics company advancing understanding of the human brain using EEG. Their technology aims to track cognitive performance, monitor emotions, and control both virtual and physical objects via machine learning of trained mental commands. |
| ● | Atlas Wearables, Inc. – Atlas Wearables, Inc. is a data analytics company and the developer of a fitness monitor designed to improve indoor and outdoor training. Their goal is to use the combination of data acquired from the lab along with each unique set of data from the customer, to provide clear and current knowledge based on data results. |
| ● | Bazifit, Inc. – BaziFIT makes a modular sensor system by the same name that works to monitor the neuromuscular efficiency, strength, stability, and calories burned during the customer’s workout. Their physical technology is an attachment that goes on various workout equipment that helps the customer get exercise content and quantifiable feedback on every workout instantly. Their app uses the data collected by their attachment to assess the customer’s progress and health and suggests various workouts for the customer to do to optimize the progress of their health. |
| ● | MAD Apparel Inc. – MAD Apparel Inc. is the developer of the product Athos, a performance apparel that monitors biosignals and distills them into meaningful information to improve the level of exercise the customer is performing. The technology receives data in real time and shows the customer their stats so they can alter or continue the workout. |
| ● | Mechio Inc. – Mechio Inc. is a developer of wearable fitness technology to monitor the health, fitness, and sleep of the customer. |
| ● | Sarvint Technologies, Inc. – Sarvint Technologies, Inc. is an Atlanta-based wearables technology company born from smart-garment technology research at Georgia Tech. The research led to the development of their Smart Shirt, a garment that uses special fibers to detect and monitor body vital signs. It then sends these signals to a program that can be downloaded onto smart phones to easily monitor the information collected. |
| ● | Sensifree Inc. – Sensifree Inc. develops technology to solve the shortcomings of optical sensors. Their RF based sensor technology monitors heart rate from different parts of the human body. |
| ● | Sensoria Inc. – Sensoria Inc. is a developer of wearable fitness technology that collects fitness data and connects with a real time virtual coach that gives performance and running form feedback. |
| ● | CorTechs Labs, Inc. - CorTechs Labs is a developer of medical device software solutions capable of automatically segmenting and quantifying brain structures, making quantitative analysis of MRI images of the human brain a routine part of clinical practice. |
The major U.S. medical device companies who we deem as competitors include Baxter International Inc., Beckman Coulter Inc., Becton Dickinson and Company, Boston Scientific Corporation, General Electric Company’s GE Healthcare, Technologies, Johnson & Johnson, St. Jude Medical, Inc., Stryker Corporation, and Medtronic.Medtronic plc. Many of the companies against which we presently compete against or may compete against in the future have or will have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do.do or will. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stageearly-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our development.
We intend to compete based on our belief in the superiority of our products and services in functionality, cost-effectiveness, efficiency, ease of use and accuracy.
Because part of our business plan contemplates servicing the neurotech industry across multiple platforms including hardware, software, service and cloud computing, and our existing and proposed product and service platforms are in a growing industry, we believe we are in a position to take a leadership position within the sector due to our:
| ● | Strong Portfolio of Intellectual Property. Our diverse intellectual property portfolio includes a series of patents and FDA approvals, ranging from hardware to firmware applications. |
| ● | Diverse Commercial Application Opportunities. From smart wearable devices that monitor cognitive and behavioral health in real-time, to enhanced Brain Computer Interface or BCI capabilities within the connected home and car environments, our EEG technologies span a range of novel applications and commercial uses, including: |
| o | Global Brain Monitoring Market |
| ● | Scalable Integration. We believe that we offer the highest level of integration and flexibility while providing an optimal combination of convenience and performance. This is achieved through the modular design and build of our products, allowing seamless integration of hardware and software components into existing platforms. We are also engaged with strategic partners to augment the next generation of health wearables and technologies, forging relationships with companies and individuals seeking to implement EEG solutions across a multitude of segments. |
| ● | Experienced Leadership Team. The MemoryMD™ team has over 30 years of combined experience in sectors spanning across artificial intelligence, data mining, software development, commercialization, and medical technology. With a firm background in medical grade EEG applications, our team has a qualified perspective on electrode quality and brain wave interpretation. |
| ● | Centralized Cloud Data Collection. Neuro-net algorithms and other mathematical models based on EEG interpretation mine for unique brain patterns on a global scale. These patterns are continuously trained and visualized to provide reliable health data and insights that consumers, developers, and companies can leverage across the entire MemoryMD™ platform. |
Neurology: Market Application
For neurologists and other health providers, we aim to provide a solution for monitoring patient health and safety across a variety of locations including the hospital, specialized clinics, and home settings. In managing patients with epilepsy, providers can improve in areas concerning patient re-admittance, patient mortality and morbidity. Providers can also proactivity prevent the onset of negative chronic health conditions by engaging with at-risk populations at a fraction of the cost by implementing our affordable EEG solutions.
For health providers, our offering of an EEG monitoring solution could ease data collection efforts. By providing an accurate and consistent stream of EEG data, our products and services are being designed to allow physicians and other health professionals to make use of newly available bio-metric data to improve diagnosis, treatment and management of various neurological illnesses, effectively increasing the quality and value add of medical services.
Our portability and integration potential augment the existing suite of remote monitoring solutions, allowing physicians to more accurately differentiate between nuanced neurological conditions happening within and outside the hospital setting. An example includes helping neurologist’s contrast nocturnal epilepsy patterns across other sleep disorders such as parasomnias where individuals engage in abnormal movements during sleep.
Neurology: Sales and Marketing
We have commenced the commercial roll-out of the NeuroEEG™ and NeuroCap™, on a limited basis, initially targeting the United States market. We are identifying additional long-term partners to accelerate market penetration, product diversification, and ultimate survivability across targeted verticals. Through new implementations of our EEG products and services, we expect to retain and capture additional market share through continuous enhancements.
We plan to utilize partner relationships and co-marketing opportunities as the initial driver of our marketing efforts, thereby benefiting from increased speed-to-market, as well as the ability to leverage a pre-existing audience/customer base and communications channels. We expect to offer to early adopters our products and services at preferential rates in exchange for expediting development, distribution, and sales of such products and services.
Our marketing and sales strategy is focused on rapid, cost-effective delivery of high-quality products into the U.S. and international healthcare market. The sales strategy is based on penetratingto sell through distribution partners, indirect sales channels. We also plan to penetrate the neurology and diagnostic imaging subsectors of the MedTech industry market via planned medical device distributor arrangements or partnering on distribution of NeuroCaps through existing EEG manufacturers and expanding into nursing homes and primary care practices. Included amongst the customers whom we intend to market and sell our Products to are individual physicians, medical practices, urgent care facilities, physician associations, and other medical professionals and medical professional groups, hospitals, health clinics, nursing homes, physical rehabilitation centers, addiction rehabilitation centers and other medical institutions, athletic organizations, and colleges, universities, and other academic institutions.
We intend for our Products’products’ initial entry into the market would be at emergency departments, ICU’s and other acute care settings in the United States.
We are establishing non-exclusiveSince 2019, we have acted as a distributor agreements with distributors who can independently implement the sale, marketing, shipping, support, demonstration and training of third-party medical devices in Russia, which we expect to continue while we commercialize our Products and seek to their clients and end-users in the applicable market. As of December 31, 2018, we have entered into one such non-exclusive distributor agreement.
We will also be looking at forming partnerships with national and global telemedicine and teleneurology companies in order to leverage their relationships, to access our target end-users. This would allow our initial entry into the rapidly growing global telemedicine and teleneurology markets.
As we grow,generate material revenue from those sources. While we intend to expand to global distributors, Group Purchasing Organizations (GPOs)continue the sale of third-party medical supplies, and Independent Physician Associations (IPAs) to scale business operations.
Wedevices, we do not atintend for it to be our primary source of revenue in the long-term and expect to curtail or cease this timeline of operations as, if and when we commence generating material, recurring revenues from our Products. The Russian invasion of Ukraine on February 24, 2022 may impact the operation of our Russian subsidiary. Economic sanctions and inflation may have plansa negative impact. Further, the Russian government may take actions to have direct sales or hire a direct sales force.inhibit the operations of companies which are 100% owned by U.S. companies.
Neurology Reimbursement
Coverage in the United States
Reimbursement from private third-party healthcare payors and, to a lesser extent, Medicare will be an important element of our success. Although the Centers for Medicare and Medicaid, or CMS, and third-party payors have adopted coverage policies for our targeted indications, there is no guarantee this will continue at the same levels or at all in the future.
4
Regarding ICD-10 codes, the International Classification of Diseases, Tenth Edition (ICD-10) is a clinical cataloging system that went into effect for the U.S. healthcare industry on Oct.October 1, 2015, after a series of lengthy delays. Accounting for modern advances in clinical treatment and medical devices, ICD-10 codes offer many more classification options compared to those found in its predecessor, ICD-9. Within the healthcare industry, providers, coders, IT professionals, insurance carriers, government agencies and others use ICD codes to properly note diseases on health records, to track epidemiological trends and to assist in medical reimbursement decisions.
We believe that many of the indications we are pursuing with our technologies are currently reimbursed on a widespread basis by Medicare, Medicaid and private insurance companies.
Medicare, Medicaid, health maintenance organizations and other third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of new medical devices, and, as a result, their coverage policies may be restrictive, or they may not cover or provide adequate payment for our Products. In order to obtain reimbursement arrangements, we may have to agree to a net sales price lower than the net sales price we might charge in other sales channels. Our revenue may be limited by the continuing efforts of government and third-party payors to contain or reduce the costs of healthcare through various increasingly sophisticated means, such as requiring prospective reimbursement and second opinions, purchasing in groups, or redesigning benefits. Our future dependence on the commercial success of our technologies makes us particularly susceptible to any cost containment or reduction efforts. Accordingly, unless government and other third-party payors provide adequate coverage and reimbursement for our Products and the related insertion and removal procedures, our financial performance may be limited.
Coverage Outside the United States
If we seek to commercialize our Products in countries outside the United States, coverage may be available from certain governmental authorities, private health insurance plans, and labor unions. Coverage systems in international markets vary significantly by country and, within some countries, by region. If we seek to commercialize our technology, if approved, outside the U.S., coverage approvals must be obtained on a country-by-country, region-by-region or, in some instances, a case-by case basis. Based on our ongoing evaluation, certain countries reimburse more highly than others.
Neurology: Manufacturing, Supply and Quality Assurance
We currently outsource the supply and manufacture of all components of our NeuroEEG and NeuroCap. We plan to continue with an outsourced manufacturing arrangement for the foreseeable future. We expect that our third-party manufacturers will be competent to manufacture our Products and have quality systems established that meet FDA requirements. We believe the manufacturers we currently utilize or that we may utilize in the future have sufficient capacity to meet our launch requirements if our technology under development is approved in the future and are able to scale up their capacity relatively quickly with minimal capital investment. We believe that, as we increase our demand in the future, our per unit costs will decrease materially. We have also identified capable second source manufacturers and suppliers in the event of disruption from any of our primary vendors.
Our suppliers meet ISO 13485:200313485 certification requirements, which includes design control requirements. As a medical device developer, the facilities of our sterilization and other critical suppliers are subject to periodic inspection by the FDA and corresponding state and foreign agencies. We plan to audit our suppliers periodically to ensure conformity with the specifications, policies and procedures for our devices.
Neurology: Research and Development
Our research and development programs are generally pursued by engineers and scientists employed by us on a full-time basis or hired as per diem consultants or through partnerships with industry leaders in manufacturing and design and researchers and academia. We are also working with subcontractors in developing specific components of our technologies.
The primary objective of our research and development program is to advance the development of our existing and proposed Neurology Products and to enhance the commercial value of such Neurology Products.
We have incurred research and development costs of $210,206 for the year ended December 31, 2018 and $289,586 for the year ended December 31, 2017.
We also have formed a Medical Advisory Board. The current members are Dr. Alex Rottenberg, MD, PhD, Boston Children’s Hospital; Dr. John Gaitanis, MD, Tufts Medical Center; and Dr. John Hixson, MD, Associate Professor of Neurology, University of California San Francisco. We grant to such members from time to time equity for the services they provide to us.
Neurology: Government Regulation
Our NeuroEEG and NeuroCap are each a medical device subject to extensive and ongoing regulation by the FDA, the U.S. Centers for Medicare & Medicaid Services, or CMS, the European Commission, and regulatory bodies in other countries. Regulations cover virtually every critical aspect of a medical device company'scompany’s business operations, including research activities, product development, quality and risk management, contracting, reimbursement, medical communications, and sales and marketing. In the United States, the Federal Food, Drug and Cosmetic Act, or FDCA, and the implementing regulations of the FDA govern product design and development, pre-clinical and clinical testing, premarket clearance or approval, product manufacturing, quality systems, import and export, product labeling, product storage, recalls and field safety corrective actions, advertising and promotion, product sales and distribution, and post-market clinical surveillance. Our business is subject to federal, state, local, and foreign regulations, such as ISO 13485, ISO 14971, FDA'sFDA’s Quality System Regulation, or QSR, contained in 21 CFR Part 820, and the European Commission'sCommission’s Directive 93/42/EEC concerning medical devices and its amendments.
U.S. Regulation
The FDA characterizes medical devices into one of three classes. Devices that are considered by the FDA to pose lower risk are classified as Class I or II. Class I devices and are subject to controls for labeling, pre-market notification and adherence to the FDA'sFDA’s QSR. This pertains to manufacturers'manufacturers’ methods and documentation of the design, testing, production, control quality assurance, labeling, packaging, sterilization, storage and shipping of products, but are usually exempt from premarket notification requirements. Class II devices are subject to the same general controls but may be subject to special controls such as performance standards, post-market surveillance, FDA guidelines, or particularized labeling, and may also require clinical testing prior to clearance or approval. Class III devices are those for which insufficient information exists to assure safety and effectiveness solely through general or special controls, including devices that support or sustain human life, are of substantial importance in preventing impairment of human health, or which present a potential, unreasonable risk of illness or injury.
Some Class I and Class II devices are exempted by regulation from the pre-market notification requirement under Section 510(k) of the FDCA, also referred to as a 510(k) clearance, and the requirement of compliance with substantially all of the QSR. However, a pre-market approval, or PMA application, is required for devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or certain implantable devices, or those that are "not“not substantially equivalent"equivalent” either to a device previously cleared through the 510(k) process or to a "preamendment"“preamendment” Class III device in commercial distribution before May 28, 1976 when PMA applications were not required. The PMA approval process is more comprehensive than the 510(k) clearance process and typically takes several years to complete. Based on FDA definitions, we believe our NeuroEEG and NeuroCap each will be categorized by the FDA as a Class II device that does not require clinical testing and can be filed as a 510(k), similar to existing competitive technology. While the 510(k) process is typically shorter than a PMA process, both the 510(k) clearance and PMA processes can be expensive and lengthy.
Our current devices (NeuroCap and NeuroEEG) are classified as Class II medical devices by the United States FDA.
FDA review of a PMA application generally takes between one and three years but may take significantly longer. The FDA can delay, limit or deny approval of a PMA application for many reasons, including:
| ● | the device may not be safe, effective, reliable or accurate to the FDA'sFDA’s satisfaction; |
| ● | the data from pre-clinical studies and clinical trials may be insufficient to support approval; |
| ● | the manufacturing process or facilities may not meet applicable requirements; and |
| ● | changes in FDA approval policies or adoption of new regulations may require additional data. |
If an FDA evaluation of a PMA application is favorable, the FDA will either issue an approval letter, or approvable letter, which usually contains a number of conditions that must be met in order to secure final approval of the PMA. When and if those conditions have been fulfilled to the satisfaction of the FDA, the agency will issue a PMA approval letter authorizing commercial marketing of a device, subject to the conditions of approval and the limitations established in the approval letter. If the FDA'sFDA’s evaluation of a PMA application or manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter. The FDA also may determine that additional tests or clinical trials are necessary, in which case the PMA approval may be delayed for several months or years while the trials are conducted, and data is submitted in an amendment to the PMA. The PMA process can be expensive, uncertain and lengthy and a number of devices for which FDA approval has been sought by other companies have never been approved by the FDA for marketing.
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New PMA applications or PMA supplements may be required for modifications to the manufacturing process, labeling, device specifications, materials or design of a device that has been approved through the PMA process. PMA supplements often require submission of the same type of information as an initial PMA application, except that the supplement is limited to information needed to support any changes from the device covered by the approved PMA application and may or may not require as extensive technical or clinical data or the convening of an advisory panel.
Clinical trials are typically required to support a PMA application and are sometimes required for a 510(k) clearance. These trials generally require submission of an application for an IDE, to the FDA. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE application must be approved in advance by the FDA for a specified number of patients, unless the product is deemed a non-significant risk device and eligible for abbreviated IDE requirements. Generally, clinical trials for a significant risk device may begin once the IDE application is approved by the FDA and the study protocol and informed consent are approved by appropriate institutional review boards at the clinical trial sites. The FDA'sFDA’s approval of an IDE allows clinical testing to go forward, but it does not bind the FDA to accept the results of the trial as sufficient to prove the product'sproduct’s safety and efficacy, even if the trial meets its intended success criteria. All clinical trials must be conducted in accordance with the FDA'sFDA’s IDE regulations that govern investigational device labeling, prohibit promotion, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. Clinical trials must further comply with the FDA'sFDA’s regulations for institutional review board approval and for informed consent and other human subject protections. Required records and reports are subject to inspection by the FDA. The results of clinical testing may be unfavorable or, even if the intended safety and efficacy success criteria are achieved, may not be considered sufficient for the FDA to grant approval or clearance of a product. Clinical trials must be entered into the clinical trials registry at clintrials.gov.
The commencement or completion of any clinical trial may be delayed or halted, or be inadequate to support approval of a PMA application, for numerous reasons, including, but not limited to, the following:
| ● | the FDA or other regulatory authorities do not approve a clinical trial protocol or a clinical trial, or place a clinical trial on hold; |
| ● | patients do not enroll in clinical trials at the rate expected; |
| ● | patients, sponsor or study sites do not comply with trial protocols; |
| ● | patient follow-up is not at the rate expected; |
| ● | patients experience adverse side effects; |
| ● | patients die during a clinical trial, even though their death may not be related to the products that are part of our trial; |
| ● | institutional review boards and third-party clinical investigators may delay or reject the trial protocol; |
| ● | third-party clinical investigators decline to participate in a trial or do not perform a trial on the anticipated schedule or consistent with the clinical trial protocol, good clinical practices or other FDA requirements; |
| ● | the sponsor or third-party organizations do not perform data collection, monitoring and analysis in a timely or accurate manner or consistent with the clinical trial protocol or investigational or statistical plans; |
| ● | third-party clinical investigators have significant financial interests related to the sponsor or the study that the FDA deems to make the study results unreliable, or the company or investigators fail to disclose such interests; |
| ● | regulatory inspections of our clinical trials or manufacturing facilities, which may, among other things, require us to undertake corrective action or suspend or terminate our clinical trials; |
| ● | changes in governmental regulations or administrative actions; |
| ● | the interim or final results of the clinical trial are inconclusive or unfavorable as to safety or efficacy; and |
| ● | the FDA concludes that our trial design is inadequate to demonstrate safety and efficacy. |
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International Regulation
International sales of medical devices are subject to local government regulations, which may vary substantially from country to country. The time required to obtain approval in another country may be longer or shorter than that required for FDA approval, and the requirements may differ. There is a trend towards harmonization of quality system standards among the European Union, United States, Canada and various other industrialized countries.
The primary regulatory body in Europe is that of the European Union, the European Commission, which includes most of the major countries in Europe. Other countries, such as Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling and adverse event reporting for medical devices. Devices that comply with the requirements of these relevant directives will be entitled to bear the CE conformity marking, indicating that the device conforms to the essential requirements of the applicable directives and, accordingly, can be commercially distributed throughout Europe. The method of assessing conformity varies depending on the class of the product, but normally involves a combination of self-assessment by the manufacturer and a third partythird-party assessment by a "Notified“Notified Body."” This third-party assessment may consist of an audit of the manufacturer'smanufacturer’s quality system and specific testing of the manufacturer'smanufacturer’s product. An assessment by a Notified Body of one country within the European Union is required in order for a manufacturer to commercially distribute the product throughout the European Union. Additional local requirements may apply on a country-by-country basis. Outside of the European Union, regulatory approval would need to be sought on a country-by-country basis in order for us to market our Products.
Medical devices in Europe are classified into four primary categories. They are as follows:
| ● | Invasive medical devices |
| ● | Special Rules (including contraceptive, disinfectant, and radiological diagnostic medical devices) |
Devices are further segmented into the classes noted below. In Vitro Diagnostic devices (IVDs) have their own classification scheme and while active implantable devices do not follow the same classification system as provided by the Medical Device Directive (MDD), they are subject to similar requirements as Class III devices:
| ● | Class I – Provided non-sterile or do not have a measuring function (low risk) |
| ● | Class I – Provided sterile and/or have a measuring function (low/medium risk) |
| ● | Class IIb (medium/high risk) |
We are seeking to establishhave a wholly-owned subsidiariessubsidiary in Russia and have established a wholly-owned subsidiary in Europe (Poland) for current product distribution. The Russian invasion of Ukraine on February 24, 2022 may impact the operation of our Russian subsidiary. Economic sanctions and Russia for product distribution and certification.inflation may have a negative impact. Further, the Russian government may take actions to inhibit the operations of companies which are 100% owned by U.S. companies.
Other Regulatory Requirements
Even after a device receives clearance or approval and is placed in commercial distribution, numerous regulatory requirements apply. These include:
| ● | establishment registration and device listing; |
| ● | QSR, which requires manufacturers, including third party manufacturers, to follow stringent design, testing, risk management, production, control, supplier/contractor selection, complaint handling, documentation and other quality assurance procedures during all aspects of the manufacturing process; |
| ● | labeling regulations that prohibit the promotion of products for uncleared, unapproved or "off-label"“off-label” uses, and impose other restrictions on labeling, advertising and promotion; |
| ● | MDRMedical Device Reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur;
|
| ● | voluntary and mandatory device recalls to address problems when a device is defective and could be a risk to health; and |
| ● | corrections and removals reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health. |
Also, the FDA may require us to conduct post-market surveillance studies or establish and maintain a system for tracking our Products through the chain of distribution to the patient level. The FDA enforces regulatory requirements by conducting periodic, unannounced inspections and market surveillance. Inspections may include the manufacturing facilities of our subcontractors.
Failure to comply with applicable regulatory requirements can result in enforcement actions by the FDA and other regulatory agencies. These may include any of the following sanctions or consequences:
| ● | warning letters or untitled letters that require corrective action; |
| ● | fines and civil penalties; |
| ● | unanticipated expenditures; |
| ● | delays in approving or refusal to approve future products; |
| ● | FDA refusal to issue certificates to foreign governments needed to export products for sale in other countries; |
| ● | suspension or withdrawal of FDA clearance or approval; |
| ● | product recall or seizure; |
| ● | interruption of production; |
Our contract manufacturers, specification developers and some suppliers of components or device accessories, also are required to manufacture our Neurology Products in compliance with current good manufacturing practice requirements set forth in the QSR. The QSR requires a quality system for the design, manufacture, packaging, labeling, storage, installation and servicing of marketed devices, and it includes extensive requirements with respect to quality management and organization, device design, buildings, equipment, purchase and handling of components or services, production and process controls, packaging and labeling controls, device evaluation, distribution, installation, complaint handling, servicing, and record keeping. The FDA evaluates compliance with the QSR through periodic unannounced inspections that may include the manufacturing facilities of our subcontractors. If the FDA believes that any of our contract manufacturers or regulated suppliers are not in compliance with these requirements, it can shut down such manufacturing operations, require recall of our Products, refuse to approve new marketing applications, institute legal proceedings to detain or seize products, enjoin future violations or assess civil and criminal penalties against us or our officers or other employees.
Health Insurance Portability and Accountability Act of 1996 and Similar Foreign and State Laws and Regulations Affecting the Transmission, Security and Privacy of Health Information
We may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. The Health Insurance Portability and Accountability Act of 1996 or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing regulations, imposes specified requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA'sHIPAA’s security standards directly applicable to business associates, defined as service providers of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys'attorneys’ fees and costs associated with pursuing federal civil actions. In addition, many state laws govern the privacy and security of health information in certain circumstances, many of which differ from HIPAA and each other in significant ways and may not have the same effect.
Foreign data privacy regulations, such as the EU Data Protection Directive (Directive 95/46/EC), the country-specific regulations that implement Directive 95/46/EC, and the EU General Data Protection Regulation (GDPR) also govern the processing of personally identifiable data and,and may be stricter than U.S. laws.
Fraud and Abuse Laws
In addition to FDA restrictions, there are numerous U.S. federal and state laws pertaining to healthcare fraud and abuse, including anti-kickback laws and physician self-referral laws. Our relationships with healthcare providers and other third parties are subject to scrutiny under these laws. Violations of these laws are punishable by criminal and civil sanctions, including, in some instances, imprisonment and exclusion from participation in federal and state healthcare programs, including the Medicare, Medicaid and Veterans Administration health programs.
Federal Anti-Kickback and Self-Referral Laws
The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, receiving, offering or providing remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, to induce either the referral of an individual, or the furnishing, recommending, or arranging of a good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid or other federal healthcare programs. The term "remuneration"“remuneration” has been broadly interpreted to include anything of value, including such items as gifts, discounts, the furnishing of supplies or equipment, credit arrangements, waiver of payments and providing anything at less than its fair market value. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a review of all its relevant facts and circumstances. Several courts have interpreted the statute'sstatute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of (or purchases, or recommendations related to) federal healthcare covered business, the Anti-Kickback Statute has been implicated and potentially violated.
The penalties for violating the federal Anti-Kickback Statute include imprisonment for up to five years, fines of up to $25,000 per violation and possible exclusion from federal healthcare programs such as Medicare and Medicaid. Many states have adopted prohibitions similar to the federal Anti-Kickback Statute, some of which do not have the same exceptions and apply to the referral of patients for healthcare services reimbursed by any source, not only by the Medicare and Medicaid programs. Further, the Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act, or PPACA. Specifically, as noted above, under the Anti-Kickback Statute, the government must prove the defendant acted "knowingly"“knowingly” to prove a violation occurred. The PPACA added a provision to clarify that with respect to violations of the Anti-Kickback Statute, "a“a person need not have actual knowledge"knowledge” of the statute or specific intent to commit a violation of the statute. This change effectively overturns case law interpretations that set a higher standard under which prosecutors had to prove the specific intent to violate the law. In addition, the PPACA codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.
We plan to provide the initial training to providers and patients necessary for appropriate use of our technology either through our own educators or by contracting with outside educators that have completed an appropriate training course. Outside educators are reimbursed for their services at fair market value.
Noncompliance with the federal anti-kickback legislation could result in our exclusion from Medicare, Medicaid or other governmental programs, restrictions on our ability to operate in certain jurisdictions, and civil and criminal penalties.
Federal law also includes a provision commonly known as the "Stark“Stark Law,"” which prohibits a physician from referring Medicare or Medicaid patients to an entity providing "designated“designated health services,"” including a company that furnishes durable medical equipment, in which the physician has an ownership or investment interest or with which the physician has entered into a compensation arrangement. Violation of the Stark Law could result in denial of payment, disgorgement of reimbursements received under a noncompliant arrangement, civil penalties, and exclusion from Medicare, Medicaid or other governmental programs. We believe that we have structured our provider arrangements to comply with current Stark Law requirements.
Nevertheless, a determination of liability under such laws could result in fines and penalties and restrictions on our ability to operate in these jurisdictions.
Additionally, as some of these laws are still evolving, we lack definitive guidance as to the application of certain key aspects of these laws as they relate to our arrangements with providers with respect to patient training. We cannot predict the final form that these regulations will take or the effect that the final regulations will have on us. As a result, our provider and training arrangements may ultimately be found to be not in compliance with applicable federal law.
Federal False Claims Act
The Federal False Claims Act provides, in part, that the federal government may bring a lawsuit against any person whom it believes has knowingly presented, or caused to be presented, a false or fraudulent request for payment from the federal government, or who has made a false statement or used a false record to get a claim approved. In addition, amendments in 1986 to the Federal False Claims Act have made it easier for private parties to bring "qui tam"“qui tam” whistleblower lawsuits against companies under the Federal False Claims Act. Penalties include fines ranging from $5,500 to $11,000 for each false claim, plus three times the amount of damages that the federal government sustained because of the act of that person. Qui tam actions have increased significantly in recent years, causing greater numbers of healthcare companies to have to defend a false claim action, pay fines or be excluded from Medicare, Medicaid or other federal or state healthcare programs as a result of an investigation arising out of such action.
There are other federal anti-fraud laws that that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.
Additionally, HIPAA established two federal crimes in the healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from government sponsored programs. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. A violation of this statute is a felony and may result in fines or imprisonment.
Civil Monetary Penalties Law
In addition to the Anti-Kickback Statute and the civil and criminal False Claims Acts, the federal government has the authority to seek civil monetary penalties, or CMPs, assessments, and exclusion against an individual or entity based on a wide variety of prohibited conduct. For example, the Civil Monetary Penalties Law authorizes the imposition of substantial CMPs against an entity that engages in activities including, but not limited to: (1) knowingly presenting or causing to be presented, a claim for services not provided as claimed or which is otherwise false or fraudulent in any way; (2) knowingly giving or causing to be given false or misleading information reasonably expected to influence the decision to discharge a patient; (3) offering or giving remuneration to any beneficiary of a federal health care program likely to influence the receipt of reimbursable items or services; (4) arranging for reimbursable services with an entity which is excluded from participation from a federal health care program; (5) knowingly or willfully soliciting or receiving remuneration for a referral of a federal health care program beneficiary; or (6) using a payment intended for a federal health care program beneficiary for another use. Noncompliance can result in civil money penalties of up to $10,000 for each wrongful act, assessment of three times the amount claimed for each item or service and exclusion from the federal healthcare programs.
State Fraud and Abuse Provisions
Many states have also adopted some form of anti-kickback and anti-referral laws and a false claims act. We believe that we are in conformance to such laws. Nevertheless, a determination of liability under such laws could result in fines and penalties and restrictions on our ability to operate in these jurisdictions.
Physician Payment Sunshine Act
Transparency laws regarding payments or other items of value provided to healthcare providers and teaching hospitals may also impact our business practices. The federal Physician Payment Sunshine Act requires most medical device manufacturers to report annually to the Secretary of Human Health Services financial arrangements, payments, or other transfers of value made by that entity to physicians and teaching hospitals. The payment information is made publicly available in a searchable format on a CMS website. Over the next several years, we will need to dedicate significant resources to establish and maintain systems and processes in order to comply with these regulations. Failure to comply with the reporting requirements can result in significant civil monetary penalties. Similar laws have been enacted or are under consideration in foreign jurisdictions.
U.S. Foreign Corrupt Practices Act
The U.S. Foreign Corrupt Practices Act, or FCPA, prohibits U.S. corporations and their representatives from offering, promising, authorizing or making corrupt payments, gifts or transfers to any foreign government official, government staff member, political party or political candidate in an attempt to obtain or retain business abroad. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. Activities that violate the FCPA, even if they occur wholly outside the United States, can result in criminal and civil fines, imprisonment, disgorgement, oversight, and debarment from government contracts.
Employees
Motion: Industry Overview
Piezoelectric motors are unique because they combine the key benefits of a piezo motor with the price point of traditional precision direct current or DC motors. Unlike the classic DC or stepper motors, the versatile piezo rotary and linear motion motors contain very few parts enabling economical manufacturing volume yielding a stable and reliable final result. Piezo technology is inherently non-magnetic which enables motor designs for specialized applications where traditional DC motors cannot be used. Piezo motors are also immune from electromagnetic (“EM”) and radio frequency (“RF”) interference and generate no emissions which can aid original equipment manufacturer (“OEM”) product compliance and reduce or eliminate shielding costs.
We believe that our propriety piezo technology may be up to 1,000 times more precise and up to 100 times faster to respond than the DC competitors. A typical rotary stepper motor might be configured to make up to 51,200 steps in each rotation. By comparison, our rotary motor may make over 600,000 steps to complete a full revolution and this drives a smoother and more precise motion. We manufacture compact motors with our smallest being the length and width of a thumbnail.
Piezo Motion currently serves industries such as:
| ● | Medical Technology (“MedTech”) |
| | |
| ● | Aerospace (including Drones) |
| | |
Piezo Motion is a provider of piezo motor technology with significant investment in research and development of affordable piezoelectric motors to meet, and exceed, the needs of today's global markets. The company is committed to the development of innovative piezoelectric technology and motion products that enhance their functionality in a multitude of applications. We work with startups, OEMs, research institutions, and industrial companies from around the world empowering the visionaries behind their products.
Precision Motion Market
We compete within the domestic and global precision motor and motion control industries which are expected to grow at a CAGR of 4.9% from 2021 to 2025 to an estimated $2.4B by 2025.The precision motion market is defined primarily by costly, high-precision piezoelectric motors and lower-end DC precision motors. These are the motors that guide lasers, satellites, Mars rovers, and small cameras, among other things. This market continues to value more compact, precise, efficient motors to address the trends of miniaturization and portability. These motors are used across many industries, including aerospace, robotics, manufacturing, drones, telecommunications, and the medical field. We believe that we are uniquely positioned with our patented technology to sell piezo precision at a price point that can compete with precision DC motors.
Medical Technology Market
The primary focus for our piezoelectric motors remains on the medical technology, or MedTech, market. Use cases for precision motion products in this space vary from lab equipment to surgical robotics to drug delivery systems, to give a few examples. The MedTech industry is an optimal target because it increasingly requires higher precision than DC motors can offer, low electromagnetic interference, and often an affordable price point to reduce system costs. Our products’ unique advantages play well into this space.
Micro Dosing & Fluidics Market
The market for microinjectors and micropumps is growing significantly with a trend in the medical field towards smaller, sustained dosing and testing of higher concentrations of medicines. This market is expected to increase from $1.8B worldwide in 2021 to $3.2B worldwide in 2025, growing at an estimated 16% CAGR during this period. Currently, labs buy separate microinjector and continuous flow instruments due to the limitations in the products available in the marketplace today. Our Micro Dosing Pump can fulfill both of these applications at once, saving bench space in labs and simplifying lab operations.
Motion: Intellectual Property
Patents and trademarks are significant to our business to the extent that a Product or an attribute of a Product represents a unique design or process. Patent protection restricts competitors from duplicating unique designs and features. To protect our proprietary secrets and competitive technologies, we have obtained and are seeking to further obtain patent, trade secret, trademark and other intellectual property protection on our Products whenever appropriate. As of the date of this Annual Report on Form 10-K, the Company has secured a total of fourteen (14) U.S. nonprovisional patents and nine (9) foreign patents including European, Japanese and Chinese patents; these patents all relate to the Company’s piezoelectric technologies. We have one European patent application pending titled “Liner Piezoelectric Actuator on Rail System” (Application No. 18761639).
In September of 2015 we entered into a License Agreement with Parker Hannifin Corporation in which we granted a worldwide license under our Patents for certain pneumatic, gas and fluid control devices for sale into the pneumatic industrial factory automation market, medical equipment gas/liquid control market and instrumentation gas/liquid control market. Under the License Agreement we received an initial fee of two million dollars ($2,000,000.00) which was paid in two annual installments in 2015 and 2016. To-date we have not received any additional royalties from Parker Hannifin -under the License Agreement.
Motion: Market Dynamics
Driver: Trends toward miniaturization and portability
Creating increasingly small and mobile devices requires not just smaller and more energy-efficient motors within those devices but also more precise machinery to manufacture said devices.
According to Machine Design, the need for miniature motors is itself being expanded by trends towards the invent of collaborative robotic applications, robustness and extended life, safety and analytics through encoders and other feedback devices, and autonomy through multi-axis control. Smaller drones, smaller assembly lines, more complex smartphones and cameras, and more precise robotics all push the demand for miniaturized motors forward.
Portability has long been a trend for convenience, but an interconnected global world, increasingly complex robotic systems, and increasingly mobile workforce all speak to the need for micro-sized motors to be more energy and weight efficient than before. According to an article from ISA (International Society of Automation), increased human-robotics interactions and systems is a primary driver behind the trend of compact portability for robotics and motion systems. These trends are likely to support market growth for our products.
Opportunity: Increased needs for small precision motion systems
To drive progress in current hardware systems and robotics, and to keep pace with software and analytical developments, we believe increased motion precision is needed. The World Economic Forum estimates that by 2025 humans will create 463 exabytes of data each day globally. For context, one exabyte is equal to 1 million terabytes. This predicted influx of data creation data will likely drive more precise analytics, predictions, and recommendations – but to drive change in the physical world we believe will require motion systems capable of such high precision.
Piezoelectric motors are generally more precise than DC motors so they stand to benefit from demand for greater precision. The primary historic limitation of piezoelectric motion for precision applications has been their cost.
Challenge: The cost of piezoelectric motion systems
Piezoelectric systems can often cost 10x as much as a precision DC motor of a similar size. For most precision use cases outside of the highest-cost, highest-precision applications, precision DC motors are used today. We believe that piezoelectric motion can be far more affordable while still maintaining advantages in precision, efficiency, simplicity, and weight compared to precision DC motors.
We believe that our patented technology makes us unique in this ability and will help us maintain pricing levels comparable to precision DC motors while offering piezoelectric motor performance.
Motion: Competition
Our products and services compete against a range of competitors spanning large, established manufacturers with many product lines to startups with only a few employees doing custom projects. Most of the competitors we directly compete with sell either piezoelectric motors at a higher price point than us or precision DC motors at a similar price point but with lower precision and efficiency. Our indirect competitors sell other types of small, precise motors or motion systems that may be able to fulfill some of the same use cases outside of the target focus of our products. Meanwhile our Micro Dosing Pump competes for sale to labs and researchers against microinjectors and micropumps since our product fulfills the use cases of both current product categories.
The trends of miniaturization and portability are putting pressure on manufacturers of motion systems to design smaller, more efficient, and more precise motors. In addition, the manufacturing systems and robotics used to serve these trends also need increasingly precise motors. These trends play well into the advantages of piezoelectric motors, which have traditionally come at a cost point prohibitive to many use cases outside of advanced aerospace, optics, and defense industries. When piezoelectric motors are too expensive, precision DC motors, with poorer efficiency and precision, are the general solution. Now we have invented piezoelectric motion systems that are significantly more affordable than traditional piezoelectric systems while maintaining the unique advantages of piezoelectric technology. There are a couple of other small manufacturers attempting more affordable piezoelectric motors as well but most focus on the high-end, ultra-precise applications piezoelectric motors are traditionally known for.
Motion: Market Application
Our piezoelectric motion devices have many applications. Our primary markets are life sciences, MedTech, and lab instruments given those markets’ focus on precision and need for miniaturization. We believe devices in these fields can benefit from our technology: such potential applications include infusion MRI pumps, syringe pumps, wearable drug dispensers, handheld drug dispensers, surgical robotics, microscopes and micropositioning systems, and diagnostic testing equipment.
In addition to the life sciences industry, our motors have market applications in a wider set of industries, some of which have already started to use our motors. These secondary target markets include the advanced manufacturing, defense, laser/photonics/optic, semiconductor, and aerospace industries.
Motion: Sales and Marketing
Our linear and rotary motion products are commercially available directly from Piezo Motion or from one of our worldwide distribution partners. We market our solution though an integrated digital marketing program and in person trade shows and conferences. Our partners market our products directly to their customers in their local markets. Our sales strategy it focused on OEM product manufactures where size, precision and scale are key characteristics of their product needs. We provide resources online that allow OEM manufactures to learn and incorporate our motor into their product designs. We offer evaluation kits direct from our website and though our partner network.
Motion: Manufacturing, Supply and Quality Assurance
Our piezoelectric motors are currently fully assembled and tested in-house. The material components used in the assembly process include plastics, piezoceramics and metals. The main housing for our motors is produced from engineered thermoplastic. We currently use two plastics companies to produce these injection molded parts. One of these companies is located locally in Florida, the other company is located overseas.
Our assembly area consists of a localized storeroom, a site for fabrication, subassembly manufacturing, final assembly, and test/quality verification. We continue to look to enhance our processes by focusing on automation and lean initiatives.
Materials from suppliers is routinely inspected for quality and conformance against documented specifications. We are in the process of securing certification for ISO 9001 quality management systems.
Our piezoceramics are currently sourced from two suppliers, one is located in US, the other is overseas.
The vast majority of all other components, including electronic components, used in the assembly of our motors and associated electronics are available off-the-shelf from various suppliers sourced within the U.S.
We believe that the suppliers we currently utilize or that we may utilize in the future have sufficient capacity to meet our launch requirements and are able to scale up their capacity relatively quickly as demand for our product grows. We believe that with increased future demand, our per unit costs will decrease materially. Our suppliers meet the quality management systems for ISO 9001 or higher. We plan to audit our suppliers periodically to ensure conformity with the specifications, policies and procedures for our devices. We have also identified capable second source suppliers in the event of disruption from any of our primary vendors.
Motion: Research and Development
Our research and development activities are performed in the United States and at our subsidiary location in Kyiv, Ukraine where we have a small team of highly trained and experienced scientists and engineers employed on a full-time basis. We are also working with subcontractors in developing specific components of our technologies including software. Since the Russian invasion of Ukraine on February 24, 2022, our personnel in Ukraine have not been able to work from the office. They are working remotely and may not be able to return to an office location in the foreseeable future.
The primary objective of our research and development program is to advance the development of our existing and future Products and Technology. This work includes studies focused on topics such as:
| ● | Solid-state physics of piezoelectric materials |
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| ● | Electromechanical properties of piezoceramic materials |
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| ● | Resonance and frequency response profiling of piezoceramic materials |
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| ● | Piezoelectric motor and actuators concept and prototyping |
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| ● | Thermodynamic relationships |
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| ● | Impedance analyzer characterization of piezoelectric properties |
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| ● | Development of electronic hardware for piezo resonator excitation |
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| ● | Development of firmware and software algorithms for piezo motor control |
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| ● | Intellectual property development |
Employees
As of April 1, 2019,March 31, 2022, we had five employee and thirteen consultants. Nonetwenty-eight employees, none of our employeeswhom are represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employeesemployee to be satisfactory.
ITEM 1A – RISK FACTORS
Investing in our common stock involves a high degree of risk. Before you invest in our common stock, you should carefully consider the following risks, as well as general economic and business risks, and all of the other information contained in this Report. Any of the following risks could harm our business, operating results and financial condition and cause the trading price of our common stock to decline, which would cause you to lose all or part of your investment. When determining whether to invest, you should also refer to the other information contained in this Report including our financial statements and the related notes thereto.
Risks Relating to our Business
We have incurred significant operating losses since inception and cannot assure you that we will ever achieve or sustain profitability.
We have incurred losses sincefrom inception and had an accumulated deficit of $2,668,212$22,278,923 as of December 31, 20182021 and had a working capital deficit of $48,876$2,771,570 as of December 31, 2018.2021. We expect to continue to incur significant expenses and increasing operating and net losses for the foreseeable future. To date, we have financed our operations primarily through debt and equity financings. To date, our primary activities have been limited to, and our limited resources have been dedicated to, performing business and financial planning, raising capital, recruiting personnel, negotiating with business partners and the licensors of our intellectual property and conducting development activities.activities, including the commercialization of our products.
We believe that to fully implement our business strategy we need to, among other things, raise or generate revenues of approximately $2.0 million.$15.0 million, or some combination thereof. We have never been profitable and do not expect to be profitable in the foreseeable future. Any profitability in the future will be dependent upon the successful development of our business model, of which we can give no assurance of success. We expect our expenses to increase significantly as we pursue our objectives. The extent of our future operating losses and the timing of profitability are highly uncertain, and we expect to continue incurring significant expenses and operating losses over the next several years. Our prior losses have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital. Any additional operating losses may have an adverse effect on our stockholders' equity, and we cannot assure you that we will ever be able to achieve profitability. Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our development efforts, obtain regulatory approvals or continue our operations. Accordingly, we are a highly speculative venture involving significant financial risk.
We are a developmentdevelopmental stage company withand have not yet had a limited operating history making it difficultof generating revenue
As a development-stage entity, the Company has not generated significant revenues from its two Product lines. The Neurocap and NeuroEEG are both ready for you to evaluatecommercial availability within our businessNeurology Products. The Blue Series and your investment.
Our operationsengineered customized motors are subject to allalso ready for commercial availability within our Motion Products. In 2022, manufacture of the risks inherent inNeurocap has started at our outsourced manufacturing partner. Our Lakewood Ranch office is capable of handling the establishmentmanufacture of a new business enterprise, including but not limited to the absence of an operating history, lack of fully-developed or commercialized products, insufficient capital, expected substantial and continual lossesMotion Products for the foreseeable future, limited experiencefuture. Distribution partners are in dealing with regulatory issues, lack of manufacturing and marketing experience, need to rely on third partiesplace for the development and commercialization of our proposed Products, a competitive environment characterized by well-established and well-capitalized competitors and reliance on key personnel.both Products.
We mayIf we do not be successful in carrying out our business objectives. The revenue and income potential of our proposed business and operations are unproven asgain the lack of operating history makes it difficult to evaluatemarket acceptance for either the future prospects of our business. There is nothing at this time onNeurology or Motion Products which to base an assumption that our business operations will prove to be successful or that we will ever be able to operate profitably. Accordingly, we have no track record of successful business activities, strategic decision-making by management, fund-raising ability, and other factors that would allow an investor to assess the likelihood that we will be successful in our business. There is a substantial risk thatanticipate, we will not be successfulcapable of generating the revenues required for sustaining our business.
In 2019, we commenced acting as a distributor of third-party medical devices in fully implementingRussia, which resulted in substantially all of our business plan,revenue for 2020 and 2021. While we intend to continue the sale of third-party medical devices, we do not intend for it to be our primary source of revenue in the long-term and expect to curtail or cease this line of operations as, if initially successful, in thereafterand when we commence generating material, operatingrecurring revenues or in achieving profitable operations.
Since inception,from our Products, of which we have not established any material revenues or operations that will provide financial stability in the long term, and there can begive no assurance. We also can give no assurance that any revenue we generate from so acting as a distributor of third-party medical devices will realizecontinue, will be material or will be sufficient to enable us to continue our plansoperations. The Russian invasion of Ukraine on February 24, 2022 may impact the operation of our projected timetable (or at all) in orderRussian subsidiary. Economic sanctions and inflation may have a negative impact. Further, the Russian government may take actions to reach sustainable or profitable operations.inhibit the operations of companies which are 100% owned by U.S. companies,
Investors are subject to all the risks incident to the creation and development of a new business and each investor should be prepared to withstand a complete loss of his, her or its investment. Furthermore, the accompanying financial statements have been prepared assuming that we will continue as a going concern. We have not emerged from the development stage and may be unable to raise further equity. These factors raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company has limited experience in medical device development and commercialization. Our ability to become profitable depends primarily on: our ability to develop our Products, our successful completion of all necessary pre-clinical testing and clinical trials on such Products, our ability to obtain approval for such Products and, if approved, successfully commercialize such Products, our ongoing research and development efforts, the timing and cost of clinical trials, our ability to identify personnel with the necessary skill sets or enter into favorable alliances with third-parties who can provide substantial capabilities in clinical development, regulatory affairs, sales, marketing and distribution and our ability to obtain and maintain necessary intellectual property rights to such Products. Our limited experience in medical device development may make it more difficult for us to complete these tasks.
Even if we successfully develop and market our Products, we may not generate sufficient or sustainable revenue to achieve or sustain profitability, which could cause us to cease operations and cause you to lose all of your investment. Because we are subject to these risks, you may have a difficult time evaluating our business and your investment in our Company.
Our ability to continue our operations requires that we raise additional capital and our operations could be curtailed if we are unable to obtain the additional funding as or when needed. As a result, our registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements included in this Annual Report. We will need to raise substantial additional funds in the future, and these funds may not be available on acceptable terms or at all. A failure to obtain this necessary capital when needed could force us to delay, limit, scale back or cease some or all operations.
Upon the completion of the audit of our financial statements for the year ended December 31, 2018,2021, we concluded there was substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph regarding this uncertainty in its report on those financial statements.
The continued growth of our business, including the development, regulatory approval and commercialization of our Products, will significantly increase our expenses going forward, regardless of our revenues. As a result, we are required to seek substantial additional funds to continue our business. Our future capital requirements will depend on many factors, including:
| ● | the cost of developing our Products; |
| ● | obtaining and maintaining regulatory clearance or approval for our Products; |
| ● | the costs associated with commercializing our Products; |
| ● | any change in our development priorities; |
| ● | the revenue generated by sales of our Products, if approved; |
| ● | the revenue generated by sales of third-party medical devices; |
| ● | the costs associated with expanding our sales and marketing infrastructure for commercialization of our Products, if approved; |
| ● | any change in our plans regarding the manner in which we choose to commercialize any approved Product in the United States or internationally; |
| ● | the cost of ongoing compliance with regulatory requirements; |
| ● | expenses we incur in connection with potential litigation or governmental investigations; |
| ● | the costs to develop additional intellectual property: |
| ● | anticipated or unanticipated capital expenditures; and |
| ● | unanticipated general and administrative expenses. |
We believe our existing cash and cash equivalents, without raising additional capital or generating additional revenues, will be sufficientis insufficient to fund our operating expenses onlyfor the foreseeable future. We expect to approximately April 2019, at which time we will be required to raise additional capital. We may in the future seek additional capital from public or private offerings of our capital stock, borrowings under credit lines, if available, or other sources.
We may not be able to raise additional capital on terms acceptable to us, or at all. Any failure to raise additional capital could compromise our ability to execute on our business plan, and we may be forced to liquidate our assets. In such a scenario, the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements.
If we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. In addition, if we raise additional funds through collaborations, licensing, joint ventures, strategic alliances, partnership arrangements or other similar arrangements, it may be necessary to relinquish valuable rights to our potential future products or proprietary technologies or grant licenses on terms that are not favorable to us.
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TableCOVID-19 continues to evolve and has the potential to disrupt business United States and many other parts of Contents
the world and may continue to adversely affect our business operations, supply chains, employee availability, financial condition, liquidity and cash flow for an extended period of time.
COVID-19 has receded as a major disruption of business operations. However, if the virus continues to mutate, a risk exists of more shut-downs or disruption of business operations. It is impossible to predict the effect and ultimate impact of the COVID-19 pandemic as the situation continues to evolve.
Ongoing significant reductions in business related activities could result in further loss of sales and profits, as well as other material adverse effects. The extent of the impact of COVID-19 worldwide on our business, financial results, liquidity and cash flows will depend largely on future developments, which are highly uncertain and cannot be predicted.
Quality problems with, and product liability claims in connection with our Products could lead to recalls or safety alerts, harm to our reputation, or adverse verdicts or costly settlements, and could have a material adverse effect on our financial condition and business operations.
Quality is extremely important to us and our customers due to the serious and costly consequences of Product failure and our business exposes us to potential product liability risks that are inherent in the design, manufacture, and marketing of our products. Component failures, manufacturing defects, design flaws, off-label use, or inadequate disclosure of product-related risks or product-related information with respect to our products, could result in an unsafe condition or injury to, or death of, a user of our products. These problems could lead to the recall of, or issuance of a safety alert relating to, our Products, and could result in unfavorable judicial decisions or settlements arising out of product liability claims and lawsuits, including class actions, which could negatively affect our financial condition and business operations. In particular, a material adverse event involving one of our products could result in reduced market acceptance and demand for all products offered under our brand, and could harm our reputation and ability to market products in the future.
High quality products are critical to the success of our business. If we fail to meet the high standards we set for ourselves and which our customers expect, and our products are the subject of recalls, safety alerts, or other material adverse events, our reputation could be damaged, we could lose customers, and our revenue and results of operations could decline. Our success also depends generally on our ability to manufacture to exact tolerances precision-engineered components, subassemblies, and finished devices from multiple materials. If our components fail to meet these standards or fail to adapt to evolving standards, our reputation, competitive advantage and market share could be negatively impacted. In certain situations, we may undertake a voluntary recall of products or temporarily shut down product production lines if we determine, based on performance relative to our own internal safety and quality monitoring and testing data, that we have or may be in danger of failing to meet the high-quality standards we have set for ourselves and which our customers expect. Such recalls or cessation of services or product manufacturing may also negatively impact our business.
Any product liability claim brought against us, with or without merit, could be costly to defend and resolve. Any of the foregoing problems, including product liability claims or product recalls in the future, regardless of their ultimate outcome, could harm our reputation and have a material adverse effect on our financial condition and business operations.
We are substantially dependent on patent and other proprietary rights and failing to protect such rights or to be successful in litigation related to our rights or the rights of others may result in our payment of significant monetary damages and/or royalty payments, negatively impact our ability to sell current or future Products, or prohibit us from enforcing our patent and other proprietary rights against others.
We are and will continue to be materially dependent on a combination of patents, trade secrets, and trademarks, non-disclosure and non-competition agreements, and other intellectual property protections which will enable us to maintain our proprietary competitiveness. We also operate in an industry characterized by extensive patent litigation. Patent litigation against us can result in significant damage awards and injunctions that could prevent our manufacture and sale of affected Products or require us to pay significant royalties in order to continue to manufacture or sell affected Products. At any given time, we could potentially be involved as a plaintiff and/or as a defendant in a number of patent infringement and/or other contractual or intellectual property related actions, the outcomes of which may not be known for prolonged periods of time. While it is not possible to predict the outcome of such litigation, we acknowledge the possibility that any such litigation could result in our payment of significant monetary damages and/or royalty payments, negatively impact our ability to sell current or future Products, or prohibit us from enforcing our patent and proprietary rights against others, which would have a material adverse effect on the financial condition of our business and on our business operations.
While we intend to defend against any threats to our intellectual property, including our patents, trade secrets, and trademarks, and while we intend to defend against any actual or threatened breaches of our non-disclosure and non-competition agreements, may not adequately protect our intellectual property or enforce such agreements. Further, patent or trademark applications currently pending that are owned by us may not result in patents or trademarks being issued to us, patents or trademarks issued to or licensed by us in the past or in the future may be challenged or circumvented by competitors and such patents or trademarks may be found invalid, unenforceable or insufficiently broad to protect our proprietary advantages.
In addition, the laws of certain countries in which we market, or intend to market, some or all of our Products do not protect our intellectual property rights to the same extent as the laws of the U.S., which could make it easier for competitors to capture market position in such countries by utilizing technologies and other intellectual property that are similar to those developed or licensed by us. Competitors may also harm our sales by designing products or offering services that mirror the capabilities of our Products, or the technology contained therein, without infringing our intellectual property rights. If we are unable to protect our intellectual property in these countries, it could have a material adverse effect on our financial condition and business operations.
If we experience decreasing prices for our Neurology Products and we are unable to reduce our expenses, our financial condition and business operations may suffer.
We may experience decreasing prices for our Neurology Products due to pricing pressure experienced by our customers from managed care organizations and other third-party payers, increased market power of our customers as the medical device industry consolidates, and increased competition among medical engineering and manufacturing service providers. If the prices for our Neurology Products decrease and we are unable to reduce our expenses, our results of operations will be adversely affected.
Our research and development efforts rely upon investments and investment collaborations, and we cannot guarantee that any previous or future investments or investment collaborations will be successful.
Our commercialization strategy requires a wide variety of technologically advanced and capable Products. The rapid pace of technological development in the MedTech industry and the specialized expertise required in different areas of medicine make it difficult for one company alone to develop a broad portfolio of technological solutions. In addition to internally generated growth through our research and development efforts, we anticipate the need to rely upon investments and investment collaborations to provide us access to new technologies both in areas served by our contemplated businesses as well as in new areas. A failure to establish such collaborations may harm our financial condition and business operations.
Going forward, we expect to make future investments where we believe that we can stimulate the development or acquisition of new technologies, Products to further our strategic objectives and strengthen our existing business ventures. Investments and investment collaborations in and with medical technology companies are inherently risky, and we cannot guarantee that any of our previous or future investments or investment collaborations will be successful or will not have a materially adverse effect our financial condition and business operations.
The ability to offer our planned Neurology Products, and the continuing development of new Neurology Products, depends upon us maintaining strong relationships with health care professionals.
If we fail to maintain our working relationships with health care professionals, many of our Products may not be developed and offered in line with the needs and expectations of the professionals who use and support our Products, which could cause a decline in our earnings and profitability. The research, development, marketing, and sales of our Products is expected to be dependent upon our maintaining working relationships with such health care professionals, and the use of our Products is expected to often require the participation of health care professionals. In addition, health care professionals are the primary customer groups we expect to market and sell our Products directly to, further highlighting the importance of our relationship with such health care professionals. If we are unable to maintain our relationships with these professionals, we may lose our primary customer base, our Products may not be utilized correctly or to their full potential, and our ability to develop, manufacture, and market future Products may be significantly stunted.
We operate in a highly competitive industries and we may be unable to compete effectively.
We expect to compete domestically and internationally in the neurology, diagnostic imaging MedTech markets and the motion control market. These markets are characterized by rapid change resulting from technological advances and scientific discoveries. In the product lines and offered services in which we compete, we face a mixture of competitors ranging from large manufacturers with multiple business lines to small manufacturers that offer a limited selection of niche products. Development by other companies of new or improved products, processes, technologies, or the introduction of reprocessed products or generic versions when our proprietary Products lose their patent protection may make our Products or proposed Products less competitive. Competitive factors include product reliability, product performance, product technology, product quality, breadth of product lines, product services, customer support, price, and reimbursement approval from health care insurance providers.
We also face competition for marketing, distribution, and collaborative development agreements, for establishing relationships health care professionals, medical associations, and academic and research institutions, and for licenses to intellectual property. In addition, academic institutions, governmental agencies and other public and private research organizations also may conduct research, seek patient protection and establish collaborative arrangements for discovery, research, clinical development and marketing of products similar to ours. These companies, professionals, and institutions compete with us in recruiting and retaining qualified scientific and management personnel, as well as in acquiring necessary product technologies.
Technological breakthroughs in electric motors could render Motion Products obsolete.
The electric motor market is subject to rapid technological change and product innovation. Piezo’s electric motors are based on its proprietary technology, but a number of companies are pursuing new technologies, including sensing technologies for electric engines. Any technological breakthroughs could render Piezo’s product obsolete, would have a material adverse effect on Piezo’s and our business, financial condition and results of operations and could result in our shareholders losing their entire investment.
Any failure to attract and retain skilled directors, executives, employees and consultants could impair our product development and commercialization activities.
Piezo’s business depends on the skills, performance, and dedication of its current directors, executive officers and key engineering and technical advisors. Piezo may need to recruit additional directors, executive management employees, and advisers, particularly engineering, scientific and technical personnel, which will require additional financial resources. In addition, there is currently intense competition for skilled directors, executives and employees with relevant engineering, scientific and technical expertise, and this competition is likely to continue. If Piezo is unable to attract and retain persons with sufficient engineering, scientific, technical and managerial experience, it may be forced to limit or delay its product development activities or may experience difficulties in successfully conducting its business, which would adversely affect its and our operations and financial condition.
Piezo’s growth could suffer if the markets into which we sell our products and services decline.
Our growth depends in part on the growth of the markets which we serve. Any decline or lower than expected growth in our served markets could diminish demand for Piezo’s products and services, which would adversely affect its and our financial results. Certain of our businesses operate in industries that may experience periodic, cyclical downturns. Demand for Piezo’s products and services will also be sensitive to changes in its current and future customer order patterns, which may be affected by announced price changes, changes in incentive programs, new product introductions and customer inventory levels. Any of these factors could adversely affect Piezo’s and our growth and results of operations in any given period.
Piezo’s competitors may develop Products that are more effective and less expensive than ours.
Piezo is engaged in the development and marketing of electric engines, which is intensely competitive. There are a number of current and Piezo expects future products that Piezo will compete against. Our competitors may:
| ● | develop products that are less expensive or more effective than ours; |
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| ● | commercialize competing products before Piezo can launch its products; |
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| ● | hold or obtain proprietary rights that could prevent Piezo from commercializing its products; or |
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| ● | introduce competing products that render Piezo’s product obsolete. |
If Piezo’s competitors’ market electric motors that are less expensive or more effective than Piezo’s products, or that gain or maintain greater market acceptance, Piezo may not be able to compete effectively.
Piezo may not be able to successfully scale-up manufacturing of its products in sufficient quality and quantity.
In order to conduct larger-scale commercialization of its electric engines, Piezo will need to manufacture its products in substantially larger quantities. It may not be able to successfully increase the manufacturing capacity for its product in a timely or cost-effective manner, or at all. In addition, quality issues may arise during scale-up activities. If Piezo is unable to successfully scale up the manufacture of its product in sufficient quality and quantity, the further development of its products and expected sales will be delayed, which could significantly harm its and our business.
A reduction or interruption in our supply of raw materials coupled with an inability to develop alternative sources for such raw materials, and other similar supply chain management difficulties, may adversely affect our ability to manufacture our Products.
The manufacture of our Products requires the timely delivery of sufficient amounts of quality components and materials and is highly exacting and complex, due in part to strict regulatory requirements, and we cannot guarantee that our efforts to secure quality components and materials in a timely, cost effective manner will be successful. Other problems in the manufacturing process, including equipment malfunction, failure to follow specific protocols and procedures, defective raw materials and environmental factors, could lead to launch delays, product shortage, unanticipated costs, lost revenues and damage to our reputation. A failure to identify and address manufacturing problems prior to the release of Products to our customers may also result in quality or safety issues.
Our operating results could be negatively impacted if it is unable to capitalize on research and development spending.
We have and intend to continue to spend a significant amount of time and resources on research and development projects in order to develop and validate new and innovative products. We believe these projects will result in the commercialization of new products and will create additional future sales. However, factors including regulatory delays, safety concerns or patent disputes could delay the introduction or marketing of new products. Additionally, unanticipated issues may arise in connection with current and future clinical studies that could delay or terminate a product’s development prior to regulatory approval. We may experience an unfavorable impact on our financial condition and business operations if we are unable to capitalize on those efforts by attaining the proper FDA approval or to successfully market new products.
Piezo relies on suppliers to provide equipment, components and services, which creates certain risks and uncertainties that may adversely affect its business.
Piezo’s business requires that it buys equipment, components and services from third parties. Its reliance on suppliers involves certain risks, including poor quality or an insecure supply chain, which could adversely affect the reliability and reputation of Piezo’s products; changes in the cost of these purchases due to inflation, exchange rates, tariffs, or other factors; shortages of components, commodities or other materials, which could adversely affect its manufacturing efficiencies and its ability to make timely delivery. Any of these uncertainties could adversely affect Piezo’s profitability and ability to compete.
Certain materials and components used in Piezo’s products are required and qualified to be sourced from a single or a limited number of suppliers.
Because of any number of domestic or global factors, certain materials and components used by Piezo in its Products could become in short supply resulting in limited availability and/or increased costs. Although Piezo believes that alternative suppliers are available to supply materials and components to replace those currently used, doing so may require that Piezo redesign work and would require having those new sources qualified within its systems prior to making use of those new alternatives. Any interruption in the supply from any supplier that serves as a sole source could delay product shipments and have a material adverse effect on its business, financial condition and results of operations. Piezo’s profits may decline if the price of raw materials rise and it cannot recover the increases from its then customers.
Piezo use various raw materials, such as piezoceramic, steel and plastics, in our manufacturing operations.
The raw materials used by Piezo to manufacture its Products may become subject to volatility. As a result, it may be necessary for Piezo to increase its product sales price for its electric engine which could have a negative impact on its unit volume, revenue and potential operating income. Piezo is also subject to risks associated with U.S. and foreign legislation and regulations relating to imports, including quotas, duties, tariffs or taxes, and other charges or restrictions on imports, which could adversely affect its operations and its ability to import raw materials and components at current or increased levels. Piezo cannot predict whether additional U.S. and foreign customs quotas, duties, tariffs, taxes or other charges or restrictions, requirements as to where raw materials must be purchased, or other restrictions on its imports will be imposed upon the importation of our products in the future or adversely modified, or what effect such actions would have on our costs of operations.
We may be unable to attract and retain key employees.
Our sales, technical and other key personnel play an integral role in the development, marketing and selling of our Products. If we are unable to recruit, hire, develop and retain a talented, competitive work force, we may not be able to meet our strategic business objectives.
The Russian-Ukrainian Conflict may adversely affect our business, financial condition and results
In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. The specific impact on our financial condition, results of operations and cash flows is not determinable as of the date hereof. However, to the extent that such military action spreads to other countries, intensifies, or otherwise remains active, such action could have a material adverse effect on our financial condition, results of operations, and cash flows.
Security vulnerabilities in our systems could lead to reduced revenues and claims against us.
Our operations may depend upon our ability to withstand cyber-attacks. Third parties may develop and deploy viruses, worms, and other malicious software programs, some of which may be designed to attack our systems or networks. Our operations also involve the storage and transmission of proprietary information which may be the target of cyber-attacks. Hardware and software that we produce or procure from third parties also may contain defects in manufacture or design, including bugs and other problems, which could compromise their ability to withstand cyber-attacks.
The costs to us to eliminate or alleviate security vulnerabilities can be significant, and our efforts to address these problems may not be successful and could result in interruptions, delays, cessation of service and loss of existing or potential customers that may impede our sales, manufacturing, distribution, or other critical functions, as well as potential liability to the company. The risk that these types of events could seriously harm our business is likely to increase as we expand our operations.
If we or our third-party service providers experience a security breach or unauthorized parties otherwise obtain access to our network, our data or our cloud services may be perceived as not being secure, our reputation may be harmed, demand for our products may be reduced, and we may incur significant liabilities.
Our operations involve the storage and transmission of data, and security breaches could result in the loss of this information, litigation, indemnity obligations and other liability. We may become the target of cyber-attacks by third parties seeking unauthorized access to our data or users’ data or to disrupt our ability to provide service. While we have taken steps to protect the confidential information that we have access to, including confidential information we may obtain through our customer support services or customer usage of our cloud services, our security measures or those of our third-party service providers could be breached or we could suffer data loss. Computer malware, viruses, social engineering (predominantly spear phishing attacks), and general hacking have become more prevalent in our industry, particularly against cloud services. If our security measures are or are believed to have been breached as a result of third-party action, employee error, malfeasance or otherwise, our reputation could be damaged, our business may suffer, and we could incur significant liability.
We also process, store, and transmit our own data as part of our business and operations. This data may include personally identifiable, confidential, or proprietary information. There can be no assurance that any security measures that we or our third-party service providers have implemented will be effective against current or future security threats. While we have developed systems and processes to protect the integrity, confidentiality and security of our data, our security measures or those of our third-party service providers could fail and result in unauthorized access to or disclosure, modification, misuse, loss or destruction of such data.
Because there are many different security breach techniques and such techniques continue to evolve, we may be unable to anticipate attempted security breaches and implement adequate preventative measures. Any security breach or other security incident, or the perception that one has occurred, could result in damage to our brand, disrupt normal business operations, require us to spend material resources to investigate or correct the breach, expose us to legal liabilities, including litigation, regulatory enforcement, and indemnity obligations, and adversely affect our revenues and operating results. These risks may increase as we continue to grow the number and scale of our cloud services, and process, store, and transmit increasingly large amounts of data.
Regulatory and Legal Risks
Medical device development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of any Product.
Before obtaining marketing approval from regulatory authorities for the sale of our Products under development in the United States or elsewhere, we must complete all pre-clinical testing, clinical trials and other regulatory requirements necessitated by the FDA and foreign regulatory bodies and demonstrate the performance and safety of our Products. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. Further, the outcomes of completed clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Clinical data is often susceptible to varying interpretations and analyses, and many companies that have believed their products performed satisfactorily in clinical trials have nonetheless failed to obtain marketing approval. We have limited resources to complete the expensive process of medical device development, pre-clinical testing and clinical trials, putting at a disadvantage, particularly compared to some of our larger and established competitors, and we may not have sufficient resources to commercialize our Products under development in a timely fashion, if ever.
We may experience numerous unforeseen events during or as a result of clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our Products, including:
| ● | regulators may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site; |
| ● | the failure to successfully complete pre-clinical testing requirements required by the FDA and international organizations; |
| ● | we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts with third parties or clinical trial protocols with prospective trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different trial sites; |
| ● | we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts with third parties or clinical trial protocols with prospective trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different trial sites; |
| ● | clinical trials of our Products may produce negative or inconclusive results, including failure to demonstrate statistical significance, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon our development programs; |
| ● | the number of people with brain related disorders required for clinical trials may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, or people may drop out of these clinical trials or fail to return for post-treatment follow-up at a higher rate than we anticipate; |
| ● | our Products may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or institutional review boards to suspend or terminate the trials; |
| ● | our third-party contractors conducting the clinical trials may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all; |
| ● | regulators may require that we or our investigators suspend or terminate clinical development for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks; |
| ● | the cost of clinical trials of our Products may be greater than we anticipate; |
| ● | the supply or quality of our Products or other materials necessary to conduct clinical trials of our Products may be insufficient or inadequate; and |
| ● | delays from our suppliers and manufacturers could impact clinical trial completion and impact revenue. |
If we are required to conduct additional clinical trials or other testing of our Products under development beyond those that we contemplate, if we are unable to successfully complete clinical trials of our Products under development or other testing, if the results of these trials or tests are not favorable or if there are safety concerns, we may:
| ● | not obtain marketing approval at all; |
| ● | be delayed in obtaining marketing approval for our Products under development in a jurisdiction; |
| ● | be subject to additional post-marketing testing requirements; or |
| ● | have our Products removed from the market after obtaining marketing approval. |
Our development costs will also increase if we experience delays in testing or marketing approvals. We do not know whether any of our clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could allow our competitors to bring innovative products to market before we do and impair our ability to successfully commercialize our Products.
Current economic and political conditions make tax rules in any jurisdiction subject to significant change.
We are subject to income taxes as well as non-income based taxes, in both the U.S. and ultimately various jurisdictions outside the U.S. where we intend to operate. We cannot predict the overall impact that changes or revisions to any such tax laws and regulations, whether in in the U.S. or in jurisdictions outside the U.S., may have on our business. We may be subject to ongoing tax audits in various jurisdictions, and the tax authorities conducting such audits may disagree with certain taxation positions we have taken and assess additional taxes. Although we intend to regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax obligations, there can be no assurance that we will accurately predict the outcomes of these audits, and the actual outcomes of these audits could have a material adverse effect on our financial condition and business operations.
Recent executive and legislative actions to amend or impede the implementation of the Affordable Care Act and ongoing efforts to repeal, replace or further modify the Affordable Care Act may adversely affect our business, financial condition and results of operations.
Recent executive and legislative actions to amend or impede the implementation of the Affordable Care Act and ongoing efforts to repeal, replace or further modify the Affordable Care Act may adversely affect our business, financial condition and results of operations.
There have been judicial and congressional challenges to certain aspects of the Affordable Care Act, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the Affordable Care Act. Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the Affordable Care Act or otherwise circumvent some of the requirements for health insurance mandated by the Affordable Care Act. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the Affordable Care Act. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the Affordable Care Act have been signed into law. The Tax Act included a provision which repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. The 2018 Appropriations Resolution delayed the implementation of certain Affordable Care Act-mandated fees, including, without limitation, the medical device excise tax. The Bipartisan Budget Act of 2018, or BBA, among other things, amended the Affordable Care Act, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”. In July 2018, CMS published a final rule permitting further collections and payments to and from certain Affordable Care Act qualified health plans and health insurance issuers under the Affordable Care Act risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. On December 14, 2018, a Texas U.S. District Court Judge ruled that the Affordable Care Act is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. While the Texas U.S. District Court Judge, as well as the Trump administration and CMS, have stated that the ruling will have no immediate effect pending appeal of the decision, it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the Affordable Care Act will impact the Affordable Care Act and our business.
In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013 and, due to the BBA, will stay in effect through 2027 unless additional Congressional action is taken. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding, which could negatively impact customers for our product candidates, if approved, and, accordingly, our financial operations.
We expect that other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our Products.
We are subject to costly and complex laws and governmental regulations and any adverse regulatory action may materially adversely affect our financial condition and business operations.
Our medical devices are subject to regulation by numerous government agencies, including the FDA and comparable agencies outside of the U.S. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing, and distribution of our Products. We cannot guarantee that we will be able to obtain or maintain marketing clearance for our new Products, or enhancements or modifications to existing Products, and the failure to maintain approvals or obtain approval or clearance could have a material adverse effect on the financial condition of our business and our business operations. Even if we are able to obtain such approval or clearance, it may take a significant amount of time, require the expenditure of substantial resources, involve stringent clinical and pre-clinical testing, require increased post-market surveillance, involve modifications, repairs, or replacements of our Products, and result in limitation on the proposed uses of our Products.
Both before and after a Product or service is commercially released or offered, we have ongoing responsibilities under FDA regulations. Many of our facilities and procedures and those of our suppliers are also subject to periodic inspections by the FDA to determine compliance with the FDA’s requirements, including the quality system regulations and medical device reporting regulations. The results of these inspections can include inspectional observations on FDA’s Form-483, warning letters, or other forms of enforcement. If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical devices are ineffective or pose an unreasonable health risk, the FDA could ban such medical devices, detain or seize adulterated or misbranded medical devices, order a recall, repair, replacement, or refund of such devices, refuse to grant pending pre-market approval applications or require certificates of non-U.S. governments for exports, and/or require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health. The FDA may also assess civil or criminal penalties against us, our officers or employees and impose operating restrictions on a company-wide basis or enjoin and/or restrain certain conduct resulting in violations of applicable law. The FDA may also recommend prosecution to the U. S. Department of Justice. Governmental agencies comparable to the FDA which operate in foreign jurisdictions may also require us to comply with regulations similar to those required by the FDA and failing to do so may result in material adverse ramifications similar to those caused by a failure to comply with FDA regulations. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively marketing and selling our Products and limit our ability to obtain future pre-market clearances or approvals, and could cause result in a substantial modification to our business practices and operations.
In addition, the FDA has taken the position that device manufacturers are prohibited from promoting their products other than for the uses and indications set forth in the approved product labeling. A number of enforcement actions have been taken against manufacturers that promote products for “off-label” uses, including actions alleging that federal health care program reimbursement of products promoted for “off-label” uses constitute false and fraudulent claims to the government. The failure to comply with “off-label” promotion restrictions can result in significant civil or criminal exposure, administrative obligations and costs, and/or other potential penalties from, and/or agreements with, the federal government.
Governmental regulations outside the U.S. have become increasingly stringent and more common, and we may become subject to more rigorous regulation by governmental authorities in the future in the event we determine to conduct business internationally. In the European Union, for example, a new Medical Device Regulation was published in 2017 which, when it enters into full force, will impose significant additional premarket and post-market requirements. Penalties for a company’s non-compliance with governmental regulation could be severe, including fines and revocation or suspension of a company’s business license, mandatory price reductions and criminal sanctions. Any governmental law or regulation imposed in the future may have a material adverse effect on us.
We are subject to environmental laws and regulations and the risk of environmental liabilities, violations and litigation.
We are subject to numerous U.S. federal, state, local and non-U.S. environmental, health and safety laws and regulations concerning, among other things, the health and safety of our employees, the generation, storage, use and transportation of hazardous materials, emissions or discharges of substances into the environment, investigation and remediation of hazardous substances or materials at various sites, chemical constituents in medical products and end-of-life disposal and take-back programs for medical devices. Our operations involve the use of substances regulated under such laws and regulations, primarily those used in manufacturing and sterilization processes. If we violate these environmental laws and regulations, we could be fined, criminally charged or otherwise sanctioned by regulators.
In addition, certain environmental laws assess liability on current or previous owners or operators of real property for the costs of investigation, removal or remediation of hazardous substances or materials at their properties or at properties which they have disposed of hazardous substances. Liability for investigative, removal and remedial costs under certain U.S. federal and state laws are retroactive, strict and joint and several. In addition to cleanup actions brought by governmental authorities, private parties could bring personal injury or other claims due to the presence of, or exposure to, hazardous substances. The ultimate cost of site cleanup and timing of future cash outflows is difficult to predict, given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations, and alternative cleanup methods.methods
We may in the future be subject to additional environmental claims for personal injury or cleanup based on our past, present or future business activities (including the past activities of companies we may acquire). The costs of complying with current or future environmental protection and health and safety laws and regulations, or liabilities arising from past or future releases of, or exposures to, hazardous substances, may exceed our estimates, or have a material adverse effect on the financial condition of our business and our business operations.
Our failure to comply with laws and regulations relating to reimbursement of health care goods and services may subject us to penalties and adversely impact our reputation, financial condition, and business operations.
Our Products are expected to be purchased primarily by medical professionals and organizations that typically bill various third-party payers, such as governmental programs (e.g., Medicare, Medicaid and comparable non-U.S. programs), private insurance plans and managed care plans, for the healthcare services provided to their patients. The ability of our customers to obtain appropriate reimbursement for products from third-party payers is critical because it affects which products customers purchase and the prices they are willing to pay for such products. As a result, our Products are subject to regulation regarding quality and cost by the U.S. Department of Health and Human Services, including the Centers for Medicare & Medicaid Services (“CMS”)or CMS as well as comparable state and non-U.S. agencies responsible for reimbursement and regulation of health care goods and services. The principal U.S. federal laws implicated include those that prohibit (i) the filing of false or improper claims for federal payment, known as the false claims laws, (ii) unlawful inducements for the referral of business reimbursable under federally-funded health care programs, known as the anti-kickback laws, and (iii) health care service providers from seeking reimbursement for providing certain services to a patient who was referred by a physician who has certain types of direct or indirect financial relationships with the service provider, known as the Stark Law. Many states have similar laws that apply to reimbursement by state Medicaid and other funded programs as well as in some cases to all payers. Insurance companies can also bring a private cause of action claiming treble damages against a manufacturer for causing a false claim to be filed under the federal Racketeer Influenced and Corrupt Organizations Act. In addition, if we were to become a manufacturer of FDA-approved devices reimbursable by federal healthcare programs, we would be subject to the Physician Payments Sunshine Act, which would require us to annually report certain payments and other transfers of value we make to U.S.-licensed physicians or U.S. teaching hospitals.
Our anticipated domestic and international operations may be subject to risks relating to changes in government and private medical reimbursement programs and policies, and changes in legal regulatory requirements in the U.S. and around the world. Implementation of further legislative or administrative reforms to the reimbursement system in the U.S. and outside of the U.S., or adverse decisions relating to our Products or services by administrators of these systems in coverage or reimbursement, could significantly reduce reimbursement or result in the denial of coverage, which could have an impact on the acceptance of and demand for our Products and the prices that our customers are willing to pay for them.
The laws and regulations of healthcare related products that are applicable to us, including those described herein, are subject to evolving interpretations and enforcement discretion. If a governmental authority were to conclude that we are not in compliance with applicable laws and regulations, we and our officers and employees could be subject to severe criminal and civil penalties, including, for example, exclusion from participation as a supplier of products or services to beneficiaries covered by CMS. Any failure to comply with laws and regulations relating to reimbursement and healthcare products could adversely affect our financial condition and business operations.
We are subject to federal, state and foreign healthcare regulations related to anti-bribery and anti-corruption laws, and could face substantial penalties if we fail to fully comply with such regulations and laws.
The relationships that we and our potential distributors and others that market or may market our Products have with healthcare professionals, such as physicians and hospitals, are subject to scrutiny under various federal, state, foreign laws often referred to collectively as healthcare fraud and abuse laws. In addition, U.S. and foreign government regulators have increased the enforcement of the Foreign Corrupt Practices Act and other anti-bribery laws. We also must comply with a variety of other laws that protect the privacy of individually identifiable healthcare information and impose extensive tracking and reporting related to all transfers of value provided to certain healthcare professionals. These laws and regulations are broad in scope and are subject to evolving interpretation and we could be required to incur substantial costs to monitor compliance or to alter our practices if we are found not to be in compliance. Violations of these laws may be punishable by criminal or civil sanctions, including substantial fines, imprisonment of current or former employees and exclusion from participation in governmental healthcare programs, all of which could have a material adverse effect on our financial condition and business operations.
Quality problems with,The Company’s international operations expose it to legal, political and product liability claims in connection with our Products could lead to recalls or safety alerts, harm to our reputation, or adverse verdicts or costly settlements, andregulatory risks, which could have a material adverse effect on our financial condition andits business operations..
Quality is extremely important to us and our customers due to the serious and costly consequences of Product failure and our business exposes us to potential product liability risks that are inherent in the design, manufacture, and marketing of medical devices and services. In addition, our products may be used in intensive care settings with seriously ill patients. Component failures, manufacturing defects, design flaws, off-label use, or inadequate disclosure of product-related risks or product-related information with respect to our products, could result in an unsafe condition or injury to, or death of, a patient or other user of our products. These problems could lead to the recall of, or issuance of a safety alert relating to, our Products, and could result in unfavorable judicial decisions or settlements arising out of product liability claims and lawsuits, including class actions, which could negatively affect our financial condition and business operations. In particular, a material adverse event involving one of our products could result in reduced market acceptance and demand for all products offered under our brand, and could harm our reputation and ability to market products in the future.
High quality products are critical to the success of our business. If we fail to meet the high standards we set for ourselves and which our customers expect, and our products are the subject of recalls, safety alerts, or other material adverse events, our reputation could be damaged, we could lose customers, and our revenue and results of operations could decline. Our success also depends generally on our ability to manufacture to exact tolerances precision-engineered components, subassemblies, and finished devices from multiple materials. If our components fail to meet these standards or fail to adapt to evolving standards, our reputation, competitive advantage and market share could be negatively impacted. In certain situations, we may undertake a voluntary recall of products or temporarily shut down product production lines if we determine, based on performance relative to our own internal safety and quality monitoring and testing data, that we have or may be in danger of failing to meet the high quality standards we have set for ourselves and which our customers expect. Such recalls or cessation of services or product manufacturing may also negatively impact our business.
Any product liability claim brought against us, with or without merit, could be costly to defend and resolve. Any of the foregoing problems, including product liability claims or product recalls in the future, regardless of their ultimate outcome, could harm our reputation and have a material adverse effect on our financial condition and business operations.
We are substantially dependent on patent and other proprietary rights and failing to protect such rights or to be successful in litigation related to our rights or the rights of others may result in our payment of significant monetary damages and/or royalty payments, negatively impact our ability to sell current or future Products, or prohibit us from enforcing our patent and other proprietary rights against others.
We are and will continue to be materially dependent on a combination of patents, trade secrets, and trademarks, non-disclosure and non-competition agreements, and other intellectual property protections which will enable us to maintain our proprietary competitiveness. We also operate in an industry characterized by extensive patent litigation. Patent litigation against us can result in significant damage awards and injunctions that could prevent our manufacture and sale of affected Products or require us to pay significant royalties in order to continue to manufacture or sell affected Products. At any given time, we could potentially be involved as a plaintiff and/or as a defendant in a number of patent infringement and/or other contractual or intellectual property related actions, the outcomes of which may not be known for prolonged periods of time. While it is not possible to predict the outcome of such litigation, we acknowledge the possibility that any such litigation could result in our payment of significant monetary damages and/or royalty payments, negatively impact our ability to sell current or future Products, or prohibit us from enforcing our patent and proprietary rights against others, which would have a material adverse effect on the financial condition of our business and on our business operations.
While we intend to defend against any threats to our intellectual property, including our patents, trade secrets,The Company has operations in Russia and trademarks, and while we intend to defend against any actual or threatened breaches of our non-disclosure and non-competition agreements, may not adequately protect our intellectual property or enforce such agreements. Further, patent or trademark applications currently pending that are owned by us may not resultUkraine. Memory MD Russia operates a medical distribution company in patents or trademarks being issued to us, patents or trademarks issued to or licensed by us in the past or in the future may be challenged or circumvented by competitors and such patents or trademarks may be found invalid, unenforceable or insufficiently broad to protect our proprietary advantages.
In addition, the laws of certain countries in which we market, or intend to market, some or all of our Products do not protect our intellectual property rights to the same extent as the laws of the U.S., which could make it easier for competitors to capture market position in such countries by utilizing technologies and other intellectual property that are similar to those developed or licensed by us. Competitors may also harm our sales by designing products or offering services that mirror the capabilities of our Products, or the technology contained therein, without infringing our intellectual property rights. If we are unable to protect our intellectual property in these countries, it could have a material adverse effect on our financial condition and business operations.
If we experience decreasing prices for our Products and we are unable to reduce our expenses, our financial condition and business operations may suffer.
We may experience decreasing prices for our Products due to pricing pressure experienced by our customers from managed care organizations and other third-party payers, increased market power of our customers as the medical device industry consolidates, and increased competition among medical engineering and manufacturing service providers. If the prices for our Products decrease and we are unable to reduce our expenses, our results of operations will be adversely affected.
OurRussia. Piezo’s research and development efforts rely upon investmentsoperations are located in Kyiv, Ukraine. The Russian invasion of Ukraine on February 24, 2022 exposes our operations in both counties to risks. Moreover, the Company is required to comply with various import laws and investment collaborations,export control and economic sanctions laws, which may affect its transactions with certain customers, business partners and other persons and dealings between our employees and subsidiaries. In certain circumstances, export control and economic sanctions regulations or embargos may prohibit the export of certain products, services and technologies. In other circumstances, we cannot guaranteemay be required to obtain an export license before exporting the controlled item. Compliance with the various import laws that any previous or future investments or investment collaborations will be successful.
Our commercialization strategy requires a wide varietyapply to its businesses can restrict its access to, and increase the cost of technologically advancedobtaining, certain products and capable Products. The rapid paceat times can interrupt its supply of technological development in the MedTech industry and the specialized expertise required in different areas of medicine make it difficult for one company alone to develop a broad portfolio of technological solutions.imported inventory. In addition to internally generated growth through our researchgovernment regulations regarding sale and development efforts,export, we anticipateare subject to other regulations regarding its Products. For example, the need to rely upon investments and investment collaborations to provide us access to new technologies bothSEC has adopted disclosure rules for companies that use conflict minerals in areas served by our contemplated businesses as well astheir products, with substantial supply chain verification requirements in new areas. A failure to establish such collaborations may harm our financial condition and business operations.
Going forward, we expect to make future investments where we believethe event that we can stimulate the developmentmaterials come from, or acquisition of new technologies, Products to further our strategic objectives and strengthen our existing business ventures. Investments and investment collaborations in and with medical technology companies are inherently risky, and we cannot guarantee that any of our previous or future investments or investment collaborations will be successful or will notcould have a materially adverse effect our financial condition and business operations.
The ability to offer our planned Products, andcome from, the continuing development of new Products, depends upon us maintaining strong relationships with health care professionals.
If we fail to maintain our working relationships with health care professionals, many of our Products may not be developed and offered in line with the needs and expectationsDemocratic Republic of the professionals who useCongo or adjoining countries. These rules and support our Products, which could cause a declineverification requirements impose additional costs on Piezo and on its suppliers, and may limit the sources or increase the cost of materials used in our earnings and profitability. The research, development, marketing, and sales of our Productsits products. Further, if it is expected to be dependent upon our maintaining working relationships with such health care professionals, and the use of our Products is expected to often require the participation of health care professionals. In addition, health care professionals are the primary customer groups we expect to market and sell our Products directly to, further highlighting the importance of our relationship with such health care professionals. If we are unable to maintain our relationshipscertify that its products are conflict free, Piezo may face challenges with these professionals, we may lose our primary customer base, our Products may not be utilized correctly or to their full potential,its customers that could place it at a competitive disadvantage, and our ability to develop, manufacture, and market future Productsreputation may be significantly stunted.harmed.
Economiclegal and political instability aroundregulatory proceedings in the worldcourse of its business that could adversely affect our financial conditionresults. For example, the raw piezoceramic material used throughout our products is presently included as an exemption to the European Union’s Directive 2011/65/EU dealing with hazardous substance use in industrial, commercial, and business operations.
Economic and political instability aroundconsumer applications. One exemption (exemption 7-C) concerning the world may adversely affect our abilityuse of lead (Pb) in piezoelectric ceramics presently exists allowing lead (Pb) to develop, manufacture, market, and sell our Products. Our customers and suppliers may experience financial difficulties or be unable to borrow money to fund their operations which may adversely impact their ability to purchase our Products or services or to pay for our Products on a timely basis, if at all. As with our customers and suppliers, these economic conditions make it more difficult for us to accurately forecast and plan our future business activities. In addition, a significant amount of our trade receivables are with national health care systemsused in the U.S. andmanufacture of PZT (lead-zirconate-titanate) type piezoelectric ceramic products, which is the type of material Piezo uses in many foreign countries. Repayment of these receivables is dependent uponits products. European Union laws with respect to the political and financial stability of those countries. In light of domestic and global economic fluctuations, we continueexemption could change in the future making it difficult to monitorsell its products containing such materials within the creditworthiness of customers located both inside and outside the U.S. Failure to receive payment of all or a significant portion of these receivables could adversely affect our financial condition and business operations.
Laws and regulations governing the export of our Products could adverselyEuropean Union, which would impact our business.revenues.
The U.S. Department of the Treasury’s Office of Foreign Assets Control and the Bureau of Industry and Security at the U.S. Department of Commerce administer certain laws and regulations that restrict U.S. persons and, in some instances, non-U.S. persons, in conducting activities, transacting business with or making investments in certain countries, governments, entities and individuals subject to U.S. economic sanctions. Due to our planned international operations, we expect to be subject to such laws and regulations, which are complex, could restrict our business dealings with certain countries and individuals, and are constantly changing. Further restrictions may be enacted, amended, enforced or interpreted in a manner that adversely impacts our financial condition and business operations.
Consolidation in the health care industry may cause a material adverse effect on our financial health and business operations.
In response to a variety of actions by legislators, regulators, and third-party payers to reduce the perceived rise in healthcare costs, many health care industry companies, including health care systems, are consolidating to create new companies with greater market power. As the health care industry consolidates, competition to provide goods and services to industry participants will become more intense. These industry participants may try to use their market power to negotiate price concessions or reductions our products which price concessions may be unanticipated and adversely affect our financial condition and business operations.
We operate in a highly competitive industry and we may be unable to compete effectively.
We expect to compete domestically and internationally in the neurology and diagnostic imaging MedTech markets. These markets are characterized by rapid change resulting from technological advances and scientific discoveries. In the product lines and offered services in which we compete, we face a mixture of competitors ranging from large manufacturers with multiple business lines to small manufacturers that offer a limited selection of niche products. Development by other companies of new or improved products, processes, technologies, or the introduction of reprocessed products or generic versions when our proprietary Products lose their patent protection may make our Products or proposed Products less competitive. In addition, we face competition from providers of alternative medical therapies such as pharmaceutical companies. Competitive factors include product reliability, product performance, product technology, product quality, breadth of product lines, product services, customer support, price, and reimbursement approval from health care insurance providers.
We also face competition for marketing, distribution, and collaborative development agreements, for establishing relationships health care professionals, medical associations, and academic and research institutions, and for licenses to intellectual property. In addition, academic institutions, governmental agencies and other public and private research organizations also may conduct research, seek patient protection and establish collaborative arrangements for discovery, research, clinical development and marketing of products similar to ours. These companies, professionals, and institutions compete with us in recruiting and retaining qualified scientific and management personnel, as well as in acquiring necessary product technologies.
A reduction or interruption in our supply of raw materials coupled with an inability to develop alternative sources for such raw materials, and other similar supply chain management difficulties, may adversely affect our ability to manufacture our Products.
The manufacture of our Products require the timely delivery of sufficient amounts of quality components and materials and is highly exacting and complex, due in part to strict regulatory requirements, and we cannot guarantee that our efforts to secure quality components and materials in a timely, cost effective manner will be successful. Other problems in the manufacturing process, including equipment malfunction, failure to follow specific protocols and procedures, defective raw materials and environmental factors, could lead to launch delays, product shortage, unanticipated costs, lost revenues and damage to our reputation. A failure to identify and address manufacturing problems prior to the release of Products to our customers may also result in quality or safety issues.
The Company’s operating results could be negatively impacted if it is unable to capitalize on research and development spending.
The Company has and intends to continue to spend a significant amount of time and resources on research and development projects in order to develop and validate new and innovative products. The Company believes these projects will result in the commercialization of new products and will create additional future sales. However, factors including regulatory delays, safety concerns or patent disputes could delay the introduction or marketing of new products. Additionally, unanticipated issues may arise in connection with current and future clinical studies that could delay or terminate a product’s development prior to regulatory approval. The Company may experience an unfavorable impact on its financial condition and business operations if we are unable to capitalize on those efforts by attaining the proper FDA approval or to successfully market new products.
We may be unable to attract and retain key employees.
Our sales, technical and other key personnel play an integral role in the development, marketing and selling of our Products. If we are unable to recruit, hire, develop and retain a talented, competitive work force, we may not be able to meet our strategic business objectives.
Risks Related to our Common Stock
There is not now, and there may never be, an active market for our common stock and we cannot assure you that our common stock will become liquid or that it will be listed on a securities exchange.
There currently is no liquid market for our common stock. An investor may find it difficult to obtain accurate quotations as to the market value of theour common stock and trading of our common stock may be extremely sporadic. For example, several days may pass before any shares may be traded. A more active market for our common stock may never develop. In addition, if we failed to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling the common stock, which may further affect its liquidity. This would also make it more difficult for us to raise additional capital.
Our shares may not become eligible to be traded electronically which could result in brokerage firms being unwilling to trade them.
Our shares of common stock are eligible to be quoted on the OTC Pink Market. However, our shares are not eligible with Depository Trust Company (DTC) to trade electronically. Because we are not DTC eligible, our shares cannot be electronically transferred between brokerage accounts, the practical effect of which means that our shares will not trade much, if at all, on the OTC Pink Market. In order for our shares to trade on the OTC Pink Market, our shares would need to be traded manually between broker dealers and their accounts, which is time consuming, costly and cumbersome. We cannot guaranty that our shares will ever become DTC eligible or how long it will take to become eligible.
Additionally, because our common stock should be considered a “penny stock,” and our common stock is not traded on a national securities exchange, among other reasons, holders of our common stock may have difficulty identifying a broker-dealer willing to accept our shares for deposit. We cannot guaranty that investors will identify a broker willing to accept our shares for deposit, which would make it difficult for investors to sell their common stock.
The price of our common stock might fluctuate significantly, and you could lose all or part of your investment.
Volatility in the market price of our common stock may prevent you from being able to sell your shares of our common stock at or above the price you paid for your shares. The trading price of our common stock may be volatile and subject to wide price fluctuations in response to various factors, including:
| ● | actual or anticipated fluctuations in our quarterly financial and operating results; |
| ● | our progress toward developing our Products; |
| ● | the commencement, enrollment and results of our future clinical trials; |
| ● | adverse results from, delays in or termination of our clinical trials; |
| ● | adverse regulatory decisions, including failure to receive regulatory approval; |
| ● | publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts, if any; |
| ● | perceptions about the market acceptance of our Products and the recognition of our brand; |
| ● | adverse publicity about our Products or industry in general; |
| ● | overall performance of the equity markets; |
| ● | introduction of Products, or announcements of significant contracts, licenses or acquisitions, by us or our competitors; |
| ● | legislative, political or regulatory developments; |
| ● | additions or departures of key personnel; |
| ● | threatened or actual litigation and government investigations; |
| ● | sale of shares of our common stock by us or members of our management; and |
| ● | general economic conditions. |
These and other factors might cause the market price of our common stock to fluctuate substantially, which may negatively affect the liquidity of our common stock. In addition, from time to time, the stock market experiences price and volume fluctuations, some of which may be significant. This volatility has had a significant impact on the market price of securities issued by many companies across many industries. The changes frequently appear to occur without regard to the operating performance of the affected companies. Accordingly, the price of our common stock could fluctuate based upon factors that have little or nothing to do with our company, and these fluctuations could materially reduce our share price.
Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company's securities. This litigation, if instituted against us, could result in substantial costs, divert our management's attention and resources, and harm our business, operating results and financial condition.
We are a smaller reporting company, and the reduced reporting requirements applicable to smaller reporting companies may make our common stock less attractive to investors.
We are a “smaller reporting company” as defined in Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For as long as we continue to be a smaller reporting company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not smaller reporting companies, including not being required to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley Act of 2002 (“SOX”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding nonbinding advisory votes on executive compensation, and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
Our common stock is subject to the “penny stock” rules of the SEC, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.
The SEC has adopted regulations which generally define a "penny stock" as an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The SEC's penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and the salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules generally require that before a transaction in a penny stock occurs, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's agreement to the transaction. If applicable in the future, these rules may restrict the ability of brokers-dealers to sell our common stock and may affect the ability of investors to sell their shares, until our common stock no longer is considered a penny stock.
Concentration of ownership of our common stock among our existing executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.
Our executive officers, directors and their affiliates, in the aggregate, beneficially own approximately 48%39% of our outstanding common stock as of April 1, 2019.March 28, 2022. As a result, these persons, acting together, would be able to significantly influence all matters requiring stockholder approval, including the election and removal of directors, any merger, consolidation, sale of all or substantially all of our assets, or other significant corporate transactions.
Some of these persons or entities may have interests different than yours. For example, they may be more interested in selling our company to an acquirer than other investors, or they may want us to pursue strategies that deviate from the interests of other stockholders.
We intend to issue more shares to raise capital, which will result in substantial dilution.
Our certificate of incorporation authorizes the issuance of a maximum of 200,000,000 shares of common stock and 10,000,000 shares of “blank check” preferred stock. Any additional financings effected by us may result in the issuance of additional securities without stockholder approval and the substantial dilution in the percentage of common stock held by our then existing stockholders. Moreover, the securities issued in any such transaction may be valued on an arbitrary or non-arm's-length basis by our management, resulting in an additional reduction in the percentage of common stock held by our current stockholders on an as converted, fully-diluted basis. Our board of directors has the power to issue any or all of such authorized but unissued shares without stockholder approval. To the extent that additional shares of common stock or other securities convertible into or exchangeable for common stock are issued in connection with a financing, dilution to the interests of our stockholders will occur and the rights of the holder of common stock might be materially and adversely affected.
Anti-takeover provisions that may be in our charter and bylaws may prevent or frustrate attempts by stockholders to change the board of directors or current management and could make a third-party acquisition of us difficult.
Our certificate of incorporation and bylaws may contain provisions that may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock.
We do not intend to pay cash dividends on our common stock in the foreseeable future.
We have never declared or paid cash dividends on our capital stock. We currentlySubject to any series of preferred stock we may issue in the future, we intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Accordingly, you may have to sell some or all of your shares of our common stock in order to generate cash flow from your investment. You may not receive a gain on your investment when you sell shares and you may lose the entire amount of the investment.
We expect to incur increased costs and demands upon management as a result of being a public company.
As a public company in the United States, we expect to incur significant additional legal, accounting and other costs. These additional costs could negatively affect our financial results. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC and the stock exchange on which we may list our common stock, may increase legal and financial compliance costs and make some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management's time and attention from revenue-generating activities to compliance activities. If, notwithstanding our efforts to comply with new laws, regulations and standards, we fail to comply, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
Failure to comply with these rules might also make it more difficult for us to obtain some types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors or as members of senior management.
Failure to establish and maintain an effective system of internal controls could result in material misstatements of our financial statements or cause us to fail to meet our reporting obligations or fail to prevent fraud in which case, our stockholders could lose confidence in our financial reporting, which would harm our business and could negatively impact the price of our stock. Furthermore, our management and our independent auditors have identified certain internal control deficiencies, which management and our independent auditors believe constitute material weaknesses.
Prior to the Acquisition, Memory MD, Inc. was a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. Following the Acquisition, we must review and update our internal controls, disclosure controls and procedures, and corporate governance policies as our Company continues to evolve. In addition, in connection with the Acquisition and becoming a company that files reports with the SEC, we are required to comply with the internal control evaluation and certification requirements of Section 404 of SOX and management is required to report annually on our internal control over financial reporting. Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of SOX until the date we are no longer a "smaller reporting company" as defined by applicable SEC rules.
Any ineffective internal control regarding our financial reporting could have an adverse effect on our business and financial results and the price of our common stock could be negatively affected once we become a registrant required to file registration statements with the SEC. This reporting requirement could also make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. Any system of internal controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of the controls and procedures or failure to comply with regulation concerning control and procedures could have a material effect on our business, results of operation and financial condition. Any of these events could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our financial statements, which ultimately could negatively affect the market price of our shares, increase the volatility of our stock price and adversely affect our ability to raise additional funding. The effect of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors and as executive officers.
Our management’s evaluation of the effectiveness of our internal controls over financial reporting as of December 31, 2018 concluded that our controls were not effective, due to material weaknesses resulting from:
| ●
| Management did not maintain effective internal controls relating to the accounting closing and financial reporting process pertaining to certain stock transactions and complicated convertible debt instruments;
|
| ●
| The Company has insufficient internal personnel resources and technical accounting and reporting expertise within the Company’s financial closing and reporting functions; and
|
| ●
| Due to our small size, the Company did not maintain effective internal controls to assure proper segregation of duties as the same employee was responsible for initiating and recording of transactions, thereby creating a segregation of duties weakness.
|
Management believes there is a reasonable possibility that these control deficiencies, if uncorrected, could result in material misstatements in the annual or interim financial statements that would not be prevented or detected in a timely manner. Accordingly, we have determined that these control deficiencies constitute material weaknesses. Although the Company is taking steps to remediate the material weaknesses, there can be no assurance that similar incidents can be prevented in the future if the internal controls are not followed by senior management and our Board of Directors.
We will need to evaluate our existing internal controls over financial reporting against the criteria set forth in Internal Control – Integrated Framework (2013) (the “Framework”) issued by the Committee of Sponsoring Organizations of the Treadway Commission. During the course of our ongoing evaluation of the internal controls, we may identify other areas requiring improvement, and may have to design enhanced processes and controls to address issues identified through this review. Remediating any deficiencies, significant deficiencies or material weaknesses that we or our independent registered public accounting firm may identify may require us to incur significant costs and expend significant time and management resources. We cannot assure you that any of the measures we implement to remedy any such deficiencies will effectively mitigate or remedy such deficiencies. The existence of one or more material weaknesses could affect the accuracy and timing of our financial reporting. Investors could lose confidence in our financial reports, and the value of our common stock may be harmed, if our internal controls over financial reporting are found not to be effective by management or by an independent registered public accounting firm or if we make disclosure of existing or potential material weaknesses in those controls.
Even if we conclude that our internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our future reporting obligations.
Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. If we fail to timely achieve and maintain the adequacy of our internal control over financial reporting, we may not be able to produce reliable financial reports or help prevent fraud. Our failure to achieve and maintain effective internal control over financial reporting could prevent us from filing our periodic reports on a timely basis which could result in the loss of investor confidence in the reliability of our financial statements, harm our business and negatively impact the trading price of our common stock.
A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. If our stockholders sell, or the market perceives that our stockholders intend to sell, substantial amounts of our common stock in the public market, the market price of our common stock could decline significantly.
Of the 19,205,62450,578,003 shares of our common stock currently issued and outstanding, approximately 3.6255.6 million shares are freely tradable without restriction by stockholders who are not our affiliates. We issued or are deemed to have issued an aggregate of approximately 15.6 million shares of our common stock to the former Memory MD, Inc. stockholders and to the holders of convertible promissory notes upon their conversion, At the completion of the Piezo Merger, we issued approximately 29.5 million shares of our common stock to the former Piezo Motion shareholders, approximately 11.8 million shares of our common stock to the holders of Piezo Motion convertible promissory notes upon their conversion, approximately 19.3 million shares of our common stock to holders of BSI convertible promissory notes upon their conversion which were issued at or post the Piezo Merger or to the debt which was invested at closing For these issuances, among other issuances, in each case, pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended, or the Securities Act, and such shares are also “restricted securities” as defined in Rule 144. Most if not all of these shares are expected to be registeredavailable to register for resale in 2019,2022, thus allowing the holders to sell their shares on the open market without restriction. In any event, substantially all of these restricted securities may be publicly resold under Rule 144 beginning September 2019.144.
In addition, in the future, we intend to file one or more registration statements on Form S-8 registering the issuance of approximately 3,500,000 shares of common stock subject to options or other equity awards issued. Shares registered under these registration statements on Form S-8 will be available for sale in the public market subject to vesting arrangements and exercise of options and the restrictions of Rule 144 in the case of our affiliates.
If securities or industry analysts do not publish research or reports, or publish unfavorable research or reports, about us, our business or our market, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us and our business. Securities or industry analysts may elect not to provide coverage of our common stock, and such lack of coverage may adversely affect the market price of our common stock. In the event we do not secure additional securities or industry analyst coverage, we will not have any control over the analysts or the content and opinions included in their reports. The price of our stock could decline if one or more securities or industry analysts downgrade our stock or issue other unfavorable commentary or research. If one or more securities or industry analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.
Future sales of substantial amounts of our common stock could adversely affect the market price of our common stock.
We may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. Furthermore, the holders of our outstanding convertible notes may exercise their conversion right to convert part or all of the outstanding convertible notes to our common stock at prices that are at discount with the market price of our common stock pursuant to the respective terms of the various convertible promissory notes. If additional capital is raised through the sale of equity or convertible debt securities, additional shares of common stock are issued at discounted prices from the convertible notes, or perceptions that those sales or conversion could occur, the issuance of these securities could result in further dilution to investors purchasing our common stock in this offering or result in downward pressure on the price of our common stock, and our ability to raise capital in the future.
General Risks
We are a development stage company with a limited operating history, making it difficult for you to evaluate our business and your investment.
Our operations are subject to all of the risks inherent in the establishment of a new business enterprise, including but not limited to the absence of an operating history, lack of fully-developed or commercialized products, insufficient capital, expected substantial and continual losses for the foreseeable future, limited experience in dealing with regulatory issues, lack of manufacturing and marketing experience, need to rely on third parties for the development and commercialization of our existing and proposed Products, a competitive environment characterized by well-established and well-capitalized competitors and reliance on key personnel.
We may not be successful in carrying out our business objectives. The revenue and income potential of our proposed business and operations are unproven as the lack of operating history makes it difficult to evaluate the future prospects of our business. There is nothing at this time on which to base an assumption that our business operations will prove to be successful or that we will ever be able to operate profitably. Accordingly, we have no track record of successful business activities, strategic decision-making by management, fund-raising ability, and other factors that would allow an investor to assess the likelihood that we will be successful in our business. There is a substantial risk that we will not be successful in fully implementing our business plan, or if initially successful, in thereafter generating material operating revenues or in achieving profitable operations.
Foreign currency exchange rates may adversely affect the Company’s financial results.
Sales and purchases in currencies other than the U.S. dollar expose us to fluctuations in foreign currencies relative to the U.S. dollar and may adversely affect our financial results. Increased strength of the U.S. dollar increases the effective price of its products sold in U.S. dollars into other countries, which may require us to lower its prices or adversely affect sales to the extent we do not increase local currency prices. Decreased strength of the U.S. dollar could adversely affect the cost of materials, products and services we purchase from non-U.S. denominated locations. Sales and expenses of our non-U.S. businesses are also translated into U.S. dollars for SEC reporting purposes and the strengthening or weakening of the U.S. dollar could result in unfavorable translation effects. We also face exchange rate risk from its investments in subsidiaries owned and operated in foreign countries.
Current economic and political conditions make tax rules in any jurisdiction subject to significant change.
We are subject to income taxes as well as non-income based taxes, in both the U.S. and ultimately various jurisdictions outside the U.S. where we intend to operate. We cannot predict the overall impact that changes or revisions to any such tax laws and regulations, whether in in the U.S. or in jurisdictions outside the U.S., may have on our business. We may be subject to unknown risksongoing tax audits in various jurisdictions, and liabilities which could harmthe tax authorities conducting such audits may disagree with certain taxation positions we have taken and assess additional taxes. Although we intend to regularly assess the likely outcomes of these audits in order to determine the appropriateness of our business, financial condition and results of operations.
Before the Acquisition, MemoryMD conducted due diligence on, among other things, the business and financial conditions of All Soft Gels that it believed was customary and appropriate for a transaction such as the Acquisition. However, the due diligence process may not have revealed all material liabilities of the Company then existing or which may be asserted in the future against us relating to the Company’s activities before the consummation of the Acquisition. In addition, the agreement with the Company contains representations with respect to the absence of any liabilities. However,tax obligations, there can be no assurance that we will accurately predict the Company had no liabilities upon the closingoutcomes of the Acquisition. Any such liabilities of the Company that survive the Acquisition Transaction could harm our revenues, business, prospects, financial condition and results of operations.
In addition, in connection with the Acquisition, the known liabilities existing in All Soft Gels at the time of the Acquisition were cancelled or paid by us, as required by the Merger Agreement. Despite this requirementthese audits, and the representations and warrantiesactual outcomes of All Soft Gels in the Merger Agreement, there may be unknown liabilities, or liabilities that were known but believed to be immaterial, related to the business of All Soft Gels that may become material liabilities we are subject to in the future. If we are subject to material liability as a result of the conduct of All Soft Gels, we may have limited recourse for such liabilities, whichthese audits could have a material impactadverse effect on our financial condition and business and stock price.operations.
Economic and political instability around the world could adversely affect our financial condition and business operations.
Economic and political instability around the world may adversely affect our ability to develop, manufacture, market, and sell our Products. Our customers and suppliers may experience financial difficulties or be unable to borrow money to fund their operations which may adversely impact their ability to purchase our Products or services or to pay for our Products on a timely basis, if at all. As with our customers and suppliers, these economic conditions make it more difficult for us to accurately forecast and plan our future business activities. In addition, a significant amount of our trade receivables are with national health care systems in the U.S. and in many foreign countries. Repayment of these receivables is dependent upon the political and financial stability of those countries. In light of domestic and global economic fluctuations, we continue to monitor the creditworthiness of customers located both inside and outside the U.S. Failure to receive payment of all or a significant portion of these receivables could adversely affect our financial condition and business operations.
IN ADDITION TO THE ABOVE RISKS, BUSINESSES ARE OFTEN SUBJECT TO RISKS NOT FORESEEN OR FULLY APPRECIATED BY MANAGEMENT. IN REVIEWING THIS ANNUAL REPORT ON FORM 10-K, POTENTIAL INVESTORS SHOULD KEEP IN MIND THAT THERE MAY BE OTHER POSSIBLE RISKS THAT COULD BE IMPORTANT.
ITEM 1B – UNRESOLVED STAFF COMMENTS
NoneNot applicable
ITEM 2 – PROPERTIES
Our principal executive office is located in leased co-working premises of approximately 503,562 square feet at 205 East 42nd Street, 14th Floor, New York, New York. We also lease space in Brooklyn, New Yorka rental cost of $6,530 per month at 6700 Professional Parkway, Lakewood Ranch, FL 34240. An additional leased premise which we primarily use for engineering purposes is located at 1(a) Kingsdown Business Park, Sidmouth, Devon UK EX10 OP, with approximately 1,100550 square feet which we use for warehousing purposes. We areat a subtenant under the lease for the Brooklyn tenancy, which is generally shared equally with an affiliaterental cost of Boris Goldstein, our Chairman of the Board, Secretary and Executive Vice President.GBP400 per month. We believe that these facilities are adequate for our needs, including providing the space and infrastructure to accommodate our development work based on our current operating plan. We do not own any real estate.
ITEM 3 – LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business.
We are not currently a party in any legal proceeding or governmental regulatory proceeding nor are we currently aware of any pending or potential legal proceeding or governmental regulatory proceeding proposed to be initiated against us that would have a material adverse effect on us or our business.
ITEM 4 – MINE SAFETY DISCLOSURES
N/A
Not applicable
27
PART II
ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
ThereOur common stock began being quoted and trading on March 18, 2020 on OTC Markets and is currently quoted and traded on the Pink Tier of OTC Markets under the ticker symbol BRSF. Since the commencement of trading, our common stock has been thinly and sporadically traded There can be no assurance that an active trading market for our common stock since inception. There can be no assurance that a trading market will ever develop or, if such aan active market does develop, that it will continue. Our common stock is currently quoted on the OTC Pink Market under the ticker symbol BRSF.be sustained.
Holders
Holders
As of April 1, 2019, 19,205,624March 26, 2022, 50,578,003 shares of Common Stockour common stock were issued and outstanding which wereand held by approximately 58139 holders of record.
On or about October 21 and December 10, 2021, the Company issued 1,218,248 and 4,166,523 options for common shares upon vesting under its 2018 Equity Incentive Plan for services rendered to an officers and directors. Such options were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as a transaction by an issuer not involving any public offering.
On or about December 30, 2021, the Company issued 10,485 shares of restricted stock upon vesting under its 2018 Equity Incentive Plan for services rendered to an employee. Such shares were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as a transaction by an issuer not involving any public offering.
Dividends
We have never declared or paid any cash dividend. We do not anticipate that we will declare or pay any dividends in the foreseeable future. Our current policy is to retain earnings, if any, to fund operations, and the development and growth of our business. Any future determination to pay cash dividends will be at the discretion of our Board and will be dependent upon our financial condition, operation results, capital requirements, applicable contractual restrictions, restrictions in our organizational documents, and any other factors that our Board deems relevant.
Penny Stock
Our Common Stock is subject to provisions of Section 15(g) and Rule 15g-9 of the Exchange Act, commonly referred to as the “penny stock rule.” Section 15(g) sets forth certain requirements for transactions in penny stock, and Rule 15g-9(d) incorporates the definition of “penny stock” that is found in Rule 3a51-1 of the Exchange Act. The SEC generally defines a penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. The Company is subject to the SEC’s penny stock rules.
Since the Common Stock will be deemed to be penny stock, trading in the shares of our common stock is subject to additional sales practice requirements on broker-dealers who sell penny stock to persons other than established customers and accredited investors. “Accredited investors” are persons with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such security and must have the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt the rules require the delivery, prior to the first transaction of a risk disclosure document, prepared by the SEC, relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information for the penny stocks held in an account and information to the limited market in penny stocks. Consequently, these rules may restrict the ability of broker-dealer to trade and/or maintain a market in our common stock and may affect the ability of the Company’s stockholders to sell their shares of common stock.
Securities Authorized for Issuance under Equity Compensation Plans
In August, 2018, our board of directors adopted and stockholders approved the 2018 Equity Incentive Plan.
Under the 2018 Equity Incentive Plan, we may grant equity based incentive awards, including options, restricted stock, and other stock-based awards, to any directors, employees, advisers, and consultants that provide services to us or any of our subsidiaries on terms and conditions that are from time to time determined by us. An aggregate of up to 3,500,000 of our common stock are reserved for issuance under the 2018 Plan. No grants under the 2018 Plan are outstanding as of December 31, 2018. The purpose of the 2018 Plan is to provide financial incentives for selected directors, employees, advisers, and consultants of the Company and/or its subsidiaries, thereby promoting the long-term growth and financial success of the Company. The board of directors believes that the 2018 Plan will serve a critical role in attracting and retaining high caliber employees, consultants and directors essential to our success and in motivating these individuals to strive to meet our goals.
28
Equity Securities and Use of Proceeds
The table below sets forth information as of December 31, 2018 with respect to compensation plans under which our common stock is authorized for issuance.
| | | (a) | | | (b) | | | (c) | |
Plan Category | | Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights | | | Weighted-average
exercise price of
outstanding options,
warrants and rights | | | Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a)) | |
| | | | | | | | | | | | | |
Equity compensation plans approved by security holders | | | – | | | $ | – | | | | 3,500,000 | |
| | | | | | | | | | | | | |
Equity compensation plans not approved by security holders | | | – | | | | – | | | | – | |
| | | | | | | | | | | | | |
Total | | | – | | | | | | | | 3,500,000 | |
RECENT SALES OF UNREGISTERED SECURITIES
2018
From January 1, 2018 through September 21, 2018, the Company issued convertible notes with an aggregate principal amount of $1,059,500. The securities were issued in private transactions in reliance upon exemptions from registration pursuant to Section 4(a)(2) of the Securities Act and/or Regulation D, Rule 506 promulgated thereunder, to purchasers who are “accredited investors” as defined by Regulation D.
At the closing of the Acquisition, the Company was obligated to issue 5-year warrants to purchase an estimated 402,250 shares of common stock, at an exercise price of $0.40 per share, as partial compensation for services rendered by Corinthian. Of the total 402,250 warrants issued, 234,375 were accounted for inDuring the year ended December 31, 2017. The2021, we have issued securities that were issued in private transactions in reliance upon exemptions from registration pursuant to Section 4(a)(2) of the Securities Act, as transactions not involving any public offering.
As of or about September 30, 2018, the Company issued an aggregate of 70,000 shares of common stock as payment for consulting services. The issuance of the shares was exempt from registration under Section 4(a)(2)registered under the Securities Act, asall of which were previously disclosed in a transaction not involvingQuarterly Report on Form 10-Q or a public offering, as the issuance thereof was made to a single person as compensation for services rendered.Current Report on Form 8-K.
The Company issued 15,604,378 shares of common stock to the existing shareholders and converting noteholders of MemoryMD with respect to and as of the closing date of the Acquisition. Such sales were exempt from registration under Section 4(a)(2) and Regulation D under the Securities Act.
On November 2, 2018, the Company issued an aggregate of 10,134 shares of common stock as payment for consulting services. The issuance of the shares was exempt from registration under Section 4(a)(2) under the Securities Act as a transaction not involving a public offering, as the issuance thereof was made to a single person as compensation for services rendered.
2019
From January 18, 2019 through February 5, 2019, the Company issued convertible promissory notes with an aggregate principal amount of $230,000. The securities were issued in private transactions in reliance upon exemptions from registration pursuant to Section 4(a)(2) of the Securities Act and/or Regulation D, Rule 506 promulgated thereunder, to purchasers who are “accredited investors” as defined by Regulation D.
ITEM 6 – SELECTED FINANCIAL DATA[Reserved]
This item is not required for a smaller reporting company.
ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read the following discussion and analysis of financial condition and results of operations of Memory MDBrain Scientific Inc. together with our financial statements and the related notes included elsewhere in this Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Forward Looking Statements
The following discussion should be read in conjunction with our financial statements and related notes included elsewhere in this Annual Report on Form 10-K. Certain information contained in this MD&A includes “forward-looking statements.” Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition and results of operations, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our existing and proposed business, including many assumptions regarding future events. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors, including those risks described in detail in the section entitled “Risk Factors” of this Annual Report on Form 10-K.
Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “will,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology.
In light of these risks and uncertainties, and especially given the nature of our existing and proposed business, there can be no assurance that the forward-looking statements contained in this section and elsewhere in this Annual Report on Form 10-K will in fact occur. Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
Overview
The Company is a MedTech company with two cutting edge product lines: Neurology and Motion Products. Since October 1, 2021, the Company has had two subsidiaries, each of which is focused on one of our complimentary Product lines. The Neurology Products of Memory MD are designed for neurology-focused medical devices. The Motion Products of Piezo are piezoelectric motors which are fast, precise, tiny and powerful. The piezo motors are designed for and expected to have valuable and beneficial uses as motors within medical devices and devices outside of the MedTech industry. We have developed twelve motor platforms and an ultra-precise micro dosing pump, each of which is presently available commercially. We are a neurodiagnostic and predictive technology platform company seeking to provide a centralized platform for data acquisition and analysis of EEG dataalso currently developing additional motion products that combines cutting-edge medical device technologies with cloud-based telehealth services. Bothleverage our NeuroCap, a pre-gelled disposable EEG headset, and NeuroEEG, a full-montage standard encephalograph, received FDA clearance to market in 2018.patented intellectual property.
We were initially organized on November 18, 2013 as a Nevada limited liability company under the name Global Energy Express LLC by the filing of articles of organization with the Secretary of State of the State of Nevada. On December 18, 2015, we converted from a Nevada limited liability company under the name Global Energy Express LLC to a Nevada corporation under the name All Soft Gels Inc. by the filing of articles of conversion and articles of incorporation with the Secretary of State of the State of Nevada. On September 18, 2018, we changed our name from All Soft Gels Inc. to Brain Scientific Inc. and changed our ticker symbol on the OTC Pink market to “BRSF”.
On September 21, 2018, we entered into a merger agreement (the “Merger Agreement”) with MemoryMD, Inc. and AFGG Acquisition Corp. to acquire MemoryMD, Inc. (the “Acquisition”). The transactions contemplated by the Merger Agreement were consummated on September 21, 2018 and, pursuant to the terms of the Merger Agreement, all outstanding shares of MemoryMD were exchanged for shares of our common stock. Accordingly, we acquired 100% of Memory MD, Inc. in exchange for the issuance of shares of our common stock and MemoryMD, Inc. became our wholly-owned subsidiary. We issued an additional 4,083,252In conjunction with the Acquisition, we ceased all direct operations and assigned all of our assets and liabilities from prior to the Acquisition, and assumed and commenced the business of MemoryMD as the sole business of the Company.
On June 11, 2021, we entered into another merger agreement (the “Piezo Merger Agreement”) with Piezo Motion Corp. and BRSF Acquisition Corp. to acquire Piezo. (the “Piezo Acquisition”). The transactions contemplated by the Piezo Merger Agreement were consummated on October 1, 2021. Pursuant to the terms of the Piezo Merger Agreement, all outstanding shares of Piezo were exchanged for shares of our common stock. Accordingly, we acquired 100% of Piezo in exchange for the issuance of shares of our common stock and Piezo became our wholly-owned subsidiary.
The financial statements are represented based upon the automatic conversion atPiezo financials up until the closingPiezo Acquisition. The combined company financials are provided inclusive of an aggregatethe BSI operations for the fourth quarter of $1,507,000 principal amount plus accrued interest2021. The accounting is based upon reverse merger accounting due to the majority of outstanding convertible promissory notes issued by MemoryMD Inc., and we further issued an additional 1,604,378 shares of our common stock uponafter the automatic conversion immediately subsequent toPiezo Acquisition were with the closing of an aggregate of $640,000 principal amount plus accrued interest of outstanding convertible promissory notes issued by MemoryMD Inc.Piezo shareholders.
AsThe majority of immediately prior to the closingrevenue in 2021 is from 4th quarter sales from our subsidiary which operates as a distributor of the Acquisition, we entered into an Assignmentthird-party medical devices in Russia (except for $38,309 from Piezo sales and Assumption Agreement with Chromium 24 LLC, pursuant to which Chromium 24 LLC assumed all$6,194 of our remaining assets and liabilities through the closing of the Acquisition. Accordingly, as of the closing of the Acquisition, we had no assets or liabilities.
Our sole business since the Acquisition is the business of MemoryMD. Our management's discussion and analysis below is based on the financial results of MemoryMD. Except as otherwise indicated herein, all share and per share information in this “Management's Discussion and Analysis of Financial Condition and Results of Operations” section gives retroactive effect to the exchange ofsales from MemoryMD Shares for shares of our common stock in the Acquisition. The following discussionU.S.). Sales of $93,664 in 2020 were based upon sale of piezoelectric motors, including non-recurring engineering consulting and analysis provides information whichsoftware licensing revenue. While we believeintend to continue the sale of third-party medical devices, we do not intend for it to be relevantour primary source of revenue in the long-term. The Russian invasion of Ukraine on February 24, 2022 may have impact on our ability to continue the Russian operations. We also can give no assurance that any revenue we generate from so acting as a distributor of third-party medical devices will continue, will continue to be material or will be sufficient to enable us to continue our operations. We have no supply or distribution agreements in place with respect to such business. In the event that we see an assessmentopportunity to sell such products, we procure them and understanding of the results of operations and financial condition of MemoryMD, Inc.then re-sell them.
We have very limited resources. To date, our primary activities have been limited to, and our limited resources have been dedicated to, commercializing our piezoelectric motors, NeuroCap and NeuroEEG. performing business and financial planning, raising capital, recruiting personnel, negotiating with business partners and the licensors of our intellectual property and conducting development activities. Our first product, the NeuroCap, isactivities, although we have acted as a distributor of third-party medical devices in Russia (which has generated revenue for us in 2021. Both our Neurology Products and Motion Products are production ready for commercializationmanufacture and sale andsale. For all our Products we have commenced some non-recurring, initial sales. Our
Financial Overview
Revenue
Revenues for 2021 were generated both from sale of evaluation kits for piezoelectric motors of $38,309 for the year. Revenue includes 4th quarter sales of $6,194 of NeuroCaps and of $221,244 from the Russian subsidiary for distributing third-party medical devices in Russia. Sales for piezoelectric motors reduced from 2020 as Piezo focused on the final commercialization of the Blue Series of motors. In 2020, revenue had included non-recurring revenue from engineering services and licensing of software for approximately $66k of revenue.
General and Administrative
General and administrative expenses consist primarily of personnel-related costs for administration, product management, for personnel in functions not directly associated with sales and marketing or research and development activities. Other significant costs include rent, travel, legal fees relating to corporate matters, intellectual property costs, professional fees for consultants assisting with regulatory, product development and financial matters, and product costs. We anticipate that our general and administrative expenses will be steady in the near to support our continued commercialization of our Products and maintaining the infrastructure for a public company.
Research and Development
Research and development expenses consist of expenses incurred in performing research and development activities in developing our Products. Research and development expenses include compensation and benefits for research and development employees, overhead expenses, cost of laboratory supplies, costs related to regulatory operations, fees paid to consultants, and other productsoutside expenses. Research and development costs are still being tested orexpensed as incurred and costs incurred by third parties are still under development.expensed as the contracted work is performed.
We expect our research and development expenses to be maintained at the current level until we begin generating revenue from our existing Neurology and Motion Products. We anticipate it will then begin to increase as we exploit additional patents in our Motion Products and develop our Neurology Products, including conducting preclinical testing and clinical trials.
Interest Expense
Interest expense primarily consists of costs and interest costs related to the convertible notes we issued in 2021 and 2020. The convertible notes bear interest at fixed rate of 10% per annum.
Results of Operations
Comparison of the Years Ended December 31, 2021 and 2020
The following table sets forth the results of operations of the Company for the years Ended December 31, 2021 and December 31, 2020.
| | | Years Ended December 31, | | | Period to | |
| | | 2021 | | | 2020 | | | Period Change | |
| Revenues | | $ | 265,747 | | | $ | 93,664 | | | $ | 172,083 | |
| Cost of goods sold | | $ | 182,519 | | | $ | 43,762 | | | $ | 138,757 | |
| Research and development | | $ | 329,452 | | | $ | 210,706 | | | $ | 118,746 | |
| Professional fees | | $ | 818,698 | | | $ | 268,223 | | | $ | 550,475 | |
| Sales and marketing | | $ | 1,041,575 | | | $ | 197,372 | | | $ | 844,203 | |
| General and administrative | | $ | 6,549,980 | | | $ | 2,143,089 | | | $ | 4,406,891 | |
| Interest expense | | $ | 467,849 | | | $ | 29,474 | | | $ | 438,375 | |
| Amortization of debt discount | | $ | 89,787 | | | $ | | | | $ | 89,787 | |
| Loss on disposal of assets | | $ | | | | $ | 4,067 | | | $ | (4,067 | ) |
| Other (Income) | | $ | (1,110 | ) | | $ | | | | $ | (1,110 | ) |
| Gain on forgiveness of paycheck protection loan | | $ | (112,338 | ) | | $ | | | | $ | (112,338 | ) |
| Foreign Currency transaction loss | | $ | 21 | | | $ | | | | $ | 21 | |
Revenues
Revenue for the fiscal year ended December 31, 2021 was $265,747 compared to $93,664 for the fiscal year ended December 31, 2020. In the fiscal years ended December 31, 2021, we generated the majority of our revenue through acting as a distributor of third-party medical devices in Russia, and we did not have significant sales of our Products. The increase in revenues in the current year resulted from inclusion of sales of third-party medical devices in Russia.
Cost of goods sold
Cost of goods sold were $182,519 for the fiscal year ended December 31, 2021, compared to $43,792 for the fiscal year ended December 31, 2020. The increased cost of sales was primarily due to the inclusion in sales of third-party medical devices in Russia during 4th quarter.
Research and development expenses
Research and development expenses were $329,425 for the fiscal year ended December 31, 2021, compared to $210,706 for the fiscal year ended December 31, 2020. The increase was primarily due to an increase in product validation activities and adding additional personnel to complete the commercialization of the Blues Series piezoelectric motors.
Professional fees
Professional fees were $818,698 for the fiscal year ended December 31, 2021, compared to $268,223 for the fiscal year ended December 31, 2020. In the fiscal year ended December 31, 2021, professional fees were associated with preparation for the Piezo Acquisition, including approximately $373,000 in legal expenses, approximately $323,000 in accounting expenses, and approximately $67,000 of advisory expenses. In the fiscal year ended December 31, 2020, professional fees were primarily related to approximately $232,000 in legal expenses and approximately $35,000 in accounting expenses. The increase in professional fees in the current year was due primarily to the Piezo Acquisition.
Sales and marketing expenses
Sales and marketing expenses were $1,041,575, for the fiscal year ended December 31, 2021, compared to $197,372 for the fiscal year ended December 31, 2020. The increase was primarily due to hiring of personnel to begin the process of sales and marketing products as the Company readied for full commercialization.
General and administrative expenses
General and administrative expenses were $6,549,981 for the fiscal year ended December 31, 2021, compared to $2,143,089 for the fiscal year ended December 31, 2020. In the fiscal year ended December 31, 2021, general and administrative expenses included payroll expenses of approximately $1,985,000, expense associated with stock-option based compensation of approximately $3,224,000, approximately $161,000 of insurance expense, $244,000 of consulting for product engineering and system implementation and $216,000 of travel expenses. In the fiscal year ended December 31, 2020, general and administrative expenses were primarily related to approximately $1,429,000 in payroll related expenses, approximately $321,000 in consulting fees and approximately $9,000 in insurance expense. The increase in spending in the fiscal year ended December 31, 2020 was primarily attributable to the stock-based compensation, increased D&O insurance costs and an increase in payroll related expenses.
Interest expense
Interest expense, for the fiscal year ended December 31, 2021 was $467,849, related to the Company’s convertible and promissory notes. A further amortization of debt discount of $89,787 was expensed for the year ended December 31, 2021. Interest expense, for the fiscal year ended December 31, 2020 was $29,474, related to the Company’s convertible promissory notes. The increase was due to the issuance of approximately $6.9 million of convertible debt during the year ended December 31, 2021.
Other income and expense
Other expense for the fiscal year ended December 31, 2021 was $444,209. For the year ended December 31, 2021, other expense was derived primarily from interest expense of $467,849 and debt discount amortization of $89,787 partially offset by gain on forgiveness of paycheck protection plan of $112,338 and other income of $1,110.
Liquidity and Capital Resources
While we have generated revenue in 2021, we anticipate that we will continue to incur losses for the foreseeable future. Furthermore, most of the revenue was generated through acting as a distributor of third-party medical devices in Russia, and we did not have significant sales of our Products. We anticipate that our expenses will increase substantially as we expand our sales and marketing efforts for our Products, seek further regulatory approvals, ramp manufacture of Motion Products and contract to manufacture Neurology Products.
We have incurred losses since inception and had an accumulated deficit of $2,668,212$22,278,923 as of December 31, 2018,2021, primarily as a result of expenses incurred in connection with our research and development programs and from general and administrative expenses associated with our operations and the Acquisition.operations. We expect to continue to incur significant expenses and increasing operating and net losses for the foreseeable future.
Historically, our primary source of cash has been proceeds from the sale of convertible promissory notes. ForDuring the fiscal yearsyear ended December 31, 2018 and 2017,2021 we issued $9,718,915 of convertible promissory notes. Net cash proceeds from those notes for aggregate gross proceeds of $1,059,500 and $1,087,500, respectively, to fund our operations. In 2019, we issued additional convertible promissory notes in the aggregate principal amount of $230,000.totaled $7,219,982.
We need to obtain substantial additional funding in connection with our continuing operations through public or private equity or debt financings or other sources, which may include collaborations with third parties. However, we may be unable to raise additional funds when needed on favorable terms or at all. Our failure to raise such capital as and when needed would have a negative impact on our financial condition and our ability to develop and commercialize our products and future products and our ability to pursue our business strategy. See “–Liquidity and Capital Requirements” below.
Financial Overview
Revenue
To date, we have generated approximately $58,000 of revenue with respect to the sale of the NeuroCap, our first product. We do not expect to generate recurring, material revenue unless or until we successfully commercialize our Products. If we fail to successfully commercialize our developed Products or fail to complete the development of any other product candidate we may pursue in the future, in a timely manner, or fail to obtain regulatory approval, we may not be able to generate any further revenue.
General and Administrative
General and administrative expenses consist primarily of personnel-related costs for personnel in functions not directly associated with research and development activities. Other significant costs include legal fees relating to corporate matters, intellectual property costs, professional fees for consultants assisting with regulatory, clinical, product development and financial matters, and product costs. We anticipate that our general and administrative expenses will significantly increase in the future to support our continued research and development activities, commercialization of our Products, if approved, and the increased costs of operating as a public company. These increases will include increased costs related to the hiring of additional personnel and fees for legal and professional services, as well as other public-company related costs.
Research and Development
Research and development expenses consist of expenses incurred in performing research and development activities in developing our Products. Research and development expenses include compensation and benefits for research and development employees, overhead expenses, cost of laboratory supplies, clinical trial and related clinical manufacturing expenses, costs related to regulatory operations, fees paid to consultants, and other outside expenses. Research and development costs are expensed as incurred and costs incurred by third parties are expensed as the contracted work is performed.
We expect our research and development expenses to significantly increase over the next several years as we develop our Products and conduct preclinical testing and clinical trials and will depend on the duration, costs and timing to complete our preclinical programs and clinical trials.
Interest Expense
Interest expense primarily consists of amortized note issuance costs and interest costs related to the convertible notes we issued in 2017 and through December 31, 2018. The convertible notes bore interest at a fixed rate of 8% per annum, but were converted at the merger.
31
Results of Operations
Comparison of the Years Ended December 31, 2018 and 2017
The following table sets forth the results of operations of the Company for the years Ended December 31, 2018 and December 31, 2017.
| | | Years Ended December 31, | | | Period to | |
| | | 2018 | | | 2017 | | | Period Change | |
| | | | | | | | | | | | | |
Revenues | | $ | 58,113 | | | $ | - | | | $ | 58,113 | |
General and administrative | | $ | 675,882 | | | $ | 395,838 | | | $ | 280,044 | |
Research and development | | $ | 210,206 | | | $ | 289,586 | | | $ | (79,380 | ) |
Professional fees | | $ | 271,718 | | | $ | 57,404 | | | $ | 214,314 | |
Interest expense | | $ | 159,165 | | | $ | 97,687 | | | $ | 61,478 | |
Other income | | $ | 18,186 | | | $ | 47,205 | | | $ | (29,109 | ) |
Revenues
Revenue for the fiscal year ended December 31, 2018 was $58,113, compared to Nil for the fiscal year ended December 31, 2017, resulting from finalizing development of our NeuroCap product and commencement of sales in 2018.
General and administrative expenses
General and administrative expenses were $675,882 for the fiscal year ended December 31, 2018, compared to $395,838 for the fiscal year ended December 31, 2017. In the fiscal year ended December 31, 2018, general and administrative expenses were primarily related to approximately $430,000 in consulting and compensation expense, approximately $54,000 in travel costs and approximately $40,000 in software development costs and approximately $30,000 in insurance expense. In the fiscal year ended December 31, 2017, general and administrative costs were primarily related to an aggregate total of approximately $200,000 in compensation and consulting costs, approximately $63,000 in business development costs and approximately $35,000 in testing costs. The increase in spending in the fiscal year ended December 31, 2018 was primarily attributable to the Company shifting focus from research and development to the growth and establishment phase in the marketplace.
Research and development expenses
Research and development expenses were $210,206 for the fiscal year ended December 31, 2018, compared to $289,586 for the fiscal year ended December 31, 2017. The decrease was primarily due to a decrease in development activities and a focus on growth of the operations of the Company.
Interest expense
Interest expense, for the fiscal year ended December 31, 2018 was $159,165, consisting of interest expense and amortization of debt issuance costs of approximately $156,000 related to the Company’s convertible promissory notes and interest expense related to the Ichor lease of approximately $3,600.
Other income
Other income for the fiscal year ended December 31, 2018 was $18,186 compared to $47,205 in the fiscal year ended December 31, 2017. This decrease is primarily related to a decrease of gain on sale of accessories provided for research and development testing of approximately $23,000 and income related to the sublease of warehouse space to a related party of approximately $5,000.
Liquidity and Capital Resources
While we have commenced generating revenue in 2018, we anticipate that we will continue to incur losses for the foreseeable future. We anticipate that our expenses will increase substantially as we develop our Products and pursue pre-clinical testing and clinical trials, seek any further regulatory approvals, contract to manufacture any products, establish our own sales, marketing and distribution infrastructure to commercialize our Products, hire additional staff, add operational, financial and management systems and operate as a public company.
Historically, our primary source of cash has been proceeds from the sale of convertible promissory notes. Through March 31, 2019, we sold an aggregate principal amount of approximately $2.4 million in multiple tranches of convertible promissory notes, of which $230,000 remains outstanding and unconverted. We have also from time to time issued shares of our common stock to individuals and entities as payment for services rendered to us in lieu of cash.
All of our then-outstanding convertible promissory notes, in the aggregate principal amount plus interest through September 21, 2018 of $2,275,050, converted into aggregate of 5,687,630 shares of our common stock upon or immediately after the closing of the Acquisition.
In connection with the private placement of the convertible promissory notes, we paid the placement agent a cash fee of $117,880, in addition to equity compensation in the form of common stock purchase warrants.
We have no current source of revenue to sustain our present activities other than as acting as a distributor of medical devices in Russia which is not our primary business goal. We require successful launches of both our Neurology and we do not expectour Motion products to begin to generate material revenue until, and unless, the FDA or other regulatory authorities approve our Products under development and we successfully commercialize our Products.to start supporting operations. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity (preferred stock or common stock) and debt financings as well as collaborations, strategic alliances and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third-party partners, we may have to relinquish valuable rights to our technologies, future revenue streams or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or through collaborations, strategic alliances or licensing arrangements when needed, we may be required to delay, limit, reduce or terminate our Product development, or future commercialization efforts, or grant rights to develop and market our cortical strip, grid electrode and depth electrode technology that we would otherwise prefer to develop and market ourselves.efforts.
Our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the years ended December 31, 20182021 and 2017,2020, noting the existence of substantial doubt about our ability to continue as a going concern. This uncertainty arose from management's review of our results of operations and financial condition and its conclusion that, based on our operating plans, we did not have sufficient existing working capital to sustain operations for a period of twelve months from the date of the issuance of these financial statements.
We believe our existing cash and cash equivalents, without raising additional funds or generating revenues, will be sufficient to fund our operating expenses only to approximately April 2019.May 2022.
In January 2019 we commenced a convertible note offering for up to $500,000, of which we have raised $230,000 through April 1, 2019. We may obtain additional financing in the future through the issuance of our common stock, through other equity or debt financings or through collaborations or partnerships with other companies. We may not be able to raise additional capital on terms acceptable to us, or at all, and any failure to raise capital as and when needed could compromise our ability to execute on our business plan.
The development of our Products is subject to numerous uncertainties, and we have based these estimates on assumptions that may prove to be substantially different than we currently anticipate and could use our cash resources sooner than we expect. Additionally, the process of developing medical devices and piezoelectric motors is costly and the timing of progress in pre-clinical tests and clinical trials is uncertain.with uncertain timing. Our ability to successfully transition to profitability will be dependent upon achieving a level of Product sales adequate to support our cost structure. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.
Net cash used in operating activities
Net cash used in operating activities was $1,112,690$5,794,792 for the year ended December 31, 20182021 compared to $873,643$931,664 for the year ended December 31, 2017.2020. This fluctuation is primarily due to an increaseincreases in net loss of $467,820$6,297,657, fair value of stock options vested of $2,943,499 and common stock issued for services of $280,174 partially offset by a decrease in fiscal 2018 along with an increase in the amortizationnet working capital of debt discount of approximately $33,000 and an increase in accounts payable of approximately $170,000 in the year ended December 31, 2018.$783,717.
Net cash used in investing activities
Net cash used in investing activities was $1,143$58,647 and $30,371 for the yearyears ended December 31, 2018, which2021 and 2020, respectively, and consisted of the purchase of property and equipment.
Net cash used in investing activities was $1,957 for the year ended December 31, 2017.
Net cash provided by financing activities
Net cash provided by financing activities was $979,868$6,573,849 for the year ended December 31, 2018,2021, which primarily consisted of the sale of the Company’s convertible promissory notes for aggregate gross proceeds of $964,120.
Net cash provided$7,219,982 proceeds from convertible notes partially offset by financing activities was $1,130,347 forrepayment of promissory notes in the amount of $646,133. For the year ended December 31, 2017, which primarily consisted of2020, net cash proceeds included $650,000 proceeds from the sale of convertible notes, $100,000 proceeds from issuance of Series C Preferred Stock and $111,477 of proceeds from the Company’s convertible promissory notes for aggregate gross proceeds of $1,015,000.paycheck protection loan program.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussionCash and analysisCash Equivalents
The Company considers all highly liquid temporary cash investments with an original maturity of ourthree months or less to be cash equivalents. At December 31, 2021 and December 31, 2020, the Company had no cash equivalents.
The Company’s cash is held with financial conditioninstitutions, and resultsthe account balances may, at times, exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit. Accounts are insured by the FDIC up to $250,000 per financial institution. The Company has not experienced any losses in such accounts with these financial institutions. As of December 31, 2021 and December 31, 2020, the Company had $277,989 and $0, respectively, in excess over the FDIC insurance limit.
Inventory
Inventory consists of finished goods that are valued at lower of cost or market using the weighted average method.
Property and Equipment
Property, plant and equipment are carried at cost. Depreciation is provided on the straight-line method over the assets estimated service lives. Expenditures for maintenance and repairs are charged to expense in the period in which they are incurred, and betterments are capitalized. The cost of assets sold or abandoned and the related accumulated depreciation are eliminated from the accounts and any gains or losses are reflected in the accompanying statements of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates ofrespective period. The estimated useful lives range from 3 to 7 years.
Convertible Notes Payable
The Company has issued convertible notes, which contain variable conversion features, whereby the balance sheetsoutstanding principal and accrued interest automatically convert into common shares at a fixed price which may be a discount to the reported amounts of revenue and expenses during the reporting periods. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstancescommon stock at the time such estimatesof conversion. Some of the conversion features of these notes are made. Actual results may differ materiallycontingent upon future events, whereby, the holder agreed not to convert until the contingent future event has occurred.
Revenue Recognition
On January 1, 2018, the Company adopted ASC Topic 606 Revenue from our estimatesContracts with Customers. This guidance requires an entity to recognize revenue by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and judgments under different assumptions or conditions. We periodically review our estimates in light(5) recognize revenue when each performance obligation is satisfied. Once the steps are met, revenue is recognized, generally upon receiving a letter of changes in circumstances, facts and experience. The effects ofacceptance from the customer. There has been no material revisions in estimates are reflected in oureffect on the Company’s financial statements prospectivelyas a result of adopting Topic 606.
The Company recognizes revenue from the datesale of the change in estimate.
While our significant accounting policies are more fully described in the notes to our financial statements appearing elsewhere in this Report, we believe the following are the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments.
Use of Estimates: The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying consolidated financial statements include the estimates of useful lives for depreciation.
Fair Value of Financial Instruments: Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
| ●
| Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
|
| ●
| Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
|
| ●
| Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
|
Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and borrowings. The fair value of current financial assets and current financial liabilities approximates their carrying value because of the short-term maturity of these financial instruments.
Income Taxes. The Company accounts for income taxes under the asset and liability method, as required by the accounting standard for income taxes, ASC 740. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis,piezoelectric motors, NeuroCaps, as well as net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income inrevenue from the sale of goods purchased through manufacturers of medical devices. The majority revenue for the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assetsended December 31, 2021 ais from the sale of medical devices purchased from Neurotech..
Research and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.Development
Stock Based Compensation. The Company accountsexpenses all research and development costs as they are incurred. Research and development includes expenditures in connection with in-house research and development salaries and staff costs, application and filing for regulatory approval of proposed products, regulatory and scientific consulting fees, as well as contract research, data collection, and monitoring, related to the grantresearch and development of restricted stock awards in accordance with ASC 718, “Compensation-Stock Compensation.” ASC 718 requires companies to recognizethe cloud infrastructure, data imaging, and proprietary products and technology. Research and development costs recognized in the statement of operations for the grant-dateyears ended December 31, 2021 and 2020 were $329,452 and $210,706, respectively.
Sales and Marketing
Advertising and marketing costs are expensed as incurred. Advertising and marketing costs recognized in the statement of operations for the years ended December 31, 2021 and 2020 were $1,041,575 and $197,372, respectively.
Stock-based Compensation
The Company measures and recognizes compensation expense for all stock-based payments at fair value over the requisite service period. The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of equity based compensation. Theoptions and warrants. Equity-based compensation expense is recognized overrecorded in administrative expenses based on the period during whichclassification of the employee is required to provide service in exchange for the compensation. Any remaining unrecognized balance will be recognized ratably over the lifeor vendor. The determination of the vesting period and is a reductionfair value of stockholders' equity.
The Company accounts for non-employee share-basedstock-based payment awards in accordance with the measurement and recognition criteria of ASC 505-50 “Equity-Based Payments to Non-Employees.”
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), as amended, which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the Company expects to receive for those goods or services. The standard will be effective for fiscal years and interim periods within those years beginning after December 15, 2017. The Company has adopted Topic 606 with no material effect on its financial statements.
In November 2016, FASB issue ASU No. 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash (ASU 2016-18), requiring restricted cash and cash equivalents to be included with cash and cash equivalents of the statement of cash flows. The new standard is effective for fiscal years, and interim periods within that year, beginning December 15, 2017, with early adoption permitted. The Company adopted this new ASU at January 1, 2018 and it has had no material impact on its financial statements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The new standard will be effective for the Company on January 1, 2020. The Companydate of grant using an option-pricing model is currently evaluating the method of adoption and the potential impact that this standard may have on its financial position and results of operations.
In June 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2018-07, Compensation – Stock Compensation (Topic 718). This update is intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to non-employees (for example, service providers, external legal counsel, suppliers, etc.). The ASU expands the scope of Topic 718, Compensation—Stock Compensation, which currently only includes share-based payments issued to employees, to also include share-based payments issued to non-employees for goods and services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. This standard will be effective for financial statements issuedaffected by public companies for the annual and interim periods beginning after December 15, 2018. Early adoption of the standard is permitted. The standard will be applied in a retrospective approach for each period presented. Management currently does not plan to early adopt this guidance and is evaluating the potential impact of this guidance on the Company’s consolidated financial statementsour stock price as well as transition methods.by assumptions regarding a number of subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 7A –7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
This item isWe are not required forto provide the information required by this Item because we are a smaller reporting company.
ITEM 8 – FINANCIAL8-FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.SUPPLEMENTAL DATA
INDEX TO FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Stockholders of Brain Scientific, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Brain Scientific, Inc. (“the Company”)(the Company) as of December 31, 20182021 and 2017,2020, and the related consolidated statements of operations changes inand comprehensive loss, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 20182021, and the related notes and schedules (collectively referred to as the “financial statements”)financial statements). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20182021 and 2017,2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018,2021, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph Regarding Going Concern
The accompanyingAccompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management'sManagement’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.
3001 N. Rocky Point Dr. East Suite 200 ● Tampa, Florida 33607 ● 813.367.3527
The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
/s/ Sadler, Gibb & Associates, LLCOptions and Warrants
The Company issued several options and warrant agreements in 2021 and amended several of those agreements in the same period.
We have servedidentified auditing the determination and valuation of the options and warrants as a critical audit matter due to significant judgments used by the Company’s auditor since 2018.Company in calculating the value, and due to the fact there were amendments to the agreements.
How the Critical Audit Matter Was Addressed in the Audit
Salt Lake City, UT
April
Our audit procedures included the following, among others:
| ● | We inspected and reviewed stock option agreements and amendments and other documents to evaluate the Company’s application of relevant accounting standards to such transactions. |
| ● | We evaluated the reasonableness of the valuation model used for each specific instrument based off the terms and features of such instrument. |
| ● | We tested the reasonableness of the assumptions used by the Company in the valuation models used, including exercise price, expected term, expected volatility, and risk-free interest rate. |
| ● | We tested the accuracy and completeness of data used by the Company in creating the entries required to record the stock based compensation expense. |
| ● | We developed an independent expectation for comparison to the Company’s estimate, which included developing our own Black-Scholes Merton model. |
| ● | We evaluated the accuracy and completeness of the Company’s presentation of these instruments in the financial statements, including evaluating whether disclosures were in accordance with relevant accounting standards. |
| ● | Professionals with specialized skill and knowledge were utilized by the Firm to assist in the evaluation of the Company estimate of fair value and the development of our own independent expectations. |
Accounting for Business Combination
Effective October 1, 2019
2021, the Company acquired Piezo Motion Corp. We identified the application of acquisition method of accounting as a critical audit matter due to the complex accounting and reporting standards related to the transaction, and the estimates and assumptions used by management in determining the proper allocation of the consideration given to the assets acquired including identified intangible assets.
F-2
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures included the following, among others:
| ● | We obtained and reviewed the merger agreement and other documents to evaluate the Company’s application of relevant accounting standards to the transaction. |
| ● | We evaluated the reasonableness of the valuation model and methodologies used to arrive at the value applied to acquired assets to include identified intangible assets of the Company and goodwill. |
| ● | Professionals with specialized skill and knowledge were utilized by the Firm to assist in the evaluation of the Company estimate of fair value and the development of our own independent expectations. |
| ● | We evaluated the accuracy and completeness of the Company’s presentation of the acquisition in the financial statements, including evaluating whether disclosures were in accordance with relevant accounting standards. |
| ● | Professionals with specialized skill and knowledge were utilized by the Firm to assist in the evaluation of the Company’s accounting treatment for the acquisition. |
|
 | |
| |
| We have served as the Company’s auditor since 2021. |
| |
| Tampa, Florida |
March 31, 2022
Brain Scientific Inc. and SubsidiarySubsidiaries
CONSOLIDATED BALANCE SHEETS
| | | December 31,
2021 | | | December 31,
2020 | |
| | | | | | | |
| ASSETS | | | | | | |
| CURRENT ASSETS: | | | | | | |
| Cash | | $ | 785,363 | | | $ | 68,943 | |
| Accounts receivable | | | 16,922 | | | | - | |
| Inventory | | | 146,090 | | | | 44,904 | |
| Advances to officers | | | 16,941 | | | | 7,542 | |
| Prepaid expenses and other current assets | | | 166,458 | | | | 12,000 | |
| TOTAL CURRENT ASSETS | | | 1,131,774 | | | | 133,389 | |
| | | | | | | | | |
| Property and equipment, net | | | 122,979 | | | | 91,742 | |
| Intangible assets | | | 10,920,577 | | | | - | |
| Goodwill | | | 913,184 | | | | - | |
| Operating lease right-of-use asset | | | 191,702 | | | | - | |
| Other long-term assets | | | 95,000 | | | | - | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 13,375,216 | | | $ | 225,131 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | | |
| | | | | | | | | |
| CURRENT LIABILITIES: | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 2,987,264 | | | $ | 1,444,476 | |
| Accounts payable and accrued expenses - related party | | | 75,000 | | | | - | |
| Accrued interest | | | 356,998 | | | | 26,766 | |
| Notes payable | | | 320,000 | | | | 650,000 | |
| Loans payable | | | 6,667 | | | | - | |
| Loans payable - related party | | | 155,989 | | | | - | |
| Operating lease liability, current portion | | | 104,591 | | | | - | |
| TOTAL CURRENT LIABILITIES: | | | 4,006,509 | | | | 2,121,242 | |
| | | | | | | | | |
| Convertible notes payable, net | | | 9,972,551 | | | | - | |
| Operating lease liability, net of current portion | | | 91,089 | | | | - | |
| Paycheck protection program (PPP) loan | | | - | | | | 111,477 | |
| | | | | | | | | |
| TOTAL LIABILITIES | | | 14,070,149 | | | | 2,232,719 | |
| | | | | | | | | |
| Commitments and contingencies | | | | | | | | |
| | | | | | | | | |
| STOCKHOLDERS' DEFICIT | | | | | | | | |
| | | | | | | | | |
| Preferred stock, $0.001 par value; 10,000,000 shares authorized, 0 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively | | | - | | | | - | |
| Common stock, $0.001 par value; 200,000,000 shares authorized, 50,217,308 and 29,520,454 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively | | | 50,217 | | | | 29,520 | |
| Additional paid in capital | | | 21,537,763 | | | | 11,141,129 | |
| Accumulated deficit | | | (22,278,923 | ) | | | (13,178,237 | ) |
| Accumulated other comprehensive loss | | | (3,990 | ) | | | - | |
| TOTAL STOCKHOLDERS' DEFICIT | | | (694,933 | ) | | | (2,007,588 | ) |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | | $ | 13,375,216 | | | $ | 225,131 | |
| | | December 31, 2018 | | | December 31, 2017 | |
ASSETS | | | | | | | | |
CURRENT ASSETS: | | | | | | | | |
Cash | | $ | 163,563 | | | $ | 297,528 | |
Prepaid expenses and other current assets | | | 14,552 | | | | 10,972 | |
| | | | | | | | | |
TOTAL CURRENT ASSETS | | | 178,115 | | | | 308,500 | |
| | | | | | | | | |
Property and equipment, net | | | 1,999 | | | | 1,512 | |
| | | | | | | | | |
TOTAL ASSETS | | $ | 180,114 | | | $ | 310,012 | |
| | | | | | | | | |
LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | | |
| | | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | |
Accounts payable and accrued expenses | | $ | 139,637 | | | $ | 53,704 | |
Accounts payable and accrued expenses - related party | | | 31,900 | | | | - | |
Convertible notes payable, net of discount | | | - | | | | 1,057,595 | |
Other liabilities - short term | | | 5,454 | | | | 62,522 | |
Loans payable - related party | | | 50,000 | | | | 34,252 | |
TOTAL CURRENT LIABILITIES: | | | 226,991 | | | | 1,208,073 | |
| | | | | | | | | |
Other liabilities | | | 7,095 | | | | 12,620 | |
| | | | | | | | | |
TOTAL LIABILITIES | | | 234,086 | | | | 1,220,693 | |
| | | | | | | | | |
Commitments and contingencies | | | - | | | | - | |
| | | | | | | | | |
STOCKHOLDERS' DEFICIT | | | | | | | | |
| | | | | | | | | |
Preferred stock, $0.001 par value; 10,000,000 shares authorized, 0 shares issued and outstanding as of December 31, 2018 and December 31, 2017, respectively | | | - | | | | - | |
Common stock, $0.001 par value; 200,000,000 shares authorized, 19,205,624 and 9,906,526 shares issued and outstanding as of December 31, 2018 and December 31, 2017, respectively | | | 19,206 | | | | 9,907 | |
Additional paid in capital | | | 2,595,034 | | | | 321,522 | |
Accumulated deficit | | | (2,668,212 | ) | | | (1,242,110 | ) |
| | | | | | | | | |
TOTAL STOCKHOLDERS' DEFICIT | | | (53,972 | ) | | | (910,681 | ) |
| | | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | | $ | 180,114 | | | $ | 310,012 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Brain Scientific Inc. and SubsidiarySubsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| | | Years Ended December 31, | |
| | | 2021 | | | 2020 | |
| | | | | | | |
| REVENUE | | $ | 265,747 | | | $ | 93,664 | |
| | | | | | | | | |
| COST OF GOODS SOLD | | | 182,519 | | | | 43,762 | |
| | | | | | | | | |
| GROSS PROFIT | | | 83,228 | | | | 49,902 | |
| | | | | | | | | |
| SELLING, GENERAL AND ADMINISTRATIVE | | | | | | | | |
| Research and development | | | 329,452 | | | | 210,706 | |
| Professional fees | | | 818,698 | | | | 268,223 | |
| Sales and marketing expenses | | | 1,041,575 | | | | 197,372 | |
| Share-based compensation | | | 3,223,674 | | | | 311,919 | |
| General and administrative expenses | | | 3,326,306 | | | | 1,831,170 | |
| TOTAL SELLING, GENERAL AND ADMINISTRATIVE | | | 8,739,705 | | | | 2,819,390 | |
| | | | | | | | | |
| LOSS FROM OPERATIONS | | | (8,656,477 | ) | | | (2,769,488 | ) |
| | | | | | | | | |
| OTHER INCOME (EXPENSE): | | | | | | | | |
| Interest expense | | | (467,849 | ) | | | (29,474 | ) |
| Amortization of debt discount | | | (89,787 | ) | | | - | |
| Loss on disposal of assets | | | - | | | | (4,067 | ) |
| Other income | | | 1,110 | | | | - | |
| Gain on forgiveness of paycheck protection loan | | | 112,338 | | | | - | |
| Foreign currency transaction loss | | | (21 | ) | | | - | |
| TOTAL OTHER EXPENSE | | | (444,209 | ) | | | (33,541 | ) |
| | | | | | | | | |
| LOSS BEFORE INCOME TAXES | | | (9,100,686 | ) | | | (2,803,029 | ) |
| | | | | | | | | |
| PROVISION FOR INCOME TAXES | | | - | | | | - | |
| | | | | | | | | |
| NET LOSS | | | (9,100,686 | ) | | | (2,803,029 | ) |
| | | | | | | | | |
| OTHER COMPREHENSIVE LOSS | | | | | | | | |
| Foreign currency translation adjustment | | | (3,990 | ) | | | - | |
| TOTAL COMPREHENSIVE LOSS | | $ | (9,104,676 | ) | | $ | (2,803,029 | ) |
| | | | | | | | | |
| NET LOSS PER COMMON SHARE | | | | | | | | |
| Basic and diluted | | $ | (0.26 | ) | | $ | (0.10 | ) |
| | | | | | | | | |
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | | | | | | | | |
| Basic and diluted | | | 30,680,204 | | | | 26,819,946 | |
| | | Years Ended December 31, | |
| | | 2018 | | | 2017 | |
| | | | | | | | | |
| | | | | | | | | |
REVENUE | | $ | 58,113 | | | $ | - | |
| | | | | | | | | |
COST OF GOODS SOLD | | | 33,939 | | | | - | |
| | | | | | | | | |
GROSS PROFIT | | | 24,174 | | | | - | |
| | | | | | | | | |
SELLING, GENERAL AND ADMINISTRATIVE: | | | | | | | | |
Research and development | | | 210,206 | | | | 289,586 | |
Professional fees | | | 271,718 | | | | 57,404 | |
Sales and marketing expenses | | | 93,190 | | | | 88,532 | |
Occupancy expenses | | | 58,301 | | | | 73,840 | |
General and administrative expenses | | | 675,882 | | | | 395,838 | |
TOTAL SELLING, GENERAL AND ADMINISTRATIVE | | | 1,309,297 | | | | 905,200 | |
| | | | | | | | | |
LOSS FROM OPERATIONS | | | (1,285,123 | ) | | | (905,200 | ) |
| | | | | | | | | |
OTHER INCOME (EXPENSE): | | | | | | | | |
Interest expense | | | (159,165 | ) | | | (97,687 | ) |
Other income | | | 18,186 | | | | 47,205 | |
Other expense | | | - | | | | (2,600 | ) |
TOTAL OTHER INCOME (EXPENSE) | | | (140,979 | ) | | | (53,082 | ) |
| | | | | | | | | |
LOSS BEFORE INCOME TAXES | | | (1,426,102 | ) | | | (958,282 | ) |
| | | | | | | | | |
INCOME TAX EXPENSE | | | - | | | | - | |
| | | | | | | | | |
NET LOSS | | $ | (1,426,102 | ) | | $ | (958,282 | ) |
| | | | | | | | | |
NET LOSS PER COMMON SHARE | | | | | | | | |
Basic and diluted | | $ | (0.11 | ) | | $ | (0.08 | ) |
| | | | | | | | | |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | | | | | | | | |
Basic and diluted | | | 12,471,618 | | | | 12,240,144 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Brain Scientific Inc. and SubsidiarySubsidiaries
CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | |
| | | Series A | | | Series B | | | Series C | | | | | | | | | Additional | | | | | | Other | | | | |
| | | Preferred Stock | | | Preferred Stock | | | Preferred Stock | | | Common Stock | | | Paid-in | | | Accumulated | | | Comprehensive | | | | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Deficit | | | Income | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances at December 31, 2019 | | | 8,118,993 | | | | 8,119 | | | | 7,115,089 | | | | 710 | | | | 14,880,641 | | | | 1,488 | | | | 22,536,091 | | | $ | 22,536 | | | $ | 10,376,391 | | | $ | (10,375,208 | ) | | $ | - | | | $ | 34,036 | |
| Sale of Series C Preferred Stock | | | - | | | | - | | | | - | | | | - | | | | 234,796 | | | | 235 | | | | - | | | | - | | | | 53,229 | | | | - | | | | - | | | | 53,464 | |
| Warrants issued in connection with the sale of Series C Preferred Stock | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 46,536 | | | | - | | | | - | | | | 46,536 | |
| Issuance of common stock for director services | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 616,339 | | | | 616 | | | | 33,489 | | | | - | | | | - | | | | 34,105 | |
| Recapitalization at reverse merger - May 20, 2020 | | | (8,118,993 | ) | | | (8,119 | ) | | | (7,115,089 | ) | | | (710 | ) | | | (15,115,437 | ) | | | (1,723 | ) | | | 6,197,037 | | | | 6,197 | | | | 622,205 | | | | - | | | | - | | | | 617,850 | |
| Issuance of common stock for services | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 170,987 | | | | 171 | | | | 9,279 | | | | - | | | | - | | | | 9,450 | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,803,029 | ) | | | - | | | | (2,803,029 | ) |
| Balances at December 31, 2020 | | | - | | | $ | - | | | | - | | | $ | - | | | | - | | | $ | - | | | | 29,520,454 | | | $ | 29,520 | | | $ | 11,141,129 | | | $ | (13,178,237 | ) | | $ | - | | | $ | (2,007,588 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (3,575,585 | ) | | | - | | | | (3,575,585 | ) |
| Recapitalization October 1, 2021 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 20,686,369 | | | | 20,687 | | | | 7,172,971 | | | | - | | | | - | | | | 7,193,658 | |
| Fair value of stock options and warrants vested | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2,943,499 | | | | - | | | | - | | | | 2,943,499 | |
| Issuance of common stock for services | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 10,485 | | | | 10 | | | | 280,164 | | | | - | | | | - | | | | 280,174 | |
| Foreign currency translation adjustment | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | (3,990 | ) | | | (3,990 | ) |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (5,525,101 | ) | | | - | | | | (5,525,101 | ) |
| Balances at December 31, 2021 | | | - | | | $ | - | | | | - | | | $ | - | | | | - | | | $ | - | | | | 50,217,308 | | | $ | 50,217 | | | $ | 21,537,763 | | | $ | (22,278,923 | ) | | $ | (3,990 | ) | | $ | (694,933 | ) |
| | | | | | | | | | | | | | | | | | | Additional | | | | | | | | | |
| | | Preferred Stock | | | Common Stock | | | Paid-in | | | Accumulated | | | | | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | (Deficit) | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2016 | | | - | | | $ | - | | | | 3,157,526 | | | $ | 3,158 | | | $ | 226,140 | | | $ | (283,828 | ) | | $ | (54,530 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of common stock for cash | | | - | | | | - | | | | 6,749,000 | | | | 6,749 | | | | 93,251 | | | | - | | | | 100,000 | |
Fair value of warrants issued in connection with convertible debt | | | - | | | | - | | | | - | | | | - | | | | 2,131 | | | | - | | | | 2,131 | |
Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (958,282 | ) | | | (958,282 | ) |
Balance at December 31, 2017 | | | - | | | $ | - | | | | 9,906,526 | | | $ | 9,907 | | | $ | 321,522 | | | $ | (1,242,110 | ) | | $ | (910,681 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of convertible notes and accrued interest to common stock | | | - | | | | - | | | | 5,687,630 | | | | 5,688 | | | | 2,269,362 | | | | - | | | | 2,275,050 | |
Fair value of warrants issued in connection with convertible debt | | | - | | | | - | | | | - | | | | - | | | | 2,604 | | | | - | | | | 2,604 | |
Issuance of common stock for services | | | - | | | | - | | | | 106,468 | | | | 106 | | | | 5,042 | | | | - | | | | 5,148 | |
Effect of reverse recapitalization | | | - | | | | - | | | | 3,505,000 | | | | 3,505 | | | | (3,496 | ) | | | - | | | | 9 | |
Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,426,102 | ) | | | (1,426,102 | ) |
Balances at December 31, 2018 | | | - | | | $ | - | | | | 19,205,624 | | | $ | 19,206 | | | $ | 2,595,034 | | | $ | (2,668,212 | ) | | $ | (53,972 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Brain Scientific Inc. and SubsidiarySubsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | Year Ended December 31, | |
| | | 2021 | | | 2020 | |
| | | | | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | |
| Net loss | | $ | (9,100,686 | ) | | $ | (2,803,029 | ) |
| Change in net loss to net cash used in operating activities: | | | | | | | | |
| Depreciation and amortization expense | | | 219,833 | | | | 17,353 | |
| Amortization of debt discount and non-cash interest expense | | | 89,787 | | | | - | |
| Gain on forgiveness of paycheck protection loan | | | (112,338 | ) | | | - | |
| Loss on disposal of assets | | | 71,872 | | | | 4,067 | |
| Fair value of stock options vested | | | 2,943,499 | | | | 355,534 | |
| Common stock issued for services | | | 280,174 | | | | - | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable | | | (1,570 | ) | | | - | |
| Inventory | | | (99,372 | ) | | | (44,904 | ) |
| Advances to officers | | | (9,399 | ) | | | (5,559 | ) |
| Prepaid expenses and other current assets | | | (95,920 | ) | | | 9,950 | |
| Other long-term assets | | | (95,000 | ) | | | - | |
| Accounts payable and accrued expenses | | | 112,504 | | | | 1,508,158 | |
| Accrued interest | | | - | | | | 26,766 | |
| Operating lease liabilities, net | | | (70,176 | ) | | | - | |
| NET CASH USED IN OPERATING ACTIVITIES | | $ | (5,866,792 | ) | | $ | (931,664 | ) |
| | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
| Purchase of property and equipment | | $ | (58,647 | ) | | $ | (30,371 | ) |
| NET CASH USED IN INVESTING ACTIVITIES | | $ | (58,647 | ) | | $ | (30,371 | ) |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
| Proceeds from convertible notes payable | | $ | 3,750,000 | | | $ | - | |
| Proceeds from note payable | | | 3,469,982 | | | | 650,000 | |
| Proceeds from issuance of Series C Preferred Stock | | | - | | | | 100,000 | |
| Proceeds from PPP Loan | | | - | | | | 111,477 | |
| Repayment of promissory note | | | (574,133 | ) | | | - | |
| NET CASH PROVIDED BY FINANCING ACTIVITIES | | $ | 6,645,849 | | | $ | 861,477 | |
| | | | | | | | | |
| Effect of exchange rate changes on cash | | | (3,990 | ) | | | - | |
| | | | - | | | | - | |
| NET CHANGE IN CASH | | | 716,420 | | | | (100,558 | ) |
| CASH AT BEGINNING OF THE PERIOD | | | 68,943 | | | | 169,501 | |
| CASH AT END OF THE PERIOD | | $ | 785,363 | | | $ | 68,943 | |
| | | | | | | | | |
| Supplemental Disclosure of Cash Flow Information | | | | | | | | |
| | | | | | | | | |
| Cash paid for interest | | $ | 72,000 | | | $ | - | |
| Cash paid for taxes | | $ | - | | | $ | - | |
| | | | | | | | | |
| Supplemental Disclosure of Non-Cash Investing and Financing Activities | | | | | | | | |
| | | | | | | | | |
| Intangible assets recorded at acquisition | | $ | 11,113,000 | | | $ | - | |
| Goodwill recognized at acquisition | | $ | 913,184 | | | $ | - | |
| Shares issued for acquisition | | $ | 7,240,229 | | | $ | - | |
| Net assets assumed in merger | | $ | (1,193,499 | ) | | $ | - | |
| Convertible notes payable assumed at merger | | $ | 2,451,641 | | | $ | - | |
| Notes payable converted into convertible notes payable | | $ | 4,119,982 | | | $ | - | |
| Notes payable assumed in merger | | $ | 320,000 | | | $ | - | |
| Accrued interest converted into convertible notes payable | | $ | 208,425 | | | $ | - | |
| | | Years Ended December 31, | |
| | | 2018 | | | 2017 | |
| | | | | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | |
Net loss | | $ | (1,426,102 | ) | | $ | (958,282 | ) |
Change in net loss to net cash used in operating activities: | | | | | | | | |
Depreciation and amortization expense | | | 656 | | | | 445 | |
Amortization of debt discount | | | 77,889 | | | | 44,726 | |
Common stock issued for services | | | 5,148 | | | | - | |
Changes in operating assets and liabilities: | | | | | | | | |
Other liabilities | | | (12,593 | ) | | | 6,494 | |
Prepaid expenses and other current assets | | | (3,570 | ) | | | (10,972 | ) |
Accounts payable and accrued expenses | | | 213,982 | | | | 43,946 | |
Accounts payable - related party | | | 31,900 | | | | - | |
NET CASH USED IN OPERATING ACTIVITIES | | $ | (1,112,690 | ) | | $ | (873,643 | ) |
| | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
Purchase of fixed assets | | $ | (1,143 | ) | | $ | (1,957 | ) |
NET CASH USED IN INVESTING ACTIVITIES | | $ | (1,143 | ) | | $ | (1,957 | ) |
| | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
Proceeds from convertible notes payable | | $ | 964,120 | | | $ | 1,015,000 | |
Proceeds from related party loans | | | 50,000 | | | | - | |
Payments of related party loans | | | (34,252 | ) | | | (34,653 | ) |
Proceeds from the sale of common stock for cash | | | - | | | | 100,000 | |
Advance on notes payable | | | - | | | | 50,000 | |
NET CASH PROVIDED BY FINANCING ACTIVITIES | | $ | 979,868 | | | $ | 1,130,347 | |
| | | | | | | | | |
NET INCREASE IN CASH | | | (133,965 | ) | | | 254,747 | |
| | | | | | | | | |
CASH AT BEGINNING OF THE YEAR | | | 297,528 | | | | 42,781 | |
CASH AT END OF THE YEAR | | $ | 163,563 | | | $ | 297,528 | |
| | | | | | | | | |
Supplemental Disclosure of Cash Flow Information | | | | | | | | |
| | | | | | | | | |
Cash paid for interest | | $ | 3,615 | | | $ | 2,591 | |
Cash paid for taxes | | $ | - | | | $ | - | |
| | | | | | | | | |
Supplemental Disclosure of Non-Cash Investing and Financing Activities | | | | | | | | |
| | | | | | | | | |
Discounts related to warrants issued in connection with convertible debentures | | $ | 2,604 | | | $ | 2,131 | |
Conversion of convertible notes and accrued interest to common stock | | $ | 2,275,050 | | | $ | - | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BRAIN SCIENTIFIC INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
Brain Scientific Inc. (the “Company”), was incorporated under the laws of the state of Nevada on November 18, 2013 under the name All Soft Gels Inc. TheOn October 1, 2021, the Company on September 21, 2018 acquired MemoryMD, Inc.Piezo Motion Corp (“MemoryMD”Piezo”), a privately held Delaware corporation formed in February 2015.January 2020. Upon completion of the acquisition, MemoryMDPiezo is treated as the surviving entity and accounting acquirer although the Company was the legal acquirer. Accordingly, the Company’s historical financial statements are those of Piezo.. The Company has two lines of operations The MemoryMD the surviving entity and accounting acquirer. MemoryMDsubsidiary group is ainvolved in cloud computing, data analytics and medical device technology company in the NeuroTech and brain monitoring industries seeking to commercialize its EEG devices and caps. The Piezo subsidiary group is focused on the ultrasonic standing wave-type piezo motor technology for rotary and linear motion and has experience in the research and development, as well as the manufacturing, of piezo motors for high-tech industries across the globe. The Company is headquartered in New York, New York.Sarasota, Florida.
Reverse Merger and Corporate Restructure
On September 21, 2018,June 11, 2021, the Company entered into a merger agreement (the “Merger Agreement”) with MemoryMDPiezo and AFGGBRSF Acquisition Corp.Inc. to acquire MemoryMDPiezo (the “Acquisition”). The transactions contemplated by the Merger Agreement were consummated on September 21, 2018October 1, 2021 and, pursuant to the terms of the Merger Agreement, all outstanding shares of MemoryMDPiezo were exchanged for shares of the Company’s common stock. Accordingly, the Company acquired 100% of MemoryMD in exchange for the issuance of29,520,454 shares of the Company’s common stock and MemoryMDPiezo became the Company’s wholly-ownedwholly owned subsidiary.
The Merger was effected pursuant to the Merger Agreement. The Merger is being accounted for as a reverse merger whereby Piezo is the acquirer for accounting purposes. Piezo is considered the acquiring company for accounting purposes as upon completion of the Merger, Piezo��s former stockholders held a majority of the voting interest of the combined company.
Pursuant to the Merger, the Company issued an additional 4,083,252 shares of its common stock upon the automatic conversionto Piezo’s stockholders, at the closingan exchange ratio of an aggregate of $1,507,000 principal amount plus accrued interest of outstanding convertible promissory notes issued by MemoryMD, and it further issued an additional 1,604,378 shares of its common stock upon the automatic conversion immediately subsequent to the closing of an aggregate of $640,000 principal amount plus accrued interest of outstanding convertible promissory notes issued by MemoryMD. Furthermore, as of the closing, Mr. Amer Samad, the sole director and executive officer until the consummation of the Acquisition, committed to tender for cancellation 6,495,0002.93 shares of the Company’s common stock as part of the conditions to closing, of which 6,375,000 have been cancelled at December 31, 2018 and 120,000 are expected to be cancelled as soon as practicable. Total shares issued as a result of the stock.
Acquisition was 13,421,752.Accounting
The Acquisition has been accounted for as a reverse recapitalizationfair value of Brain Scientific assets acquired and liabilities assumed was based upon management’s estimates assisted by MemoryMD, but in substance as a capital transaction, rather than a business combination since Brain Scientific had nominal or no operations and assets prior to and asan independent third-party valuation firm.
The following table summarizes the allocation of purchase price of the closing of the Acquisition. The transaction is deemed a reverse recapitalization and the accounting is similar to that resulting from a reverse acquisition, except that no goodwill or other intangible assets should be recorded. For accounting purposes, MemoryMD is treated as the surviving entity and accounting acquirer although Brain Scientific was the legal acquirer. Accordingly, the Company’s historical financial statements are those of MemoryMD.
All references to common stock, share and per share amounts have been retroactively restated to reflect the reverse recapitalization as if the transaction had taken place as of the beginning of the earliest period presented.
Assignment and Assumption Agreement
As of immediately prior to the closing of the Acquisition, the Company entered into an Assignment and Assumption Agreement with Chromium 24 LLC, pursuant to which Chromium 24 LLC assumed all of the Company’s remaining assets and liabilities through the closing of the Acquisition. Accordingly, as of the closing of the Acquisition, Brain Scientific had no assets or liabilities other than the shares of MemoryMD acquired in the Acquisition.
Name Change and Increase in Authorized Shares
On September 18, 2018, the Company filed an amendment to its certificate of incorporation with the Nevada Secretary of State to change its name to Brain Scientific Inc. On September 18, 2018, FINRA approved of the name change as well as a ticker symbol change, which was effective as of September 19, 2018. In addition, the Company increased its authorized shares of common stock from 50,000,000 to 200,000,000 and created and authorized 10,000,000 shares of undesignated preferred stock.acquisition:
F-7
| Tangible Assets Acquired: | | Allocation | |
| Net working capital | | | (1,186,622 | ) |
| Right of use asset | | | 40,093 | |
| Lease liability | | | (46,970 | ) |
| Net Tangible Assets Acquired | | $ | (1,193,499 | ) |
| | | | | |
| Intangible Assets Acquired: | | | | |
| Brain Scientific Trade Name | | | 133,000 | |
| MemoryMD Trade Name | | | 533,000 | |
| Neurocap Trade Name | | | 188,000 | |
| Neuro EEG Trade Name | | | 11,000 | |
| Customer Relationships | | | (29,000 | ) |
| NeuroCap Developed Technology | | | 10,242,000 | |
| NeuroEEG Developed Technology | | | 35,000 | |
| Total Fair Value of Assets Acquired | | $ | 11,113,000 | |
| | | | | |
| Consideration: | | | | |
| Fair value of equity received | | | 7,240,222 | |
| Liabilities assumed | | | 2,978,152 | |
| Loans forgiven | | | 605,311 | |
| Goodwill | | $ | 913,184 | |
BRAIN SCIENTIFIC INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with GAAP.U.S. Generally Accepted Accounting Principles (“GAAP”).
Principles of Consolidation
The Company evaluates the need to consolidate affiliates based on standards set forth in ASC 810 Consolidation (“ASC 810”).
The consolidated financial statements include the accounts of the Company and its subsidiary, MemoryMD.subsidiaries, Piezo Motion Corp, Discovery Technology International, Inc., MemoryMD US, MemoryMD – Russia and MemoryMD - Europe. All significant consolidated transactions and balances have been eliminated in consolidation.
Reclassifications to Prior Period Financial Statements and Adjustments
Certain reclassifications have been made in the Company’s financial statements of the prior year to conform to the current year presentation. $26,775 in accounting fees in the year ended December 31, 2017 were reclassified from general and administrative expenses to professional fees. These reclassifications have no impact on previously reported net income.
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the useful life of property and equipment and assumptions used in the valuation of options and warrants.
The Effects of COVID-19
The World Health Organization (WHO) declared the coronavirus outbreak a pandemic on January 30, 2020. Since the outbreak in China in December 2019, COVID-19 has expanded its impact to Europe, where all of our operations reside, as well as our employees, suppliers and customers. While the disruption is currently expected to be temporary, there is considerable uncertainty around the duration of the closings and shelter-in-place orders and the ultimate impact of governmental initiatives. However, the financial impact and duration cannot be reasonably estimated at this time.
Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At December 31, 20182021 and December 31, 2017,2020, the Company had no cash equivalents.
The Company’s cash is held with financial institutions, and the account balances may, at times, exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit. Accounts are insured by the FDIC up to $250,000 per financial institution. The Company has not experienced any losses in such accounts with these financial institutions. As of December 31, 20182021 and December 31, 2017,2020, the Company had $0$277,989 and $47,528,$0, respectively, in excess over the FDIC insurance limit.
IInventorynventory
Inventory consists of finished goods that are valued at lower of cost or market. As of December 31, 2018 and 2017market using the Company had inventory totaling $0.weighted average method.
Property Equipment and DepreciationEquipment
Property, plant and equipment are recordedcarried at cost. Depreciation is computed usingprovided on the straight-line method over the assets estimated service lives. Expenditures for maintenance and repairs are charged to expense in the period in which they are incurred, and betterments are capitalized. The cost of assets sold or abandoned and the related accumulated depreciation are eliminated from the accounts and any gains or losses are reflected in the accompanying statements of operations of the respective period. The estimated useful lives of the assets. Expenditures for repair and maintenance are chargedrange from 3 to operations as incurred. Property and equipment consisted of computer equipment, with an estimated useful life of three years, purchased in April 2017 and December 2018 with an original cost of $1,957 and $1,143, respectively. Depreciation expense was $656 and $445 for the years ended December 31, 2018 and 2017, respectively. Accumulated depreciation at December 31, 2018 and 2017 was $1,101 and $445, respectively. As of December 31, 2018 and December 31, 2017, property and equipment, net was $1,999 and $1,512, respectively.7 years.
F-8
Goodwill
Goodwill represents the excess of Contents
BRAIN SCIENTIFIC INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018the consideration transferred over the fair value of the net identifiable assets acquired. Goodwill is evaluated for impairment annually or whenever we identify certain triggering events or circumstances that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Events or circumstances that might indicate an interim evaluation is warranted include, among other things, unexpected adverse business conditions, macro and 2017reporting unit specific economic factors (for example, interest rate and foreign exchange rate fluctuations, and loss of key personnel), supply costs, unanticipated competitive activities, and acts by governments and courts.
Convertible Notes Payable
The Company has issued convertible notes, which contain variable conversion features, whereby the outstanding principal and accrued interest automatically convert into common shares at a fixed price which may be a discount to the common stock at the time of conversion. TheSome of the conversion features of these notes are contingent upon future events, whereby, the holder agreed not to convert until the contingent future event has occurred. On September 21, 2018, the Company completed the Acquisition and all convertible notes and related accrued interest were converted into common stock of the Company.
Revenue Recognition
On January 1, 2018, the Company adopted ASC Topic 606 Revenue from Contracts with Customers. This guidance requires an entity to recognize revenue by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. Once the steps are met, revenue is recognized, generally upon deliveryreceiving a letter of acceptance from the product.customer. There has been no material effect on the Company’s financial statements as a result of adopting Topic 606.
The Company recognizes revenue from the sale of NeuroCaps, Universal Cables and its proprietary software connected to its cloud-based computing system that that can assist in diagnosis by assessing pathology, abnormalities, and other factors.
In November 2016, the Company sold two machines loaded with their proprietary software, but provided a guarantee to the customer’s financing company. As a result of the guarantee, a liability was booked against the payment received in the transactions and gains onas well as revenue from the sale of the machine were expected to be recognized ratably over the financing period to coincide with the reduction in the amount guaranteed. The Company’s software was still in the testing phase and $0 and $1,241 related to the sale were recognized as other incomegoods purchased through manufacturers of medical devices. All revenue for the years ended December 31, 20182021 and 2017. In June 2017, the customer defaulted on their financing agreement and the Company became liable for the lease payments. (See Note 5). Total other income for the years ended December 31, 2018 and 2017 related to2020 is from the sale of accessories provided for research and development testing was $7,560 and $30,025, respectively.medical devices purchased from Neurotech, a related party.
Research and Development Costs
The Company expenses all research and development costs as they are incurred. Research and development includes expenditures in connection with in-house research and development salaries and staff costs, application and filing for regulatory approval of proposed products, regulatory and scientific consulting fees, as well as contract research, data collection, and monitoring, related to the research and development of the cloud infrastructure, data imaging, and proprietary products and technology. Research and development costs recognized in the statement of operations for the years ended December 31, 20182021 and 20172020 were $210,206$329,452 and $289,586,$210,706, respectively.
Sales and Marketing
Advertising and marketing costs are expensed as incurred. Advertising and marketing costs recognized in the statement of operations for the years ended December 31, 20182021 and 20172020 were $93,190$1,041,575 and $88,532,$197,372, respectively.
Stock-based Compensation
The Company measures and recognizes compensation expense for all stock-based payments at fair value over the requisite service period. The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options and warrants. Equity-based compensation expense is recorded in administrative expenses based on the classification of the employee or vendor. The determination of fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as by assumptions regarding a number of subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.
F-9
BRAIN SCIENTIFIC INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
Basic and Diluted Net Loss Per Common Share
Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding for the period and, if dilutive, potential common shares outstanding during the period. Potentially dilutive securities consist of the incremental common shares issuable upon exercise of common stock equivalents such as stock options, warrants and convertible debt instruments. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. As a result, the basic and diluted per share amounts for all periods presented are identical. In the years ended December 31, 20182021 and 2017, 402,2502020, 7,156,406 and 234,375,0, respectively, of anti-dilutive securities were excluded from the computation.
Reclassification
Certain prior years balances have been reclassified to conform to current year presentation.
Fair Value of Financial Instruments
The Company'sCompany’s financial instruments are measured and recorded at fair value based on inputs and assumptions that market participants would use in pricing an asset or a liability. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, management considers the principal or most advantageous market in which the Company would transact, and also considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.non-performance.
Fair value is determined for assets and liabilities using a three-tiered value hierarchy into which these assets and liabilities are grouped based upon significant inputs as follows:
| ● | 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 in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. |
| ● | Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. When a determination is made to classify a financial instrument within Level 3, the determination is based upon the lack of significance of the observable parameters to the overall fair value measurement. However, the fair value determination for Level 3 financial instruments may consider some observable market inputs. |
The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy. The carrying values of cash, prepaid expenses and other current assets, convertible notes, accounts payable, loans payable and due to others approximate fair value due to the short-term nature of these items.
The Company did not have any other Level 1, Level 2 or Level 3 assets or liabilities as of December 31, 20182021 and December 31, 2017.2020.
Income Taxes
The Company accounts for income taxes using the asset-and-liability method in accordance with ASC Topic 740, "Income Taxes"“Income Taxes”. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.carry forwards. 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. The effect on the deferred tax assets and liabilities of a change in tax rate is recognized in the period that includes the enactment date. A valuation allowance is recorded if it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized in future periods.
F-10
BRAIN SCIENTIFIC INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
The Company follows the guidance in ASC Topic 740-10 in assessing uncertain tax positions. The standard applies to all tax positions and clarifies the recognition of tax benefits in the financial statements by providing for a two-step approach of recognition and measurement. The first step involves assessing whether the tax position is more-likely-than-not to be sustained upon examination based upon its technical merits. The second step involves measurement of the amount to be recognized. Tax positions that meet the more-likely-than-not threshold are measured at the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate finalization with the taxing authority. The Company recognizes the impact of an uncertain income tax position in the financial statements if it believes that the position is more likely than not to be sustained by the relevant taxing authority. The Company will recognize interest and penalties related to tax positions in income tax expense. As of December 31, 2018,2021, and December 31, 2020, the Company had no unrecognized uncertain income tax positions.
On December 22, 2017, the passage of legislation commonly referred to as the Tax Cuts and Jobs Act (“TCJA”) was enacted and significantly revised the U.S. income tax law. The TCJA includes changes, which reduce the corporate income tax rate from 34% to 21% for years beginning after December 31, 2017. On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued and allows a company to recognize provisional amounts when it does not have the necessary information available, prepared or analyzed, including computations, in reasonable detail to complete its accounting for the change in tax law. SAB 118 provides for a measurement of up to one year from the date of enactment.
Recent Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board (“FASB”) or other standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed, the Company does not believe that the impact of recently issued standards that are not yet effective will have a material impact on the Company's financial position or results of operations upon adoption.
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), as amended, which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the Company expects to receive for those goods or services. The standard will be effective for fiscal years and interim periods within those years beginning after December 15, 2017. The Company adopted this standard on January 1, 2018.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The new standard will be effective for the Company on January 1, 2019. The Company is currently evaluating the method of adoption and the potential impact that this standard may have on its financial position and results of operations.
In June 2018,2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2018-07, Compensation – Stock Compensation (Topic 718). This update2016-13, “Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses at the point a loss is intendedprobable to reduce cost and complexity andoccur, rather than expected to improve financial reportingoccur, which will generally result in earlier recognition of allowances for share-based payments issued to non-employees (for example, service providers, external legal counsel, suppliers, etc.).credit losses. The ASU expands the scope of Topic 718, Compensation—Stock Compensation, which currently only includes share-based payments issued to employees, to also include share-based payments issued to non-employees for goods and services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. This standard will benew guidance is effective for financial statements issued by public companies for the annual and interim periodsfiscal years beginning after December 15, 2018. Early2019, including interim periods within those fiscal years. The Company adopted ASU 2016-13 in the first quarter of 2020 and the adoption of the standard is permitted. The standard will be applied indid not have a retrospective approach for each period presented. Management currently does not plan to early adopt this guidance and is evaluating the potentialmaterial impact of this guidance on the Company’sits consolidated financial statements as well as transition methods.statements.
BRAIN SCIENTIFIC INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 3 – GOING CONCERN
The accompanying financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern for a period of one year from the issuance of these financial statements. For the year ended December 31, 2018,2021, the Company had $58,113$265,747 in revenues, a net loss of $1,426,102$9,100,686 and had net cash used in operations of $1,112,690.$5,794,792. Additionally, as of December 31, 2018,2021, the Company had working capital deficit, stockholders’ deficit and accumulated deficit of $48,876, $53,972$2,874,735, $694,933 and $2,668,212,$22,278,923, respectively. It is management’s opinion that these conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the date of the issuance of these financial statements.
The financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.
Successful completion of the Company’s development program and, ultimately, the attainment of profitable operations are dependent upon future events, including obtaining adequate financing to fulfill its development activities, acceptance of the Company’s patent applications and ultimately achieving a level of sales adequate to support the Company’s cost structure. However, there can be no assurances that the Company will be able to secure additional equity investments or achieve an adequate sales level.
NOTE 4 - CONVERTIBLE NOTES PAYABLE– INVENTORY
During
| | | December 31,
2021 | | | December 31,
2020 | |
Raw materials | | $ | 93,190 | | | $ | 20,608 | |
| Parts | | | 11,857 | | | | 2,349 | |
| Finished goods | | | 41,043 | | | | 21,947 | |
| Total | | $ | 146,090 | | | $ | 44,904 | |
NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
| | | December 31,
2021 | | | December 31,
2020 | |
| Prepaid insurance | | $ | 105,900 | | | $ | - | |
| Other prepaid expenses | | | 46,170 | | | | 7,000 | |
| Lease deposits | | | 14,378 | | | | 5,000 | |
| Other assets | | | 10 | | | | - | |
| Total | | $ | 166,458 | | | $ | 12,000 | |
As of December 31, 2021 and 2020, there was a total amount of $95,000 and $0 of long-term prepaid insurance, respectively.
NOTE 6 – PROPERTY AND EQUIPMENT
Property and equipment, net consists of the following:
| | | December 31,
2021 | | | December 31,
2020 | |
| Computer equipment | | $ | - | | | $ | 4,164 | |
| Machinery and equipment | | | 176,678 | | | | 121,433 | |
| Leasehold improvements | | | 12,283 | | | | 5,000 | |
| | | | 188,961 | | | | 130,597 | |
| | | | | | | | | |
| Less: Accumulated depreciation | | | (65,982 | ) | | | (38,855 | ) |
| Total | | $ | 122,979 | | | $ | 91,742 | |
Depreciation expense was $27,410 and $17,353 for the year ended December 31, 2017,2021 and 2020, respectively.
NOTE 7 – INTANGIBLE ASSETS, NET
Pursuant to the Merger, the Company commencedaccounted for the transaction as a private offering (the “Bridge Financing Transaction”reverse acquisition as prescribed in Accounting Standards Codification 805, Business Combinations (“ASC 805”) and ASC 820 – Fair Value Measurements and Disclosures (“ASC 820”).
The following table summarizes the allocation of up to $1,000,000, which was amended on September 19, 2017 to a maximum offeringpurchase price of the acquisition:
| Tangible Assets Acquired: | | Allocation | |
| Net working capital | | $ | (1,186,622 | ) |
| Right of use asset | | | 40,093 | |
| Lease liability | | | (46,970 | ) |
| Net Tangible Assets Acquired | | $ | (1,193,499 | ) |
| | | | | |
| Intangible Assets Acquired: | | | | |
| Brain Scientific trade name | | $ | 133,000 | |
| MemoryMD trade name | | | 533,000 | |
| Neurocap trade name | | | 188,000 | |
| Neuro EEG trade name | | | 11,000 | |
| Customer relationships | | | (29,000 | ) |
| NeuroCap developed technology | | | 10,242,000 | |
| NeuroEEG developed technology | | | 35,000 | |
| Total Fair Value of Assets Acquired | | $ | 11,113,000 | |
| | | | | |
| Consideration: | | | | |
| Fair value of equity received | | | 7,240,222 | |
| Liabilities assumed | | | 2,978,152 | |
| Loans forgiven | | | 605,311 | |
| Goodwill | | $ | 913,184 | |
The components of the acquired intangible assets were as follows:
| | | Preliminary | | | Average |
| | | Fair
Value | | | Estimated Life |
| Patent products | | | $ 10,277,000 | | | 3.3 - 15.4 |
| Licenses and trademarks | | | 865,000 | | | 9 |
| Customer/distribution list | | | (29,000) | | | 12.5 |
| | | $ | 11,113,000 | | | |
| Accumulated amortization | | | (192,423 | ) | | |
| Total | | | 10,920,577 | | | |
NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable as of December 31, 2021 and 2020 consisted of the following:
| | | December 31,
2021 | | | December 31,
2020 | |
| Trade payables | | $ | 1,101,028 | | | $ | 398,155 | |
| Accrued payroll and related expenses | | | 1,593,925 | | | | 997,410 | |
| Accrued expenses | | | 255,820 | | | | 48,911 | |
| Customer deposits | | | 36,491 | | | | - | |
| Total | | $ | 2,987,264 | | | $ | 1,444,476 | |
NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES – RELATED PARTY
Accounts payable related parties as of December 31, 2021 consists of accrued director’s fees in the amount of $1,100,000 and amended again on April 4, 2018 to $1,500,000, pursuant to which$75,000. There was no balance at December 31, 2020.
NOTE 10 – NOTES PAYABLE
As part of the merger, the Company issued convertibleassumed the following two notes totaling $1,087,500.payable:
February 21, 2020 Note
On February 21, 2020, a third party loaned the Company $20,000, evidenced by a non-convertible promissory note (the “February Note”). The notes all have a maturity date of one year from the date of issuance and accrueFebruary Note bears interest at a fixed rate of 8%12% per annum. Inannum, computed based on a qualified financing, reverse merger, change360-day year of control or an initial public offering (“Conversion Event”),twelve 30-day months, which interest will be payable quarterly until the notes, includingmaturity date. The principal outstanding and any accrued and unpaid interest thereon, will automatically convert at $0.40 per share. Baseddue under the February Note were due on the terms of the conversion, the holders may receive a discount and is considered a contingent beneficial conversion feature. At the closing of the Conversion Event, the Company will recognize an expense related to the intrinsic value.February 22, 2022. The Company recorded $50,389$3,593 of accrued interest and has a total outstanding principal balance of $1,087,500$20,000 as of December 31, 2017.2021. The February note and accrued interest was repaid on February 22, 2022.
In January 2018December 28, 2020 Note
On December 28, 2020, the Company entered into a Securities Purchase Agreement (the “December Purchase Agreement”) dated as of December 28, 2020 (the “December 28 Issuance Date”) and issued and sold to an investor a Promissory Note (the “December 28 Note”) in the aggregate principal amount of $300,000. Pursuant to the December Purchase Agreement, in connection with the issuance of the December 28 Note, the Company issued two common stock purchase warrants (separately, “Warrant A” and “Warrant B”, and together, the “December Warrants”) to the investor, allowing the investor to purchase an aggregate of 500,000 shares of the Company’s common stock, with Warrant A being a commitment fee of 250,000 shares of common stock, and Warrant B being fully earned upon issuance as an additional $97,000 convertible note payable to a third party. The fundingcommitment fee of the note was comprised250,000 shares of the $50,000 loanedcommon stock, provided that Warrant B is returnable to the Company onupon the repayment of the December 28 2017, plusNote, as an additional cash proceedsincentive for the repayment of $47,000 on January 3, 2018.the December 28 Note.
On April 24, 2018,
The net amount received by the Company extended the maturity dates of all convertible notes issued during the year ended December 31, 20172020 was approximately $265,000 after payment of certain fees to the earlierinvestor or on behalf of April 30, 2019 or the consummationinvestor. The December 28 Note bears interest commencing on the December 28 Issuance Date at a fixed rate of a qualified financing or other event pursuant to which12% per annum on any unpaid principal balance, and will be payable, along with the Conversion shares are to be issued.
The Company issued 12 additional convertible notes payable to third parties in the aggregate principal amount, on December 28, 2021. At issuance, the Company recorded debt discount of $962,500 from February through September 2018. The terms$300,000 related to the December 28 Note. Amortization of the convertible note are substantially the samedebt discount is recorded as the notes issuedinterest expense and a total of $73,151 was amortized during the year ended December 31, 2017.2021.
The initial maturity date for the December 28 Note was December 28, 2021. On December 28, 2021, the Company signed an allonge with the investor amending the note. The terms of the amended note provided for two equal payments of $184,800, due on February 28, 2022 and March 31, 2022.
The December 28 Note contains customary events of default which entitle the investor, among other things, to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, the December 28 Note. Upon an event of default, interest shall accrue at a default interest rate of 24% per annum or, if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted by law. The December 28 Note further contains monetary penalties in the event of certain events of default or breaches.
The December Warrants each have an exercise price of $1.20, subject to customary adjustments, and may be exercised at any time until the three-year anniversary of the December Warrants; provided, however, in the event the Company repays the December 28 Note in its entirety on or prior to the maturity date of the December 28 Note, Warrant B shall automatically expire and may only be exercised in the event it does not so automatically expire. The December Warrants include a cashless exercise provision as set forth therein.
Notes payable as of December 31, 2020 amounted to $650,000 and are described in Note 11 below. They were converted into convertible notes payable at the merger on October 1, 2021.
NOTE 11 – CONVERTIBLE NOTES PAYABLE, NET
2020 Notes
In July 2020, Motion made an offering of convertible notes not to exceed approximately $2,400,000. In October and extended in April, June and August 2021, the Board authorized increasing the potential investment to not exceed $5,000,000. These notes are payable by October 13, 2021, interest accruing at 10% per annum. At the completion of a qualifying investment, the Company, at its sole discretion may convert the loans and any accrued interest to common stock with a 120% multiplier on the value of the common stock in the qualifying investment. As of September 21, 201830, 2021 and December 31, 2020, the carrying amount of these notes was $4,119,982 and $650,000, respectively with accrued interest of $208,480 and $26,766, respectively. On October 1, 2021, the outstanding principal balances of alland accrued interest were exchanged for new notes payable as part of the merger.
2021 Notes
In conjunction with the closing of the Merger on October 1, 2021, the Company conducted an initial closing under a private offering (the “Offering”) of 10% convertible promissory notes due and payable on April 1, 2023 (the “2021 Notes”). As part of the Offering, the Company exchanged the 2020 Notes and accrued interest as well as additional notes issued in 2021 with the same terms as the 2020 Notes and their accrued interest amounting to $4,328,407, as well as $1,540,508 of debt assumed in the merger into 2021 Notes. At the merger, the Company also issued a convertible promissory note to an investor in the amount of $2,147,000$2,950,000 with proceeds of $2,850,000 net of an original issuance discount, with the same terms as the 2021 Notes. Each holder of the 2021 Notes, provided that the note is still then outstanding, will be issued, on the earlier of (i) the date, if any, upon which the Company’s common stock is listed for trading on the NASDAQ stock exchange (the “Uplist”), and $128,050(ii) the date that is eighteen months from the date of issuance, a warrant to purchase an amount of shares of the Company’s common stock, equal to such holder’s Warrant Share Amount. For purposes of the foregoing, a holder’s “Warrant Share Amount” means (i) if such Warrant is issued in connection with the Uplist, one half of the initial principal balance of such Holder’s Note at issuance divided by the lesser of (A) $0.40, and (B) and the greater of (x) $0.20 and (y) one hundred twenty percent (120%) of the closing price for the Company’s common stock on the trading day prior to the date of the Uplist, and (ii) if such Warrant is issued otherwise than in connection with the Uplist, the initial principal balance of such Holder’s Note, divided by the lesser of (A) $0.40, and (B) and the greater of (x) $0.20 and (y) one hundred twenty percent (120%) of the volume weighted average price (“VWAP”) for the Company’s common stock over the five consecutive trading days immediately preceding the date that is eighteen months from the date of issuance. The 2021 Notes contain mandatory and voluntary conversion features as detailed in the agreement.
On December 21, 2021, the Company consummated the second closing of the Offering whereby the Company entered into a Securities Purchase Agreement (the “SPA”) with three accredited investors, pursuant to which the investors purchased from the Company, 2021 Notes in the principal amount of $900,000.
As of December 31, 2021, the total amount of 2021 Notes principal outstanding was $9,718,915.
Assumed convertible debt
As part of the merger, the Company assumed $891,133 of outstanding convertible debt. During the fourth quarter of 2021, the Company paid off $574,133, and signed an amendment increasing the debt by $20,000, resulting in an outstanding balance of the assumed convertible debt as of December 31, 2021 of $337,000.
2019 Note
On December 31, 2019, the Company entered into a Securities Purchase Agreement and issued and sold to a third party a Convertible Note in the original principal amount of $275,000 (the “Note”), and a warrant to purchase 100,000 shares of the Company’s common stock (the “Warrant”). A one-time interest charge of 8% was applied on December 31, 2019 and will be payable, along with the Principal, on the maturity date.
On December 30, 2021, the Company signed an allonge amending the Note extending the maturity date to April 30, 2022 and amending the outstanding balance and payment schedule to provide for two equal payments of $60,000 on March 31, 2022 and April 30, 2022. The outstanding principal balance as of December 31, 2021 was $87,000.
The unpaid outstanding principal amount and accrued and unpaid interest under the Note shall be convertible into shares of the Company’s common stock at any time at the option of the investor. The conversion price was set at the merger to $0.28 which is equal to 80% multiplied by the price per share used in the merger calculations.
The Note contains a price-based anti-dilution provision, pursuant to which the conversion price of the Note shall be reduced upon the occurrence of certain dilutive issuances of Company securities as set forth in the Note. The conversion of the Note is also subject to a beneficial ownership limitation of 4.99% of the number of shares of common stock outstanding immediately after giving effect to such conversion. In the event the Company, prior to the maturity date of the Note, issues any Security (as defined in the Note) with any term more favorable to the holder of such Security or with a term in favor of the holder of such Security that was not similarly provided to the Investor, then at the Investor’s option such term shall become a part of the Note. The Company also agreed to provide piggy-back registration rights to the investor pursuant to which the Company shall include all shares issuable upon conversion of the Note on the next registration statement the Company files with the Securities and Exchange Commission.
The Note contains events of default which, among other things, entitle the Investor to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, the Note. Upon the occurrence of any event of default, the outstanding balance shall immediately and automatically increase to 130% of the outstanding balance immediately prior to the event of default, and the conversion price of the Note shall be redefined to equal 65% of the lowest trade accruing during the 10 consecutive Trading Days (as defined in the Note) immediately preceding the applicable Conversion Date (as defined in the Note). Nickolay Kukekov, a director of the Company, and a third party, each has personally guaranteed the repayment of the Note.
The Warrant has an exercise price of $1.25 per share (the “Exercise Price”), subject to adjustments as provided in the Warrant, and has a term of five years. The Warrant contains a price-based anti-dilution provision, pursuant to which the exercise price of the Warrant shall be reduced upon the occurrence of certain dilutive issuances of securities as set forth in the Warrant, with a corresponding increase in the number of shares underlying the Warrant if the dilutive event occurs during the first three years of the Warrant, and a cashless exercise provision. The exercise of the Warrant is subject to a beneficial ownership limitation of 9.99% of the number of shares of common stock outstanding immediately after giving effect to such exercise.
Convertible Grid Notes
On April 21, 2020, the Company issued a Convertible Grid Promissory Note (the “Caleca Note”) to Thomas J. Caleca (“Caleca”), an existing stockholder of the Company, pursuant to which Caleca agreed to advance to the Company the aggregate principal amount of $125,000 (the “Caleca Aggregate Advance”). The Company also issued to Caleca a common stock purchase warrant (the “Caleca Warrant”), granting Caleca the right to purchase up to 750,000 shares of the Company’s common stock at a per share exercise price of $0.80 (subject to adjustment as set forth in the Caleca Warrant).
Also on April 21, 2020, the Company issued a Convertible Grid Promissory Note (the “Brown Note”, and together with the Caleca Note, the “Grid Notes”) to Andrew Brown (“Brown”, and together with Caleca, the “Grid Investors”), an existing stockholder of the Company, pursuant to which Brown agreed to advance to the Company the aggregate principal amount of $125,000 (the “Brown Aggregate Advance”, and together with the Caleca Aggregate Advance, the “Aggregate Advance”). The Company also issued to Brown a common stock purchase warrant (the “Brown Warrant”, and together with the Caleca Warrant, the “Grid Warrants”), granting Brown the right to purchase up to 750,000 shares of the Company’s common stock at a per share exercise price of $0.80 (subject to adjustment as set forth in the Brown Warrant). The Grid Warrants are exercisable at any time commencing on the eighteen-month anniversary of the issuance of the Grid Warrants (as may be accelerated pursuant to the terms of the Grid Warrants) and expiring on the five-year anniversary of the issuance of the Grid Warrants.
The Grid Notes bear interest on the unpaid balances at a fixed simple rate of twelve percent (12%) per annum (subject to a rate increase if the Company commits an Event of Default (as defined in the Grid Notes)), computed based on a 360-day year of twelve 30-day months, commencing on the date of the respective advance and payable quarterly. The principal amount of the Aggregate Advance, or so much thereof as has been advanced to the Company by the Grid Investors from time to time pursuant to the Grid Notes, will be payable on April 21, 2021, unless sooner converted into shares of the Company’s common stock (see Note 8).
pursuant to the terms of the Grid Notes. The Company recorded $28,032 of accrued interest and has a total debt discountoutstanding principal balance of $122,615$250,000 as of December 31, 2021.
The unpaid outstanding principal amount and accrued and unpaid interest under the Grid Notes shall be convertible at any time prior to the maturity date of the Grid Notes at the election of the Grid Investors into such number of shares of the Company’s common stock obtained by dividing the amount so converted by $1.00 (the “Conversion Price”). At the maturity date of the Grid Notes, all of the remaining unpaid outstanding principal amount and accrued and unpaid interest (the “Outstanding Balance”) under the Grid Notes shall automatically convert into such number of shares of the Company’s common stock obtained by dividing the Outstanding Balance by the Conversion Price. The Grid Notes may not be prepaid by the Company in whole or in part without the prior written consent of the respective Grid Investor.
The Grid Notes contain customary events of default, which, if uncured, entitle the Grid Investors to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, their Grid Notes.
NOTE 12 – LOANS PAYABLE - RELATED PARTY
As part of the merger, the Company assumed $155,989 of related party loans from entities related to the former executives and directors the Company. These loans do not bear interest and had an initial maturity date of December 31, 2021. On March 9, 2022, the loans were amended to adjust the interest rate to 9% per annum, and to extend the maturity dates to provide for payments of $53,000 with accrued interest on March 31, 2022 and June 1, 2022, and a payment of $49,000 plus accrued interest on August 1, 2022.
NOTE 13 – LEASES
The Company has two leases that are accounted for under ASC 842.
The Company entered into a lease agreement for office space located in Sarasota, Florida. The term of the lease is for a period of two years commencing on February 1, 2021 and ending on February 1, 2023. The rent is $6,530 per month for year 1, $6,726 per month for year 2 and $6,928 per month for year 3. The Company will account for the lease under ASC 842 whereby the operating lease right-of-use assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date.
The Company has a lease agreement with terms up to 2 years for the lease of office space. The assets and liabilities from operating leases are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.
The Company’s operating lease does not provide an implicit rate that can readily be determined. Therefore, we use a discount rate based on our incremental borrowing rate used at the date closest to lease inception.
The Company’s weighted-average remaining lease term relating to its operating leases is 1.9 years, with a weighted-average discount rate of 10.32%.
The Company incurred lease expense for its operating leases of $83,469 and $0 which was included in “General and administrative expenses,” for the year ended December 31, 2021 and 2020, respectively.
The following table presents information about the amount and timing of liabilities arising from the Company’s operating lease as of December 31, 2021:
| Maturity of operating lease liabilities for the following fiscal years: | | | |
| 2022 | | $ | 118,452 | |
| 2023 | | | 88,325 | |
| 2024 | | | 7,379 | |
| Total undiscounted finance lease payments | | | 214,156 | |
| Less: Imputed interest | | | 18,475 | |
| Present value of finance lease liabilities | | $ | 195,681 | |
At December 31, 2021, the operating lease right of use assets was $69,632. Supplemental balance sheet information related to the lease as of December 31, 2021 was:
| Operating lease right-of-use asset | | $ | 191,702 | |
| | | | | |
| Lease liability, current portion | | | 104,592 | |
| Lease liability, long-term | | | 91,089 | |
| Total operating lease liability | | $ | 195,681 | |
NOTE 14 – STOCKHOLDERS’ DEFICIT
Preferred Stock
The Company has authorized 10,000,000 shares of undesignated preferred stock with a $0.001 par value. As of December 31, 2021, no preferred shares have been issued and these shares are considered blank check preferred shares with no terms, limitations, or rights associated with them.
Common Stock
The Company has authorized 200,000,000 shares of common stock with a $0.001 par value per share. The holders of common stock are entitled to one vote for each share of common stock held at the time of vote. As of December 31, 2021, the Company has deemed 50,217,308 shares outstanding or deemed outstanding.
Shares Issued for Services
On October 15, 2020, the Company granted to a non-executive officer of the Company 292,174 restricted shares under the Company’s 2018 Equity Incentive Plan. The shares were valued as of the date of the grant at a fair value of $1.67 per share or $487,931, which will be amortized over the vesting period. As a result of the merger and contractual terms of the restricted share agreement, all the above convertible notes. Amortizationremaining unvested shares vested and the Company recorded $280,369 in stock-based compensation. The Company issued 10,845 shares of common stock and withheld 184,298 shares in respect of tax withholdings.
The following table summarized the debt discount, which is recorded as interest expense, was $77,889 and $44,726warrant activity for the years ended December 31, 20182021 and 2017, respectively. The discount related to the convertible notes was fully amortized on2020:
| | | | | | | | | Weighted | | | | |
| | | | | | Weighted | | | Average | | | | |
| | | | | | Average | | | Remaining | | | Aggregate | |
| | | Number of | | | Exercise | | | Contractual | | | Intrinsic | |
| Warrants | | Shares | | | Price | | | Term | | | Value | |
| Balance Outstanding, December 31, 2019 | | | 502,250 | | | $ | 0.57 | | | | 3.98 | | | $ | 201,125 | |
| Granted | | | 3,530,882 | | | | 1.02 | | | | 3.90 | | | | 150,000 | |
| Forfeited | | | - | | | | - | | | | - | | | | - | |
| Exercised | | | - | | | | - | | | | - | | | | - | |
| Expired | | | - | | | | - | | | | - | | | | - | |
| Balance Outstanding, December 31, 2020 | | | 4,033,132 | | | $ | 0.97 | | | | 3.39 | | | $ | 351,125 | |
| Granted | | | 5,978,000 | | | | 0.19 | | | | 9.52 | | | | 304,799 | |
| Forfeited | | | - | | | | - | | | | - | | | | - | |
| Exercised | | | - | | | | - | | | | - | | | | - | |
| Expired | | | (752,942 | ) | | | 1.2 | | | | 1.73 | | | | - | |
| Balance Outstanding, December 31, 2021 | | | 9,258,191 | | | $ | 0.45 | | | | 6.85 | | | $ | 304,799 | |
| | | | | | | | | | | | | | | | | |
| Exercisable, December 31, 2021 | | | 9,258,191 | | | $ | 0.32 | | | | 6.85 | | | $ | 304,799 | |
Equity Incentive Plan
As of September 21, 2018, in relationthe Company’s board of directors adopted, and stockholders approved the 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan has a 10-year term, which terminates on the day prior to the conversion10th anniversary of its adoption by the Board. Under the 2018 Plan, the Company may grant equity-based incentive awards, including options, restricted stock, and other stock-based awards, to any directors, employees, advisers, and consultants that provide services to the Company. The vesting period, term and exercise price will be determined at the time of the convertible notesgrant. An aggregate of up to shares3,500,000 of the Company’s common stock.
NOTE 5 – OTHER LIABILITIES
In 2016,stock are reserved for issuance under the Company recorded a liability in connection with the sale of two EEG machines as it provided a guarantee to the customer’s financing company (See Note 2). In June 2017, the customer defaulted on its payments and an additional $19,107 was booked as a liability and recognized as a loss on the sale of the assets for interest and some taxes related to the transaction.2018 Plan. As of December 31, 2020, the Company has granted and has 1,800,000 options outstanding, as well as 333,972 shares of restricted common stock issued under the 2018 and December 31, 2017, total liabilityPlan. On July 15, 2021 the Company’s board of directors increased the number of shares of common stock authorized for grant from 3,500,000 to the financing company reflected in Other Liabilities is $12,549 and $17,582, respectively.8,000,000.
F-12
BRAIN SCIENTIFIC INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
Future minimum commitments relatedOn January 30, 2020, the Board of Directors approved the issuance of options to purchase an aggregate of 800,000 shares of common stock to Boris Goldstein. The options have an exercise price of $0.75 per share which will vest ratably on a quarterly basis over a two-year period. The options will expire on January 30, 2029. The aggregate fair value of $51,757 was calculated using the EEG liability consisted ofBlack-Scholes pricing model with the following at December 31, 2018:
Years ended December 31, | | Amount (USD) | |
2019 | | | 5,454 | |
2020 | | | 7,095 | |
Total | | $ | 12,549 | |
On December 28, 2017,assumptions: (i) expected life 10 years, (ii) volatility of 76%, (iii) risk free rate of 1.57% (iv) dividend rate of zero, (v) stock price of $0.12, and (vi) exercise price of $0.75. The expense will be amortized over the Company borrowed $50,000 fromvesting period and a third party (the “Lender”). The loantotal of $23,790 was non-interest bearing and had no maturity date. As of December 31, 2017, the Company had an outstanding balance of $50,000. In January 2018, the Company issued a $97,000 convertible note payable to the Lender, which was funded by the $50,000 borrowed on December 28, 2017 plus additional proceeds of $47,000 (See Note 4).
NOTE 6 – RELATED PARTY TRANSACTIONS
During the year ended December 31, 2017, an entity controlled by Vadim Sakharov, the Company’s then CEO and current President and CTO, provided a non-interest-bearing, no-term loan to the Company. The Company repaid that loan in fullrecorded during the year ended December 31, 2018. During2020.
On October 1, 2021, the Board of Directors approved the issuance of options to purchase an aggregate of 4,504,214 shares of common stock to an executive and a director. The options have an exercise price of $0.35 per share and vested immediately upon issuance. The options will expire on October 1, 2031. The aggregate fair value of $1,270,188 was calculated using the Black-Scholes pricing model with the following assumptions: (i) expected life 5years, (ii) volatility of 115%, (iii) risk free rate of 0.93% (iv) dividend rate of zero, (v) stock price of $0.35, and (vi) exercise price of $0.35. The expense of 1,270,188 was recorded in full upon issuance.
On October 21, 2021, the Board of Directors approved the issuance of options to purchase an aggregate of 1,218,248 shares of common stock to the CEO. The options have an exercise price of $0.39 per share with vesting terms of 304,562 vesting on April 21, 2022 and the remainder monthly ratably through October 21, 2023. The options will expire on October 21, 2031. The aggregate fair value of $372,384 was calculated using the Black-Scholes pricing model with the following assumptions: (i) expected life of 4.65 years, (ii) volatility of 113.90%, (iii) risk free rate of 1.22% (iv) dividend rate of zero, (v) stock price of $0.39, and (vi) exercise price of $0.39. These options were amended on December 10, 2021 and December 30, 2021 adjusting the exercise price to $0.21 and the vesting schedule to vest equally at the end of each quarter in 2022. The expense will be amortized over the amended vesting period and a total of $36,667 was recorded during the year ended December 31, 2018,2021.
On December 10, 2021, the Board of Directors approved the issuance of options to purchase an entity controlled by Mr. Sakharov provided a $50,000 non-interest-bearing, no-term loanaggregate of 2,718,247 shares of common stock to the certain employees of the Company. The options have an exercise price of $0.21 per share with vesting terms of one quarter vesting on June 10, 2022 and the remainder monthly ratably through December 10, 2023. The options will expire on December 11, 2031. The aggregate fair value of $472,975 was calculated using the Black-Scholes pricing model with the following assumptions: (i) expected life of 5 years, (ii) volatility of 116.90%, (iii) risk free rate of 1.26% (iv) dividend rate of zero, (v) stock price of $0.21, and (vi) exercise price of $0.21. These options were amended on December 30, 2021 adjusting the vesting schedule to vest equally at the end of each quarter in 2022. As the share price had increased on the amendment date, the amendment resulted in an increase to the aggregate fair value of $111,166. The increased fair value along with the unamortized portion of the original fair value will be amortized over the amended vesting schedule. A total of $26,574 was recorded during the year ended December 31, 2021.
On November 15, 2021, the Board of Directors approved the issuance of options to purchase an aggregate of 1,448,276 shares of common stock to the directors of the Company. The options have an exercise price of $0.29 per share and vest per days in service as members of the board of directors during the quarter, at the end of the quarter with the final quarterly vesting quarter end of December 31, 2018,2022. The options will expire on December 11, 2031. The aggregate fair value of $341,793 was calculated using the Black-Scholes pricing model with the following assumptions: (i) expected life of 5.04 years, (ii) volatility of 115.8%, (iii) risk free rate of 1.25% (iv) dividend rate of zero, (v) stock price of $0.29, and (vi) exercise price of $0.29. The expense will be amortized over the vesting period and a total of $28,254 was recorded during the year ended December 31, 2017, the balance to related parties was $50,000 and $34,252, respectively.2021.
On May 9, 2017,The following table summarized the Company entered into a sublease agreement with Nano Graphene Inc., a company controlled by the Company’s chairman and his affiliates. Inoption activity for the years ended December 31, 20182021 and 2017 Nano Graphene paid rent of $10,626 and $15,939, respectively, for warehouse space the Company rents from a third party. The Company has recorded the payments as other income.2020:
On September 1, 2018, the Company entered into a sublease agreement with a company controlled by the Company’s Chairman, whereby the Company makes payments to the related party for shared office space. For the year ended December 31, 2018, the Company has made $6,202 in rent payments to the related party.
During the years ended December 31, 2018 and 2017, the Company had expenses related to research and development costs of $59,788 and $62,700, respectively, to an entity controlled by Mr. Sakharov.
During the years ended December 31, 2018 and 2017, the Company had expenses related to marketing and sales costs of $15,000 and $38,347, respectively, to entities controlled by the Company’s Chairman.
During the years ended December 31, 2018 and 2017, the Company had expenses related to consulting fees of $83,377 and $0, respectively, to Mr. Sakharov.
NOTE 7 - INCOME TAXES
The Company files corporate income tax returns in the United States (federal) and New York. The Company is subject to federal, state and local income tax examinations by tax authorities through inception.
As of December 31, 2018 and 2017, the Company had federal and state net operating loss carry forwards of $2,655,000 and $1,234,000, respectively that may be offset against future taxable income which will begin to expire in 2035 through 2038.
| | | For the Years Ended December 31, | |
| | | 2018 | | | 2017 | |
Net operating loss carry forwards | | $ | 746,028 | | | $ | 326,330 | |
Depreciation | | | (41 | ) | | | - | |
Valuation allowance | | | (745,987 | ) | | | (326,330 | ) |
Net Deferred Tax Asset | | $ | - | | | $ | - | |
| | | | | | | | | Weighted | | | | |
| | | | | | Weighted | | | Average | | | | |
| | | | | | Average | | | Remaining | | | Aggregate | |
| | | Number of | | | Exercise | | | Contractual | | | Intrinsic | |
| Options | | Shares | | | Price | | | Term | | | Value | |
| Balance Outstanding, December 31, 2019 | | | 1,000,000 | | | $ | 0.75 | | | | 9.05 | | | $ | 150,000 | |
| Granted | | | 800,00 | | | $ | 0.75 | | | | 10.00 | | | | 120,000 | |
| Forfeited | | | - | | | | - | | | | - | | | | - | |
| Exercised | | | - | | | | - | | | | - | | | | - | |
| Expired | | | - | | | | - | | | | - | | | | - | |
| Balance Outstanding, December 31, 2020 | | | 1,800,000 | | | $ | 0.75 | | | | 8.51 | | | $ | 270,000 | |
| Granted | | | 10,030,764 | | | | 0.30 | | | | 9.82 | | | | 196,825 | |
| Forfeited | | | (77,342 | ) | | | 1.50 | | | | 9.12 | | | | | |
| Exercised | | | | | | | | | | | | | | | | |
| Expired | | | | | | | | | | | | | | | | |
| Balance Outstanding, December 31, 2021 | | | 11,753,422 | | | $ | 0.36 | | | | 9.47 | | | $ | 196,825 | |
| | | | | | | | | | | | | | | | | |
| Exercisable, December 31, 2021 | | | 6,537,184 | | | $ | 0.22 | | | | 9.14 | | | $ | - | |
F-13
BRAIN SCIENTIFIC INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
In assessingFor future periods, the realization of deferred tax assets, management considers whether it is more likely than not that some portion or allremaining value of the deferred tax assetsstock options totaling approximately $1,266,050 will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Deferred tax assets consist primarily of the tax effect of NOL carry-forwards. The Company has provided a full valuation allowance on the deferred tax assets because of the uncertainty regarding its realizability.
Reconciliation of the statutory federal income tax to the Company's effective tax:
| | | For the Years Ended | |
| | | December 31, | |
| | | 2018 | | | 2017 | |
| | | % | | | % | |
Statutory federal tax rate | | | 21.00 | % | | | 21.00 | % |
State taxes, net of federal benefit | | | 8.40 | % | | | 5.61 | % |
Valuation allowance | | | -29.40 | % | | | -26.61 | % |
| | | | | | | | | |
Provision for income taxes | | | 0.00 | % | | | 0.00 | % |
The Company’s policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes inamortized into the statement of operations. As of December 31, 2018 and 2017operations consistent with the Company had no unrecognized tax benefits. There were no changes in the Company’s unrecognized tax benefits during the years ended December 31, 2018 and 2017. The Company did not recognize any interest or penalties during fiscal 2018 or 2017 related to unrecognized tax benefits.
All tax years remain open to examinationperiod for federal income tax purposes and by other major taxing jurisdictions to which the Company is subject.services will be rendered.
NOTE 15 – RELATED PARTY TRANSACTIONS
NOTE 8 – STOCKHOLDERS’ DEFICIT
Preferred Stock
The Company rents office space from a company in which Hassan Kotob, CEO, has authorized 10,000,000 sharesan ownership. For the year ended December 31, 2021, the Company incurred rental expense of undesignated preferred stock with$39,600 in respect of this office. In addition, the Company during 2021 the Company expensed an amount of $29,700 of rental expense on behalf of 2020. As a $0.001 par value. result, the total amount of rent expense paid to a related party was $69,300 in 2021.
As of December 31, 2018,2021, the Company had loans payable from related parties amounting to $155,989. The loans bear no preferred shares have been issuedinterest and these shares are considered blank check preferred shares with no terms, limitations, or rights associated with them.
Common Stock
The Company has authorized 200,000,000 shares of common stock with a $0.001 par value per share. The holders of common stock are entitled to one vote for each share of common stock held at the time of vote. As ofdue on December 31, 2018,2021. These loans were amended after the Company has deemed 19,205,624 shares outstanding or deemed outstanding.
Shares Issued for Services
On May 5, 2018, the Company entered into an agreement with a third-party consultant to provide services to the Company over an indefinite period until either party provides written notice of termination with thirty days notice. As compensation for such services, the Company has agreed to pay the consultant $75 an hour in cash and $75 an hour in shares of common stock with a monthly cap of $6,500 in cash and $6,500 a month in shares of common stock. The Company has additionally agreed to pay the consultant 1.5% of the gross revenue during the term of the agreement and six months after. On September 17, 2018, the agreement was amended related to services performed from July 1, 2018 through August 31, 2018. The Company has agreed to pay 10,134 shares of common stock for services performed during such time. The shares were valued at $0.05 per share or $734. No shares were earned prior to July 1, 2018. Commencing September 1, 2018, the May 5, 2018 consulting agreement shall be in accordance with the terms stated above and from September through December 31, 2018, the Company issued an additional 13,000 shares to the consultant at an average fair market value of $0.04 per share or $562.balance sheet date (see Note 19).
F-14
BRAIN SCIENTIFIC INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
For services rendered from July 2018 through September 2018, the Company agreed to issue 70,000 shares of common stock to a consultant pursuant to an agreement dated October 10, 2018. The Company valued the shares at $0.04 per share based on fair market value or $3,290. No further compensation is due to this consultant.
On August 8, 2018,November 12, 2021, the Company entered into a one-year agreementRepresentation Agreement with an advisorLOK Corporation International Inc. (“LOK”), a corporation in which Daniel Cloutier, a director, serves as the chief executive officer. Under the Representation Agreement, LOK acts as the worldwide sales manager for consulting services. Pursuantour NeuroCap, NeuroEEG and their accessories. LOK is responsible for the evaluation of regional distribution, development, recruitment and training of the distribution network and provide in-country customer support. Fees for the services are 10% of sales occurring through the distribution channels. The contract term is for three years. To date, we have paid LOK approximately $4,750 for training platform development but no other service fees and no commissions.
NOTE 16 – INCOME TAXES
The Company files corporate income tax returns in the United States (federal) and New York. The Company is subject to the agreement, as amended,federal, state and local income tax examinations by tax authorities through inception.
As of December 31, 2021 and 2020, the Company hashad federal and state net operating loss carry forwards of $16,883,400 and $12,254,418, respectively that may be offset against future taxable income. Of the righttotal amount of available losses 5,239,877 can be used to pay $5,000 or issue the advisoroffset 100% of future income and will begin to expire in 2031 through 2037. The remaining losses have an infinite carry forward but can only reduce future taxable income a maximum of 6,667 shares80% annually. Due to various business combination and transactions some or all the net operating losses maybe limited by operation of common stockInternal Revenue Code Section 382.
The tax effects of temporary differences which give rise to deferred tax assets (liabilities) are summarized as follows:
| | | For the Years Ended December 31, | |
| | | 2021 | | | 2020 | |
| Net operating loss carry forwards | | $ | 4,181,841 | | | $ | 2,252,985 | |
| Share-based compensation | | | 806,997 | | | | 90,110 | |
| Accrued expenses | | | 301,422 | | | | 19,009 | |
| Intangible assets | | | 100,736 | | | | 107,187 | |
| Fixed assets | | | (29,877 | ) | | | (23,039 | ) |
| Valuation allowance | | | (5,361,119 | ) | | | (2,446,252 | ) |
| Net Deferred Tax Asset | | $ | - | | | $ | - | |
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Deferred tax assets consist primarily of the tax effect of NOL carry-forwards. The Company has provided a full valuation allowance on a quarterly basis, beginning the quarterdeferred tax assets because of the uncertainty regarding its realizability.
Reconciliation of the statutory federal income tax to the Company's effective tax:
| | | For the Years Ended | |
| | | December 31, | |
| | | 2021 | | | 2020 | |
| | | | | | | |
| Statutory federal tax rate | | | 21.0 | % | | | 21.0 | % |
| State tax expense | | | 4.7 | % | | | 4.3 | % |
| Acquired deferred tax assets | | | 7.8 | % | | | - | % |
| PPP loan forgiveness | | | 0.3 | % | | | - | % |
| Change in tax rate | | | (0.9 | )% | | | - | % |
| Amortization | | | (0.4 | )% | | | - | % |
| Other permanent items | | | (0.3 | )% | | | (0.1 | )% |
| Valuation allowance | | | (32.2 | )% | | | (25.2 | )% |
| Provision for income taxes | | | - | % | | | - | % |
The Company’s policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the statement of operations. As of December 31, 2021 and 2020 the Company had no unrecognized tax benefits. There were no changes in the Company’s unrecognized tax benefits during the years ended December 31, 2018.2021 and 2020. The Company electeddid not recognize any interest or penalties during fiscal 2021 or 2020 related to issue 6,667 sharesunrecognized tax benefits.
All tax years remain open to examination for federal income tax purposes and by other major taxing jurisdictions to which the services provided inCompany is subject.
NOTE 17 – CONCENTRATIONS
In the quarter endedyears ending December 31, 2018 at a value of $0.04 per share or $280.
On August 28, 2018,2021, respectively, the Company entered intopurchased 100.0% of its medical devices for resale and distribution from Neurotech, a one-year agreement with an advisor for consulting services. Pursuant to the agreement, as amended,company that Vadim Sakharov, a former director and executive officer of the Company, has the right to pay $5,000 or issue the advisoris a maximum of 6,667 shares of common stock on a quarterly basis, beginning the quarter ended December 31, 2018. The Company elected to issue 6,667 shares for the services provided in the quarter ended December 31, 2018 at a value of $0.04 per share or $280.
Shares issued for conversion of convertible debt
During the year ended December 31, 2018, the Company issued 5,687,630 shares of its common stock at a conversion price of $0.40 as a result of the conversion of principalshareholder and interest in the aggregate amount of $2,275,050 underlying the outstanding convertible notes converted during the period.
Warrants
During the year ended December 31, 2018, cash consideration of $45,380 was paid and 167,875 warrants were issued to a third party on September 20, 2018 for services rendered in connection with the issuance of the convertible notes related to the Bridge Financing Transaction. During the year ended December 31, 2017 a total of 234,375 warrants were issued. The warrants are immediately exercisable upon issuance at a per share price of $0.40 and expire on September 20, 2023. The Company calculated the fair value of the warrants and recorded a total debt discount in the amount of $4,735 which was amortized through September 21, 2018, the date of the reverse merger. The fair value was calculated using the Black-Scholes pricing model with the following assumptions: (i) expected life 5 years, (ii) volatility of 78% - 86%, (iii) risk free rate of 2.27% - 2.90%, (iv) dividend rate of zero, (v) stock price of $0.05, and (vi) exercise price of $0.40.
The following table summarized the warrant activity for the year ended December 31, 2018:
| | | | | | | | | | | Weighted | | | | | |
| | | | | | | Weighted | | | Average | | | | | |
| | | | | | | Average | | | Remaining | | | Aggregate | |
| | | Number of | | | Exercise | | | Contractual | | | Intrinsic | |
Warrants | | Shares | | | Price | | | Term | | | Value | |
Balance Outstanding, December 31, 2017 | | | 234,375 | | | $ | 0.40 | | | | 5.00 | | | $ | - | |
Granted | | | 167,875 | | | $ | 0.40 | | | | 5.00 | | | | - | |
Forfeited | | | - | | | | - | | | | - | | | | - | |
Exercised | | | - | | | | - | | | | - | | | | - | |
Expired | | | - | | | | - | | | | - | | | | - | |
Balance Outstanding, December 31, 2018 | | | 402,250 | | | $ | 0.40 | | | | 4.72 | | | $ | - | |
| | | | | | | | | | | | | | | | | |
Exercisable, December 31, 2018 | | | 402,250 | | | $ | 0.40 | | | | 4.72 | | | $ | - | |
executive manager.
BRAIN SCIENTIFIC INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 918 – COMMITMENTS AND CONTINGENCIES
Financial Advisory Agreement
On February 1, 2017,18, 2022, the Company entered into a one-yearsigned an outsourced manufacturing agreement with Bioana, S.A.P.I. DE C.V. The agreement is for three years, ending December 31, 2024 for a third party to act asminimum order quantity of 10,000 NeuroCaps per annum. Unit cost for the Company’s exclusive financial advisor (the “Financial Advisor”). In considerationNeuroCap is fixed for services, the Companyfirst year ending December 31, 2022. The manufacturing agreement will pay a cash fee equal to 8%renew annually unless terminated in writing by one of the total amount of capital received by the Company from institutions and 10% of the total amount of capital received by the Company from retail. With the exception of the Bridge Private Placement Transaction (see Note 3), the Company will also pay a cash amount, representing a non-accountable expense allowance payable immediately upon closing of a financing equal to 3% of the aggregate gross proceeds raised in the transactions from retail. In addition to the cash consideration, the Company will also issue warrants to purchase common stock to the Financial Advisor in an amount equal to 10% of the number of shares of common stock purchased by the investors and that the investors obtain a right to acquire through purchase, conversion or exercise of convertible securities issued by the Company. Those warrants will be immediately exercisable at the price per share at which the investor can acquire the common stock. On February 5, 2018, the agreement was amended to extend the exclusivity period another 12 months through February 1, 2019, all other terms and conditions of the agreement remained the same.parties.
Operating Leases
The Company conducts its operations from one office located in New York, NY. Beginning June 1, 2017, the Company entered into a one-year lease agreement at $1,320 per month. The Company then extended the lease of the same office for six months from September 1, 2018 through February 28, 2019 at $1,598 per month.
Beginning September 1, 2018, the Company entered into a one-year lease agreement with a related party (see Note 6). The Company is paying the related party one half of the $3,000 monthly rent or $1,500 per month, plus expenses.
Additionally, the Company also rents a warehouse. Beginning May 15, 2017, the Company entered into a one-year lease agreement for $5,313 per month. Beginning December 1, 2018, the Company entered into a 6-month warehouse rental agreement for $2,980 per month.
Total rent expense for the years ended December 31, 2018 and 2017 was $58,301 and $73,840, respectively.
Equity Incentive Plan
As of September 21, 2018, the Company’s board of directors adopted, and stockholders approved the 2018 Equity Incentive Plan. The plan has a 10-year term, which terminates on the day prior to the 10th anniversary of its adoption by the Board. Under the 2018 Equity Incentive Plan, the Company may grant equity-based incentive awards, including options, restricted stock, and other stock-based awards, to any directors, employees, advisers, and consultants that provide services to the Company. The vesting period, term and exercise price will be determined at the time of the grant. An aggregate of up to 3,500,000 of the Company’s common stock are reserved for issuance under the 2018 Plan. No grants under the 2018 Plan are outstanding as of December 31, 2018.
NOTE 1019 – SUBSEQUENT EVENTS
In accordance with ASC 855 “Subsequent Events,” Company management reviewed all material events through the date this report was issued and the following subsequent events took place.
On February 18, 2022, the Company signed an outsourced manufacturing agreement with Bioana, S.A.P.I. DE C.V. The agreement is for three years, ending December 31, 2024 for a minimum order quantity of 10,000 NeuroCaps per annum. Unit cost for the NeuroCap is fixed for the first year ending December 31, 2022. The manufacturing agreement will renew annually unless terminated in writing by one of the parties.
IssuanceThe Company received $1,050,000 of Options
On January 14, 2019,new monies through our private placement offering for convertible debt. The monies were received on February 10, 2022, February 28, 2022 and March 29, 2022 in the Boardamounts of Directors approved the issuance of options to purchase an aggregate of 800,000$300,000, $350,000, and 200,000 share of common stock to Boris Goldstein and Vadim Sakharov,$500,000, respectively. The options have an exercise price of $0.75 per share which will vest over a 24-month period as follows: 25% (or 200,000 and 50,000, respectively) shall vest six months after the grant date with the remaining options will vestdebt is due on a monthly basis at aApril 1, 2023. The interest rate of 1/24th per month. The options will expire on January 14, 2029.
BRAIN SCIENTIFIC INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
Appointment of new Chief Executive Officer and Issuance of Options
On January 25, 2019, the Company appointed Jesse W. Crowne as the Company’s new Chief Executive Officer. In connection with this appointment, the Company and Mr. Crowne entered into an employment agreement effective as of January 25, 2019. As part of his compensation, Mr. Crowne received options to purchase 800,000 shares of the Company’s common stock at an exercise price of $0.75 per share of which, 200,000 vest on the one year anniversary of the date of grand ant the remaining 600,000 shares vest ratably on a quarterly basis over the following two years. The options will expire January 25, 2029. Under certain circumstances, the Company would be obligated to grant options to purchase an additional 200,000 shares at substantially similar terms.
Issuance of Convertible Debt under New Debt Offering
In January 2019, the Company commenced an offering of up to $500,000 pursuant to which the Company will issue convertible notes to investors. On January 18, 2019 and February 5, 2019, the Company issued two such convertible notes payable to two investors for $130,000 and $100,000, respectively. The notes bear interest at a fixed rate ofis 10% per annum, computed based on a 360-day year and mature on the earlier of one year from the date of issuance or the consummation of an equity or equity-linked round of financing of the Company in excess of $1,000,0000 (“Qualified Financing”) or other event pursuant to which conversion shares are to be issued pursuant to the terms of the note.
Theannum. These notes are convertible into equity of the Company following events on the following terms: with no action on the part of the note holder upon the consummation of a qualified financing, the debt will be converted to new round stock based on the product of the outstanding principal and accrued interest multiplied by 1.35 , then divided by the accrual per share price of the new round stock. If a change of control occurs or if the Company completes a firmly underwritten public offering of its common stock prior to the qualified financing the notes would, at the election of the holders of a majority of the outstanding principal of the notes, be wither payable on demand as of the closing of such change of control or IPO or convertibleshall automatically convert into shares of common stock or units, as provided herein, immediately priorupon the earliest to such changeoccur of control transaction or IPO transaction(a) the listing of the common stock on NASDAQ (the “Uplist”), and (b) a subsequent qualified financing date, at a price per share equal to the lesser of (i) $0.25 and (ii) 70% (A) in the par share valuecase of the Uplist, the price of the common stock as determined byor units (as defined below) in the Company’s Boardoffering relating to the Uplist, or (B) in the case of Directors ora subsequent qualified financing, (x) the per share consideration to be received by the holdersconversion price of the common stock, if such subsequent qualified offering involves the issuance of convertible notes, or (y) the price of the common stock or units in such changesubsequent qualified financing, if such subsequent qualified Financing involves the issuance of controlcommon stock or IPO transaction.
Inunits. For purposes of this Note, a “Unit” shall mean the event thatcombination of common Stock and warrants to purchase common stock offered by the Company consummates ain any financing prior tooccurring simultaneously with the Maturity Date, other than a Qualified Financing, and the economic terms thereof are more favorable to the investors in such financing than the termsUplist (“Simultaneous Uplist Unit Offering”). These notes have warrant coverage of 50% of the Note,initial principal balance. The warrants will be issued at Uplist or at maturity of the Note shall automaticallyconvertible debt. The warrants may be amended to reflect such more favorable economic terms.
converted into common stock at $0.40
F-17
TableThe private placement offerings issued from October 1, 2021 onward have a most favored nations clause which adjusts their conversion terms to those of Contents
this debt.
The Company had three promissory notes with payments due on March 31, 2022. These payments were not made and the Company is in negotiations with the lenders regarding revised payment schedules.
On March 9, 2021, the Company signed an agreement with its related party lenders increasing the interest rate to 9% per annum and extending the repayment schedule with the final payment due on August 1, 2022.
ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.Effective December 1, 2021, we dismissed Sadler, Gibb & Associates LLC (“Sadler Gibb”) and engaged Accell Audit and Compliance PA (“Accell”) as our independent registered public accounting firm. Accell has served as the auditor of Piezo Motion Corp. since 2018. The decision to dismiss Sadler Gibb and to engage Accell was approved by our Board of Directors.
The reports of Sadler Gibb on our financial statements for the fiscal years ended December 31, 2020 and 2019 did not contain an adverse or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles, except that such reports included a going concern qualification.
During the fiscal years ended December 31, 2020 and 2019 and through December 1, 2021, there were (i) no disagreements between us and Sadler Gibb on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreement, if not resolved to the satisfaction of Sadler Gibb , would have caused Sadler Gibb to make reference thereto in their reports on the consolidated financial statements for such years, and (ii) no “reportable events” as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
During the fiscal years ended December 31, 2020 and 2019, and the subsequent interim period through December 1,2021, neither we nor anyone acting on our behalf consulted with Accell regarding (i) the application of accounting principles to any specified transaction, either completed or proposed; (ii) the type of audit opinion that might be rendered on our financial statements, and neither a written report nor oral advice was provided to us that Accell concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue; or (iii) any matter that was either the subject of a disagreement (as defined in Item 304(o)(1)(iv) of Regulation S-K) or a reportable event (as defined in Item 304(a)(1)(v))of Regulation S-K).
ITEM 9A –9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). As required by Rule 13a-15(b) under the Exchange Act, management of the Company, under the direction of our Chief Executive Officer and Chief Financial Officer, reviewed and performed an evaluation of the effectiveness of design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December 31, 2018. Based on that review and evaluation, the Chief Executive Officer and Chief Financial Officer, along with the management of the Company, have determined that as of December 31, 2018, the disclosure controls and procedures were not effectiveare designed to provide reasonable assuranceensure that information required to be disclosed by us in the reports that we file or submit under theour Securities Exchange Act isof 1934 filings are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and were not effective to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officerPresident and principal financial officer,Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), as appropriate, to allow timely decisions regarding required disclosures.disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management was necessarily required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Management’s Annual ReportAs of December 31, 2021, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2021 due to limited resources for adequate personnel to prepare and file reports under the Securities Exchange Act of 1934 within the required periods, and material weaknesses in our internal control over financial reporting relating to our accounting for complex equity transactions as described below under the heading “Report of Management on Internal Control Overover Financial Reporting”. Management plans to remediate this weakness by taking the actions described below.
Report of Management on Internal Control over Financial Reporting
Our management isWe are responsible for establishing and maintaining effectiveadequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, as a process designed by, or under the supervision of our principal executive and principal financial officers and effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| ● | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of our assets; |
| | |
| ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and |
| | |
| ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Our internal control system is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of financial statements. Because of its inherent limitations, internal control over financial reporting (as defined in Rule 13a – 15(f)may not prevent or detect misstatements. Projections of the Exchange Act). Thereany evaluation of effectiveness to future periods are inherent limitationssubject to the effectiveness of any internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internalrisks that controls can provide only reasonable assurance with respect to financial statement preparation. Further,may become inadequate because of changes in conditions, or that the effectivenessdegree of internal controlcompliance with the policies or procedures may vary over time. deteriorate.
We have assessed the effectiveness of our internal controlscontrol over financial reporting (as defined in Rule 13a -15(f) of the Exchange Act) as of December 31, 2018, and have2021. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).
Based on this assessment, management believes that, as of December 31, 2021, the Company did not maintain effective internal control over financial reporting because of the effect of material weaknesses in our internal control over financial reporting discussed below.
Public Company Accounting Oversight Board Auditing Standard No. 2 defines a material weakness as a significant deficiency, or combination of significant deficiencies, that results in there being a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Based upon this definition, our management concluded that, as of December 31, 2018,2021, a material weakness existed in our internal control over financial reporting related to accounting for complex equity transactions.
Specifically, we identified material weaknesses in our internal control over financial reporting related to the following matters:
| ● | Limited policies and procedures that cover recording and reporting of financial transactions associated with the foreign subsidiary. |
| ● | A lack of sufficient personnel in the accounting function due to our limited resources resulting in lack of segregation of duties. The Company engages a third-party consultant to ensure the complete and proper application of generally accepted accounting principles, particularly as it relates to valuation of warrants and other complex debt /equity transactions. |
Our plan to remediate those material weaknesses is as follows:
| ● | Improve the effectiveness of the accounting group by augmenting our existing resources with additional internal accounting staff to assist in the analysis and recording of transaction and for improved segregation of duties. We plan to mitigate this identified deficiency by hiring additional accounting staff once we generate significantly more revenue or raise significant additional working capital. |
| ● | Improve desired segregation procedures by strengthening cross approval of various functions including quarterly internal audit procedures where appropriate. |
Notwithstanding the assessment that our internal control over financial reporting was not effective as of the evaluation date due to the factors stated below.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of the evaluation date and identified the following material weaknesses:
| ●
| Management did not maintain effective internal controls relating to the accounting closing and financial reporting process pertaining to certain stock transactions and complicated convertible debt instruments;
|
| ●
| The Company has insufficient internal personnel resources and technical accounting and reporting expertise within the Company’s financial closing and reporting functions; and
|
| ●
| Due to our small size, the Company did not maintain effective internal controls to assure proper segregation of duties as the same employee was responsible for initiating and recording of transactions, thereby creating a segregation of duties weakness.
|
Management is committed to improving its internal controls and will:
| ●
| Continue to use third party specialists to address shortfalls in staffing and to assist the Company with accounting and finance responsibilities; and
|
| ●
| Increase the frequency of independent reconciliations of significant accounts, which will mitigate the lack of segregation of duties untilthat there are sufficient personnel.
|
Management, including our Chief Executive Officer and Chief Financial Officer, has discussed the material weaknesses noted above withas identified herein, we believe that our independent registered public accounting firm. Due to the nature of these material weaknesses, there is a more than remote likelihood that misstatements which could be material to the annual or interimconsolidated financial statements could occur that would not be prevented or detected.contained in this Annual Report fairly present our financial position, results of operations and cash flows for the years covered thereby in all material respects.
This annual report does not include an attestation report of ourthe Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by ourthe Company’s registered public accounting firm pursuant to rules of the SEC that permit usas we are a smaller reporting company and are not required to provide only management’s report in this annualthe report.
Changes in Internal ControlsControl Over Financial Reporting
There werehas been no changeschange in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) of such internal controlthe Exchange Act that occurred during our last fiscalthe quarter ended December 31, 2021 that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.reporting, except the implementation of the controls identified above.
ITEM 9B – OTHER INFORMATION.
Not applicable
38
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
PART III
ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Our executive officers and directors are as follows:
Name | | Age | | Position |
Boris (Baruch) Goldstein
Hassan Kotob | | 55
58 | | Chairman of the Board, Secretary and Chief Executive Vice President Officer |
Jesse W. Crowne
Daniel Cloutier | | 39
56 | | Chief Executive Officer and Director
|
Vadim Sakharov
Nickolay Kukekov | | 45
48 | | President, Director
|
| Daniel MacKenzie | | 65 | | Director |
| Thomas Olivier | | 54 | | Director |
| Fred Anthony | | 40 | | Chief Technology Officer and Director |
Nickolay Kukekov
Todd Eckler | | 45
49 | | Director
Chief Revenue Officer |
Mark Corrao
Bonnie-Jeanne Gerety | | 61
59 | | Chief Financial Officer |
Boris (Baruch) Goldstein,Hassan Kotob, Chairman and CEO, combines over 35 years of experience in software and manufacturing senior management. He had been involved in four companies in the Board, Secretarycomputer hardware, medical records, publishing, and software industries holding positions including Executive ViceChairman, President,. Dr. Goldstein is and CEO, and board member. He has served as our Chairman and CEO since October 1, 2021.From 2020 Hassan Kotob was the founderChairman and has beenCEO for Piezo Motion Corp., a precision motion company. From 2016 to 2018, he was Chairman of the Board of MemoryMD since its inception, and has been the executiveCEO and from 2011 to 2016 he was Executive Chairman of the Board of the Company since the Closing of the Acquisition and Executive Vicefrom 1997 to 2011 he was President since January 2019. Dr. Goldstein is a serial entrepreneur, having founded or co-founded over a dozen private companies over the past 10 years alone. Since February 2014, he is the founder and Chairman of PotboticsCEO for North Plains Systems Corp, Inc., a private data aggregationcompany involved in enterprise marketing software. From 1996 to 1997, he was President of CText, Inc., a software company that focused on publishers. From 1991 to 1997, he was President and technologyCEO of Medasys Inc. a hardware and software company focused on the global medical cannabis market. Since April 2015, he is the founder, Chairmanelectronic capture and transfer of the Board and president of Lendindex LLC, a private financial technology company providing innovative lending and credit scoring solutions for small businesses and investors. Dr. Goldsteinradiology images. Mr. Kotob is also since July 2016 the foundercurrently a director of Piezo Motion Corp. He has an undergraduate degree and the Chairman of the Board of Nano Graphene Inc., a private, commercial scale graphene and graphene based materials producer and supply company. Since April 2015, he is the founder, Chairman of the Board and was the president of Art2Score Inc., a private, artificial intelligence commerce company. He is also the founder, Chairman of the Board and was the president of BDA Ventures LLC, a private company focused on machine intelligence and applications in various Fin-tech sectors. Other private companies founded or co-founded by Dr. Goldstein include BarterRoot, BrainBit, Callibri, Energy Price Index, High Data Technologies, The Native Inc., PH8, Nano Agro Group and OncoTrial. Dr. Goldstein is the founder in November 2016 and the president of High Technology Capital Fund and High Technology Capital Management LLC, and is a partner in High Accelerator, which helps build and support next generation technologies.
Dr. Goldstein received his B.A.,an MBA and Ph.D. in Applied Mathematics from Latvian TechnicalEastern Michigan University.
The Company believes that Dr. Goldstein is qualified to serve as Chairman of the Board due to his extensive experience as a founder and operator of numerous start-up and other companies, and due his role as a founder of MemoryMD.
Jesse W. Crowne, Chief Executive Officer and Director. Mr. Crowne has served as Chief Executive Officer and as a Director of the Company since January 25, 2019. Mr. Crowne has served as the Chief Executive Officer of Nepetx, LLC, biotechnology start-up company that is developing an enzymatic therapy for celiac disease and non-celiac gluten sensitivity, since January 2016. From January 2016 to March 2017, Mr. Crowne served as the President of Vavotar Life Sciences, LLC, a private clinical stage biotechnology company developing antibody directed oncology products. Mr. Crowne has served as the Vice President of Business Development of Medovex Corp., a publicly-traded company in the business of designing and marketing proprietary medical devices for commercial use in the United States and Europe, since January 2015, and has served as the Executive Co-Chairman of the Board of Directors of Medovex Corp. since February 2, 2018. Mr. Crowne was the founder of Crowne Medical, LLC, a management consulting firm for medical devices and biotech companies, which was founded in December 2013, and was also a Managing Partner at Gorlin Companies, a healthcare focused family office. From April 2010 to June 2014, Mr. Crowne was an associate at White Pine Medical, a subsidiary of Essex Woodlands, which was a private equity investment fund seeking late-stage medical device opportunities.
The Company believes that Mr. CrowneKotob is qualified to serve as a director of the Company because of his leadership skills, experience with executive and entrepreneur roles for multiple companies in the medical device space, and experience raising capital for multiple companies.
Vadim Sakharov, President, Chief Technology Officer and Director. Mr. Sakharov has been Chief Executive Officer of MemoryMD since February 2015 and was Chief Executive Officer of the Company from September 2018 until January 25, 2019, at which time he was appointed as President and Chief Technology Officer. He has also been the Chairmanmember of the Board of Directors due to his previous experience in the MedTech field and general manager of Neurotech,managing a medical device company since February 1992.in growth and markets.
LOK Corporation since 2011. He has served as a director since November 8, 2021_. From 2003 to 2011, Mr. Cloutier was International Sales Director of CAS Medical System (CASMED). From 2000 to 2002, he was Vice President of EMRN. Mr. Cloutier is also an advisory council member of the Indian Business Organization for Global Investments, a member of the Board of Directors for the Independent Medical Specialty Dealers Association, former Board Member of Neuro-France Implants and Luminor Medical Technologies. In 1991, Mr. Cloutier graduated from HEC Montreal Business School. The Company believes that Mr. SakharovCloutier is qualified to serve as a directormember of the Company becauseBoard of Directors due to his extensive experience as an executive atin healthcare and medical device companies.product distribution.
Nickolay V. Kukekov, Director. Dr. Kukekov has been a member of MemoryMD’s Board of Directors since September 2017, and a member of the Board of the Company since the Closing of the Acquisition.MemoryMD Acquisition on September 21,2018 . Dr. Kukekov currently serves as the managing director of HRA Capital (formerly Highline Research Advisors), a division of Corinthian Partners L.L.C. Prior to forming Highline Research Advisors in 2012, Dr. Kukekov was the Managing Director of Healthcare Investment Banking at Summer Street Research from October 2010 to August 2012. In September 2009, Dr. Kukekov was a co-founder of the Healthcare Investment Banking group at Gilford Securities. From December 2007 to July 2009, Dr. Kukekov served as the managing director of Paramount BioCapital, where he ran the advisory, M&A and capital raising services for in-house private and public portfolio companies. Dr. Kukekov holds a Bachelor of Science degree in Molecular, Cellular and Developmental Biology from the University of Colorado at Boulder and a Ph.D. in Neuroscience from Columbia University, College of Physicians and Surgeons in New York.
The Company believes that Dr. Kukekov is qualified to serve as a member of the Board of Directors due to his extensive experience in healthcare and medical device investment banking.
Mark Corrao, Chief Financial OfficerDonald MacKenzie, Director, has over 35 years of executive experience across various industries, including automotive, energy, equipment manufacturing, and technology. He has served as a director since November 8, 2021 . Co-founding Conway MacKenzie, Inc., a financial and operational advisory firm focused on special situations, in 1987, he specialized in financial, operational and strategic turnaround and restructuring transactions. In 2019, Mr. CorraoMacKenzie transitioned Conway MacKenzie through a business combination with Riveron Consulting, LP. He currently serves as the Vice Chairman of Riveron’s board of directors and serves on other, private company boards. Mr. MacKenzie is a Certified Turnaround Professional, Certified Public Accountant and has beena degree in accounting from Michigan State University. The Company believes that Mr. MacKenzie is qualified to serve as a member of the part-time chiefBoard of Directors due to his extensive experience in financial, officeroperational and strategic consulting across industries, including manufacturing and technology.
Thomas Olivier, Director, combines over 25 years of MemoryMDtechnology industry experience as an investment banker, entrepreneur and corporate legal advisor. He has served as a director since August 2018.November 8, 2021. He isjoined Arrowroot Capital in 2021 as a Managing Director for the CFO Squad, an accounting firm that specializes in pre-audit accounting for public and private companies, which provides those services to the Company. Additionally, Mr. Corrao is currently the Chief Financial Officer for Generex Biotechnology Corporation and Kannalife Sciences, Inc. Mr. Corrao was formerly a founderPresident and Chief Financial Officer of StrikeforceArrowroot Acquisition Corp. (Ticker: ARRW). From 2001 to 2021, Mr. Oliver held Managing Director positions at Houlihan Lokey, Pacific Crest Securities/Key Bank and Morgan Keegan Technology Group. He practiced corporate law as co-General Counsel of iOptions from 2000 to 2001 and as a Corporate Associate with Testa, Hurwitz & Thibeault from 1997 to 2000. He has an undergraduate degree from Boston College and a Juris Doctor degree from George Washington University. The Company believes that Mr. Cloutier is qualified to serve as a member of the Board of Directors due to his extensive experience in investment banking.
Farid Anthony, Chief Technology Officer, brings a proven track record of success and over 25 years of experience, innovation, and achievement in various technology industries. He has served as our Chief Technology since November 8, 2021.Mr. Anthony started his career in 1998 as a founder of Triforce Technologies Inc., a publicly traded software developmentprivate technology consulting and services company specializingservicing the B2B sector. From late 2019 to 2021, he served as Chief Technology Officer at Luxury Presence, a silicon-valley company with an all-in-one platform providing real estate agents with a web presence, marketing tools and services, and access to an exclusive network of agents, brokers, and real estate experts. From 2019 to 2020, he served as Executive Director of Engineering at Bolt Mobility, a pioneer in the development ofconsumer and B2B micro-mobility technology solutions. From 2016 to 2019, he served as Chief Technology Officer at Northplains, which offers a suite of integrated computer network security products. In additionsolutions for Brand Management, Multi-Channel Marketing, and Digital Asset Management. From 2014 to the ten2016, he served as Chief Technology Officer at CreativeDrive, a company offering graphic and multimedia design services, and a SaaS platform for Resource Management, Digital Asset Management, and Inventory Management. From 2007 to 2014, he served as Lead Engineer & Architect at Spoutloud Media Networks, a Through-Channel Marketing Automation company founded in 2006 with a mission of simplifying channel marketing. Mr. Anthony has an undergraduate degree from Florida Atlantic University.
Todd Eckler, Chief Revenue Officer, combines over 25 years of his servicetechnology industry experience as a senior executive leading market, sales, and product teams for several companies. Mr. Eckler was the Chief Revenue Officer (“CRO”) for Piezo Motion from March 2021 before transitioning to CRO of Brain Scientific on November 8, 2021 as part of the merger. Previously, Mr. Eckler was General Manager at Strikeforce,IntelligenceBank a leader in asset management software from July 2018 until March 2021. He was Chief Revenue Officer for North Plains Systems a global enterprise marketing automation platform from May 2016 to July 2018 and President of CreativeDrive global creative services and technology company from May 2014 to May 2016. Starting in 1995, Mr. CorraoEckler held vice president level management positions for various technology companies. He has spent numerousan undergraduate degree from Johnson State College.
Bonnie-Jeanne Gerety, Chief Financial Officer, brings over 35 years of financial and consulting experience within the technology industry. She has served as our chief financial officer since October 1, 2021 . She joined Piezo Motion in early 2020 as the public accounting arena specializing in certified auditing, SEC accounting, corporate taxation and financial planning. Mr. Corrao’s background also includes numerous years on Wall Street with Merrill Lynch, Spear Leeds & Kellogg and Greenfield Arbitrage Partners. While on Wall Street Mr. Corrao was involved in several IPO’s and has been a guiding influence in several start-up companies.Chief Financial Officer. Prior to joining StrikeForce, hethat, she was a Director at Applied Digital Solutions from December 2000 through December 2001. Mr. Corrao was a Vice President andthe Chief Financial Officer of North Plains, LLC from 2014 through 2019. Her previous experience was as a Managing Director at Advanced Communications SciencesProtivti, responsible for the Atlanta and Raleigh offices from March 1997 through December 2000. Mr. Corrao has2004 to 2014. Prior to Protiviti, she was a B.S.Managing Director at BearingPoint from 2002 to 2004 and a Partner in Accountingthe consulting division of Arthur Andersen, LLP specializing in technology, media and communications industries from CUNY.1986 to 2002. Her undergraduate degree is from Georgetown University, School of Foreign Service and MBA from University of South Florida. She is a CPA in the state of Georgia.
There are no family relationships between any of our officers and directors.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, or has been a party to any judicial or administrative proceeding during the past ten years that resulted in a judgment, decree, or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement. Each of our executive officers and directors has informed us that he or she, as the case may be, has not been involved in any of the events specified in clauses (1) through (8) of Regulation S-K, Item 401(f). Except as set forth in our discussion below in “Certain Relationships and Related Transactions, and Director Independence – Transactions with Related Persons,” none of our directors, director nominees, or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates, or associates that are required to be disclosed pursuant to the rules and regulations of the Commission.
Structure and Operation of the Board
We do not have standing audit, compensation or nominating committees of our Board. However, the full Board performs all of the functions of a standing audit committee, compensation committee and nominating committee. The Board currently consists of fourfive directors: Dr. GoldsteinHassan Kotob (Chairman), Nickolay Kukekov, Daniel Cloutier, Thomas Olivier and Messrs. Crowne, Sakharov and Kukekov.Donald MacKenzie. The following is a brief description of these functions of the Board:
Nomination of Directors
The Board does not currently have a standing nominating committee, and thus we do not have a nominating committee charter. Due to our small size and limited operations to date, the Board determined that it was appropriate for the entire Board to act as the nominating committee. The full Board currently has the responsibility of selecting individuals to be nominated for election to the Board. Board candidates are typically identified by existing directors or members of management. The Board will consider director candidates recommended by stockholders. Any such candidates will be evaluated on the same basis as other candidates being evaluated by the Board. Information with respect to such candidates should be sent to Brain Scientific Inc., c/o CEO, 205 East 42nd Street, 14th Floor, New York, New York 10017.6700 Professional Parkway, Lakewood Ranch, Florida 30342. The Board considers the needs for the Board as a whole when identifying and evaluating nominees and, among other things, considers diversity in background, age, experience, qualifications, attributes and skills in identifying nominees, although it does not have a formal policy regarding the consideration of diversity.
Audit Committee Related Function
We do not have a standing audit committee, and thus we do not have an audit committee charter. Due to our small size and limited operations to date, the Board determined that it was appropriate for the entire Board to act as the audit committee. The Board intends to review with management and the Company’s independent public accountants the Company’s financial statements, the accounting principles applied in their preparation, the scope of the audit, any comments made by the independent accountants upon the financial condition of the Company and its accounting controls and procedures and such other matters as the Board deems appropriate. Because the Company’s common stock is traded on the OTC Pink market, the Company is not subject to the listing requirements of any securities exchange regarding audit committee related matters.
Report of Board on Audit Related Matters
In discharging its responsibility for oversight of the audit process, the Board obtained from the Company’s independent auditors, Sadler, Gibb & Associates LLC,Accell Audit and Compliance PA, a formal written statement describing any relationships between the auditors and the Company that might bear on the auditors’ independence, consistent with the Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees.” In addition, the Board discussed with the auditors any relationships that might impact the auditors’ objectivity and independence. The Board is satisfied as to the auditors’ independence.
Audit Committee Financial Expert
WeAlthough we do not have an audit committee, we have two financial expert, because we do not have an audit committee.experts on the Board. Both Donald Mackenzie and Thomas Olivier are financial experts and independent directors.
Risk Oversight
The Board’s risk oversight is administered primarily through the following:
| ● | review and approval of an annual business plan; |
● review and approval of an annual business plan;
| ● | review of a summary of risks and opportunities at meetings of the Board; |
| ● | review of business developments, business plan implementation and financial results; |
● review of a summary of risks and opportunities at meetings of the Board;
| ● | oversight of internal controls over financial reporting; and |
| ● | review of employee compensation and its relationship to our business plans. |
● review of business developments, business plan implementation and financial results;
● oversight of internal controls over financial reporting; and
● review of employee compensation and its relationship to our business plans.
Due to the small size and early stage of the Company, we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined.
Compensation Committee Related Function
The Board does not currently have a standing compensation committee, and thus we do not have a compensation committee charter. Due to our small size and limited operations to date, the Board determined that it was appropriate for the entire Board to act as the compensation committee. The full Board currently has the responsibility for reviewing and establishing compensation for executive officers and making policy decisions concerning salaries and incentive compensation for executive officers of the Company.
The Company’s executive compensation program is administered by the Board, which determines the compensation of the Chief Executive Officer and other executive officers of the Company. In reviewing the compensation of the individual executive officers (other than the Chief Executive Officer), the Board considers the recommendations of the Chief Executive Officer, published compensation surveys and current market conditions.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC.
Based solely on our review of the copies of such Forms and written representations from certain reporting persons, we believe that all filings required to be made by our Section 16(a) reporting persons during our fiscal year ended December 31, 2021 were made on a timely basis, other than: Hassan Kotob and Nickolay Kukekov for the October 1, 2021 options grant. Nickolay Kukekov, Daniel Cloutier, Donald MacKenzie, Thomas Olivier and Farid Anthony for the December 10, 2021 options grant.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that applies to, among other persons, our principal executive officers, principal financial officer, principal accounting officer or controller, and persons performing similar functions. Our Code of Business Conduct and Ethics is available.See Exhibit 14.1 to this Annual Report on our website www.memorymd.com.Form 10-K.
Director Independence
We use the definition of “independence” of The NASDAQ Stock Market to make this determination. In making the determination of whether a member of the board is independent, our board also considers, among other things, transactions and relationships between each director and his immediate family and the Company, including those reported under the caption “Certain Relationships and Related-Party Transactions”. The purpose of this review is to determine whether any such relationships or transactions are material and, therefore, inconsistent with a determination that the directors are independent. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship, which, in the opinion of the Company’s Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:
| ● | The director is, or at any time during the past three years was, an employee of the company; |
| ● | The director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service); |
| ● | A family member of the director is, or at any time during the past three years was, an executive officer of the company; |
| ● | The director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions); |
| ● | The director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the company served on the compensation committee of such other entity; or |
| ● | The director or a family member of the director is a current partner of the company’s outside auditor, or at any time during the past three years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit. |
Under such definitions, none of ourHassan Kotob and Daniel Cloutier are not independent directors can be considered anand Nickolay Kukekov, Thomas Oliver and Donald MacKenzie are independent director.directors.
ITEM 11 – EXECUTIVE COMPENSATION
Compensation of Executive Officers
The following table sets forth information regarding each element of compensation that was paid or awarded to the named executive officers of the Company for the periods indicated.
Name and Principal Position | | Year | | | Salary($) | | | Bonus($) | | | Stock Awards($) | | | Option Awards($) | | | Non-Equity Incentive Plan Compensation($) | | | All Other Compensation($) | | | Total($) | |
Boris (Baruch) Goldstein | | 2018 | | | | 93,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 93,000 | |
Chairman and Executive Vice President | | 2017 | | | | 120,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 120,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Jesse W. Crowne (1) | | 2018 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Chief Executive Officer | | 2017 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Vadim Sakharov | | 2018 | | | | 83,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 83,000 | |
President and | | 2017 | | | | 62,700 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 62,700 | |
Chief Technology Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mark Corrao (2) | | 2018 | | | | 7,500 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 7,500 | |
Chief Financial Officer | | 2017 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amer Samad (3) | | 2018 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | 2017 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | Salary | | | Bonus | | | Stock Awards | | | Option Awards | | | Non-Equity
Incentive
Plan
Compensation | | | All Other
Compensation | | | Total | |
| Name and Principal Position | | Year | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | |
| Hassan Kotob | | 2021 (1) | | | 390,000 | | | | 250,000 | | | | - | | | | 1,341,586 | | | | - | | | | 23,318 | | | | 2,004,904 | |
| Chairman and CEO | | 2020 (1) | | | 350,000 | | | | - | | | | - | | | | - | | | | - | | | | 14,268 | | | | 364,268 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Boris (Baruch) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Goldstein | | 2021 | | | 90,000 | | | | - | | | | - | | | | 564,528 | | | | - | | | | - | | | | 654,528 | |
| Chairman and | | 2020 | | | 180,000 | | | | - | | | | - | | | | 51,757 | | | | - | | | | - | | | | 231,757 | |
| EVP | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Mark Broderick | | 2021 (2) | | | 250,000 | | | | - | | | | - | | | | - | | | | - | | | | 24,196 | | | | 293,461 | |
| President, Piezo Motion Corp. | | 2020 (2) | | | - | | | | - | | | | - | | | | - | | | | - | | | | 19,265 | | | | 302,857 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Bonnie-Jeanne Gerety | | 2021 | | | 180,000 | | | | 20,000 | | | | - | | | | 102,857 | | | | - | | | | - | | | | - | |
| Chief Financial Officer | | 2020 (3) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Todd Eckler | | 2021 | | | 200,000 | | | | 20,000 | | | | - | | | | 102,857 | | | | - | | | | 3,075 | | | | 325,932 | |
| Chief Revenue Officer | | 2020 (4) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 278,968 | |
| Farid Anthony | | 2021 | | | 175,000 | | | | - | | | | - | | | | 102,857 | | | | - | | | | 1,111 | | | | - | |
| Chief Technology Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nicolas Copley | | 2021 (5) | | £ | 150,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 300,000 | |
| Product and Innovation, Piezo Motion Corp. | | 2020 (5) | | £ | 150,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
(1)
| Mr. Crowne(1)
| Hassan Kotob's salary in 2020 and bonus for 2021 was appointed as the Company’s Chief Executive Officer on January 25, 2019. |
(2)
| Mr. Corrao commenced his position as an at-will, part-time CFO of the Company in August 2018. He is paid a monthly fee for his services of $1,500.
|
(3)
| Mr. Samad was the President, CEO, CFOaccrued and Secretary of All Soft Gels from November 27, 2017 until his resignation on September 21, 2018.
are liabilities at December 31, 2021 |
| (2) | Part of Mark Broderick's salary for 2020 and 2021, amounting to $125,038 and $54,808, respectively, were accrued and is a liability at December 31, 2021 |
| (3) | Bonnie-Jeanne Gerety was a consultant until June 1, 2021. Her 2020 salary of $210,860 was accrued and is a liability at December 31, 2021. |
| (4) | Todd Eckler was a consultant until February 15, 2021. His 2020 salary of $105,105 was accrued and is a liability at December 31, 2021 |
| (5) | Part of Nicolas Copley's salary for 2020, amounting to approximately $66,000 was accrued and is a liability at December 31, 2021 |
Outstanding Equity Awards at Fiscal Year-End
There were noThe following table presents the outstanding equity awards held by anyeach of the named directors and executive officers as of the end of the fiscal year ended December 31, 2018. 2021.
| Name | | Number of
Securities
Underlying
Unexercised Options
Exercisable | | | Number of
Securities
Underlying
Unexercised
Options
Unexercisable | | | Option
Exercise
Price | | | Option
Expiration
Date | | Number of
Shares or
Units of
Stock Not
Having
Vested | | | Value of
Shares or
Units so
Stock Not
Having
Vested | | | Incentive
Plan
Awards:
Number of
Unearned
Shares, | | | Plan Awards:
Market or
Payout Value of
Unearned
Shares, Units or
Other Rights | |
| Hassan Kotob | | | 2,502,341 | | | | | | | | 0.35 | | | 10/1/2030 | | | - | | | | - | | | | - | | | | - | |
| | | | 1,218,248 | | | | 1,218,248 | | | | 0.21 | | | 10/21/2030 | | | - | | | | - | | | | - | | | | - | |
| | | | 1,218,248 | | | | 1,218,248 | | | | 0.21 | | | 12/10/2030 | | | - | | | | - | | | | - | | | | - | |
| Daniel Cloutier | | | 46,623 | | | | 315,446 | | | | 0.29 | | | 12/10/2030 | | | - | | | | - | | | | - | | | | - | |
| Nickolay Kukekov | | | 2,001,873 | | | | | | | | 0.35 | | | 10/1/2030 | | | - | | | | - | | | | - | | | | - | |
| | | | 46,623 | | | | 315,446 | | | | 0.29 | | | 12/10/2030 | | | - | | | | - | | | | - | | | | - | |
| Donald MacKenzie | | | 46,623 | | | | 315,446 | | | | 0.29 | | | 12/10/2030 | | | - | | | | - | | | | - | | | | - | |
| Thomas Olivier | | | 46,623 | | | | 315,446 | | | | 0.29 | | | 12/10/2030 | | | - | | | | - | | | | - | | | | - | |
| Fred Anthony | | | | | | | 476,190 | | | | 0.21 | | | 12/10/2030 | | | - | | | | - | | | | - | | | | - | |
| Todd Eckler | | | | | | | 476,190 | | | | 0.21 | | | 12/10/2030 | | | - | | | | - | | | | - | | | | - | |
| Bonnie-Jeanne Gerety | | | | | | | 476,190 | | | | 0.21 | | | 12/10/2030 | | | - | | | | - | | | | - | | | | - | |
| Mark Broderick | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | |
Long-Term Incentive Plans and Awards
In August, 2018, our board of directors adopted and stockholders approved the 2018 Equity Incentive Plan. There were no5,938,837 outstanding equity awards granted under the 2018 Equity Incentive Plan as of the end of the fiscal year ended December 31, 2018.2021.
Director Compensation
ThereOn November 9,2021, our independent directors received stock options under our 2018 Equity Inventive Plan based upon an annual fee of $105,000 , at an exercise price of $0.29 per share. The shares vest over the year on a quarterly starting December 31, 2021.There were no amounts paid or stock awards made to our non-employee directors during the fiscal year ended December 31, 2018.2020.
Mr. Kotob was compensated as stated in the above in Executive Compensation.
43
The following table summarizes cash-based and equity compensation information for our outside directors for the year ended December 31, 2018:
Name | | Fees Earned or Paid in Cash | | | Stock Awards | | | Option Awards | | | Non-Equity Incentive Plan Compensation | | | Nonqualified Deferred Compensation Earnings | | | All Other Compensation | | | Total | |
Nickolay Kukekov | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | |
Messrs. Goldstein, Crowne and Sakharov received compensation for their services to the Company as set forth under the summary compensation table above. In 2018, our directors were entitled to reimbursement for expenses incurred by them in connection with attending board meetings. Our directors also were eligible for stock option grants and other equity grants.Employment Agreements
Employment AgreementsHassan Kotob
Jesse W. Crowne
TheOn October 1, 2021, the Company and Mr. CrowneKotob entered into an employment agreement effective(the “Kotob Employment Agreement”) as of January 25, 2019 (the “Employment Agreement”).the Executive Chairman and CEO. Under the Kotob Employment Agreement, Mr. CrowneKotob will receive an initial annual base salary of $160,000,$390,000, which shall be reviewed annually and may be increased, to $175,000.00 per annum inbut not decreased, by the event the Company is successful in raising at least $1,000,000 (the “Capital Raise”) from the dateBoard of the Employment Agreement.Directors. In addition, Mr. Crowne mayKotob shall receive a minimum bonus of $250,000 as an annual cash or equity bonus based upon the achievement of upmilestones as are to $40,000 based on Mr. Crowne’s performance asbe determined by the Company’s Compensation Committee of the Board of Directors, and will receive a $30,000 sign-on bonus payable in two tranches.Directors. Mr. CrowneKotob shall also be entitled to participate in the Company’sany stock option, performance share, performance unit or other equity based long-term incentive compensation plansplan, program or arrangement generally made available to senior executivesexecutive officers of the Company, pursuant to which the Companywe issued to Mr. CrowneKotob options to purchase 800,000 (or 1,000,000 in the event of a Capital Raise)1,218,248 shares on October 21, 2021 and options to purchase an additional 1,218,248 shares of the Company’s common stock on December 10, 2021, each exercisable at an exercise price of $0.75$0.21 per share of, which 200,000 (or 250,000 in the event of a Capital Raise) shares shall vest on the one year anniversary of the date of grant, and 600,000 (or 750,000 in the event of a Capital Raise) shalloptions will vest ratably on a quarterly basis over the following two years.year.
In the event Mr. Crowne’sKotob’s employment is terminated as a result ofdue to his death, during or disability, is terminated by the Company for cause, or is terminated by Mr. Crowne orKotob without good reason, Mr. Kotob will be paid his beneficiaries or legal representatives shall be provided any earned base salary that has been accrued prior to termination of employment and all benefits payable underwhich has not yet been paid, and any employee benefit plan applicable at the time or termination (the “Unconditional Entitlements”).accrued bonus previously earned by Mr. Kotob that has not yet paid.
In the event of the Mr. Crowne’s termination forKotob’s employment is terminated without cause or termination by Mr. Crowne other than for a good reason, Mr. Crowne shall be provided the Unconditional Entitlements.
In the event of a termination by Mr. CrowneKotob for good reason, or bythen in addition to the Company without cause,accrued obligations stated above, Mr. Crowne shall be providedKotob will receive a payment in the Unconditional Entitlements andamount equal to the Company shall provide Mr. Crownegreater of: (i) his then-current base salary then in effect for a perioduntil such date that is the later of 12 months after the date(A) three (3) year anniversary of termination (provided that the Company is successful in raising at least $2,000,000 from the date of the Employment Agreement), 100%contract and (B) twelve (12) month anniversary of the costeffective date of premiumsthe termination, less customary and required taxes and employment-related deductions, paid in one lump sum amount within thirty (30) days following the effective date of termination. Further, Mr. Kotob shall receive payment of a severance bonus in an amount equal to a pro rata portion of the target annual bonus to which Mr. Kotob may have been entitled for COBRA for a period of 12 months from the year in which his employment terminates, less customary and required taxes and employment -related deductions, paid in one lump sum amount within thirty (30) days following the effective date of termination acceleration of the vesting his stock options, and continued vesting of any restricted stock or other equity awards subject to vesting.employment.
The Kotob Employment Agreement contains customary non-competition and non-solicitation provisions in favor of the Company. Mr. CrowneKotob also agreed to customary terms regarding confidentiality and ownership of intellectual property.
Mark Broderick
On June 1, 2020, DTI Motion Corp. (now known as Piezo Motion Corp.) and Mark Broderick entered into an employment agreement (the “Broderick Employment Agreement”) as the President of DTI Motion Corp. Under the Broderick Employment Agreement, Dr. Broderick will receive an initial annual base salary of $250,000, which shall be reviewed annually and may be increased, but not decreased, by the Board of Directors. In addition, Dr. Broderick may earn a bonus as an annual cash or equity bonus based upon the achievement of milestones as are to be determined by the CEO. Dr. Broderick shall also be entitled to participate in any stock option, performance share, performance unit or other equity based long-term incentive compensation plan, program or arrangement generally made available to senior executive officers of the Company.
In the event Dr. Broderick’s employment is terminated due to his death or disability, is terminated by the Company for cause, or is terminated by Dr. Broderick without good reason, Dr. Broderick will be paid his base salary that has been accrued prior to termination of employment and which has not yet been paid, and any accrued bonus previously earned by Dr. Broderick and not yet paid.
In the event Dr. Broderick’s employment is terminated without cause or by Dr. Broderick for good reason, then in addition to the accrued obligations stated above, Dr. Broderick will receive a payment in the amount equal to the greater of (i)his then-current base salary until such date that is the later of (A) three (3) year anniversary of the date of the contract and (B) twelve (12) month anniversary of the effective date of the termination, less customary and required taxes and employment-related deductions, paid in one lump sum amount within thirty (30) days following the effective date of termination
The Broderick Employment Agreement contains customary non-competition and non-solicitation provisions in favor of the Company. Dr. Broderick also agreed to customary terms regarding confidentiality and ownership of intellectual property.
Bonnie-Jeanne Gerety
On June 1, 2020, Piezo Motion Corp. and Ms. Gerety entered into an employment agreement (the “Gerety Employment Agreement”) as the Chief Financial Officer of DTI Motion Corp. Under the Gerety Employment Agreement, Ms. Gerety will receive an initial annual base salary of $180,000, which shall be reviewed annually and may be increased, but not decreased by more than 10%, by the Board of Directors. In addition, Ms. Gerety may earn a bonus of 20% of base salary as an annual cash or equity bonus based upon the achievement of milestones as are to be determined by the CEO. Ms. Gerety shall also be entitled to participate in any stock option, performance share, performance unit or other equity based long-term incentive compensation plan, program or arrangement generally made available to senior executive officers of the Company. Pursuant to the 2018 Equity Incentive Plan, the Company issued to Ms. Gerety options to purchase 476,160 shares on December 10, 2021 at an exercise price of $0.21, which options shall vest ratably on a quarterly basis over the following year.
In the event Ms. Gerety’s employment is terminated due to her death or disability, is terminated by the Company for cause, or is terminated by Ms. Gerety without good reason, Ms. Gerety will be paid her base salary that has accrued prior to termination of employment and which has not yet been paid, and any accrued bonus previously earned by Ms. Gerety and not yet paid.
In the event Ms. Gerety’s employment is terminated without cause or by Ms. Gerety for good reason, then in addition to the accrued obligations stated above, Ms. Gerety will receive a payment in an amount equal to 50% of her annual salary, payable in equal installments on the regular salary payment dates.
The Gerety Employment Agreement contains customary non-competition and non-solicitation provisions in favor of the Company. Ms. Gerety also agreed to customary terms regarding confidentiality and ownership of intellectual property.
Nic Copley
On June 20, 2018, DTI Motion Corp. (now known as Piezo Motion Corp.) and Mr. Copley entered into an employment agreement (the “Copley Employment Agreement”) as the Vice President of Business Development. Under the Copley Employment Agreement, Mr. Copley will receive an initial annual base salary of GBP150,000, with Mr. Copley responsible for local mandatory statutory deductions, withholdings and employment tax according to UK HMRC Foreign employer exemption guidelines. Mr. Copley is eligible to receive an annual discretionary bonus as determined by the CEO.
In the event Mr. Copley’s employment is terminated due to her death or disability, is terminated by the Company for cause, or is terminated by Mr. Copley without good reason, Mr. Copley will be paid his base salary that has accrued prior to termination of employment and which has not yet been paid, and any accrued bonus previously earned by Mr. Copley and not yet paid.
In the event Mr. Copley’s employment is terminated without cause or by Mr. Copley for good reason, then in addition to the accrued obligations stated above, Mr. Copley will receive a payment in an amount equal to 60 days of his annual salary, payable at termination.
The Copley Employment Agreement contains customary non-competition and non-solicitation provisions in favor of the Company. Mr. Copley also agreed to customary terms regarding confidentiality and ownership of intellectual property.
Limits on Liability and Indemnification
We provide directors and officers insurance for our current directors and officers.
Our certificate of incorporation eliminates the personal liability of our directors to the fullest extent permitted by law. TheOur certificate of incorporation further provides that the Companywe will indemnify itsour officers and directors to the fullest extent permitted by law. We believe that this indemnification covers at least negligence on the part of the indemnified parties. Insofar as indemnification for liabilities under the Securities Act may be permitted to our directors, officers, and controlling persons under the foregoing provisions or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable.
Rule 10b5-1 Sales Plans
Our directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker to buy or sell shares of our common stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the director or officer when entering into the plan, without further direction from them. The director or officer may amend a Rule 10b5-1 plan in some circumstances and may terminate a plan at any time. Our directors and executive officers also may buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material nonpublicnon-public information subject to compliance with the terms of our insider trading policy.
ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the beneficial ownership of our common stock as of April 1, 2019March 31, 2022 held by (i) each person known to us to be the beneficial owner of more than five percent (5%) of our common stock; (ii) each director; (iii) each executive officer; and (iv) all directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC, and generally includes voting power and/or investment power with respect to the securities held. Shares of common stock subject to options and warrants currently exercisable or which may become exercisable within 60 days of March 29, 201931, 2022 are deemed outstanding and beneficially owned by the person holding such options or warrants for purposes of computing the number of shares and percentage beneficially owned by such person, but are not deemed outstanding for purposes of computing the percentage beneficially owned by any other person. Except as indicated in the footnotes to this table, the persons or entities named have sole voting and investment power with respect to all shares of our common stock shown as beneficially owned by them.
The following table provides for percentage ownership assuming 19,205,62450,578,003 shares are issued and outstanding as of March 29, 2019. Unless otherwise indicated, the address of each beneficial holder of our Common Stock is our corporate address.31, 2022.
Name of Beneficial Owner | | Shares of Common Stock Beneficially Owned | | | % of Shares of Common Stock Beneficially Owned | |
Greater Than 5% Stockholders | | | | | | | | |
High Technology Capital Fund LP(1) | | | 6,749,000 | | | | 35.14 | % |
Lifestyle Healthcare LLC(2) | | | 1,415,050 | | | | 7.37 | % |
Andrew Brown(3) | | | 1,106,795 | | | | 5.76 | % |
Named Executive Officers and Directors | | | | | | | | |
Boris (Baruch) Goldstein(1)(4) | | | 7,424,575 | | | | 38.66 | % |
Vadim Sakharov | | | 337,450 | | | | 1.76 | % |
Nickolay Kukekov(5) | | | 1,515,050 | | | | 7.85 | % |
Mark Corrao | | | - | | | | - | |
Jesse W. Crowne | | | - | | | | - | |
All Directors and Officers as a Group (5 persons) | | | 9,277,075 | | | | 48.05 | % |
| | | Number of
Common
Stock
Beneficially
Owned | | | % of
Shares of
Common
Stock
Beneficially
Owned | |
| Executives, Officers, Directors and Greater Than 5% Stockholders | | | | | | |
| Hassan Kotob (1) | | | 10,214,739 | (12) | | | 20 | % |
| High Technology Capital (2) | | | 6,749,000 | | | | 13 | % |
| Mark & Carolyn Broderick (3) | | | 4,759,879 | | | | 9 | % |
| Valentin Zhelyaskov (4) | | | 2,680,035 | | | | 5 | % |
| Nickolay Kukekov (5) | | | 4,707,179 | (13) | | | 9 | % |
| Daniel Cloutier (6) | | | 135,900 | (13) | | | 0 | % |
| Donald MacKenzie (7) | | | 135,900 | (13) | | | 0 | % |
| Tom Olivier (8) | | | 135,900 | (13) | | | 0 | % |
| Farid Anthony (9) | | | 0 | (14) | | | 0 | % |
| Todd Eckler (10) | | | 0 | (14) | | | 0 | % |
| Bonnie-Jeanne Gerety (11) | | | 0 | (14) | | | 0 | % |
| (1) | Common Shares are held in Hassan Kotob Revocable Trust is managed by Hassan Kotob, Chairman and CEO. The address is 40209 Fischer Island, Miami Beach, Florida 33109 |
| (2) | Dr. Boris Goldstein is the manager of High Technology Capital Management LLC (“LLC”), the general partner of High Technology Capital Fund LP (“LP”). As the manager of the LLC, Dr. Goldstein has voting and dispositive control over the shares owned by the LP. Dr. Goldstein disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.therein.High Technology Capital Management LLC is located at 100 U.N. Plaza, New York, New York 10017 |
(2)
| (3) | The address of Lifestyle HealthcareDr. and Mrs. Broderick is 4524 Westway Avenue, Dallas, TX 75205. Nickolay Kukekov has voting and dispositive power over the shares. Dr. Kukekov disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein.6419 193rd St., East Bradenton, FL 34211 |
(3)
| (4) | The address of Mr. BrownDr. Zhelyaskov is 300 Prospect Avenue, Hackensack, NJ 07601.4922 Oldham St., Sarasota, FL 34238 |
(4)
| Of such shares, 6,749,000 are held of record by High Technology Capital Fund LP and 337,450 are held of record by Irina Migalina, Dr. Goldstein’s wife. Dr. Goldstein disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.
|
(5) | Includes 1,415,0001,384,980 held by Lifestyle Healthcare LLC and 100,000824,222 shares underlying convertible notes with 343,426 of ourwarrants and 2,380,721 shares of common stock underlying warrantsoptions issued to Dr. Kukekov. Dr. Kukekov disclaims beneficial ownership of the shares held by Lifestyle except to the extent of his pecuniary interest therein. The address for Dr. Kukekov is 4524 Westway Ave., Dallas, Tx 75205 |
| (6) | The address for Mr. Cloutier is Lyzhyny 8-1, #762, St. Petersburg, Russian Federation 197345 |
| (7) | The address for Mr. MacKenzie is 5251 Fisher Island Dr., Miami Beach, Fl 33109 |
| (8) | The address for Mr. Oliver is 32 Intervale Rd., Weston, MA 02493 |
| (9) | The address for Mr. Anthony is 12041 NW 49th Drive, Coral Springs, FL 33076 |
| (10) | The address for Mr. Eckler is 10734 Northwest 80th Circle, Parkland, FL 33076 |
| (11) | The address for Ms Gerety is 5255 S. Trimble Rd., Atlanta, GA 30342 |
| (12) | An additional 2,132,032 options vest prior to December 31, 2023 |
| (13) | an additional 226,169 options vest prior to December 31, 2023 |
| (14) | An additional 476,190 options vest prior to December 31, 2023 |
45
Securities Authorized for Issuance under Equity Compensation Plans In August 2018, our board of directors adopted and stockholders approved our 2018 Equity Incentive Plan. Under the 2018 Equity Incentive Plan, we may grant equity-based incentive awards, including options, restricted stock, and other stock-based awards, to any directors, employees, advisers, and consultants that provide services to us or any of our subsidiaries on terms and conditions that are from time to time determined by us. An aggregate of up to 3,500,000 shares of our common stock are reserved for issuance under the 2018 Plan. The purpose of the 2018 Plan is to provide financial incentives for selected directors, employees, advisers, and consultants of the Company and/or its subsidiaries, thereby promoting the long-term growth and financial success of the Company. The board of directors believes that the 2018 Plan will serve a critical role in attracting and retaining high caliber employees, consultants and directors. The table below sets forth information as of December 31, 2021 with respect to compensation plans under which our common stock is authorized for issuance.
| | | (a) | | | (b) | | | (c) | |
| Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | | Weighted- average exercise price of outstanding options, warrants and rights | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |
| Equity compensation plans approved by security holders | | | 5,384,771 | | | $ | 0.23 | | | | 2,615,229 | |
| Equity compensation plans not approved by security holders | | | 0 | | | | 0 | | | | 0 | |
| Total | | | 5,384,771 | | | | | | | | 2,615,229 | |
ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DuringThe following is a summary of transactions since January 1, 2021 to which we have been or will be a party in which the amount involved exceeded or will exceed $6,838,885 (one percent of the average of our total assets at year-end for our last two completed fiscal years) and in which any of our directors, executive officers or beneficial holders of more than 5% of any class of our capital stock, or any immediate family member of, or person sharing a household with, any of these individuals, had or will have a direct or indirect material interest, other than compensation arrangements that are described under the section captioned “Executive compensation.”
Other than as disclosed below, there have been no transactions involving the Company since the beginning of the last fiscal year, ended December 31, 2017, an entity controlled by Vadim Sakharov,or any currently proposed transactions, in which the Company was or is to be a participant and the amount involved exceeds $120,000 or one percent of the average of the Company’s then CEOtotal assets at year-end for the last two completed fiscal years, and current President and CTO, providedin which any related person had or will have a non-interest-bearing, no-term loan to the Company. The Company repaid that loan in full during the year ended December 31, 2018. During the year ended December 31, 2018, an entity controlled by Mr. Sakharov provided a $50,000 non-interest-bearing, no-term loan to the Company. As of December 31, 2018, and December 31, 2017, the balance to related parties was $50,000 and $34,252, respectively.direct or indirect material interest.
On May 9, 2017, MemoryMD entered into a sublease agreement with Nano Graphene Inc., a company controlled by Dr. Goldstein and his affiliates. In the years ended December 31, 2018 and 2017 Nano Graphene paid rent, of $10,626 and $15,939, respectively, for warehouse space in the facility.
During the years ended December 31, 2018 and 2017, the Company had expenses related to research and development costs of $59,788 and $62,700, respectively, to an entity controlled by Mr. Sakharov.
During the years ended December 31, 2018 and 2017, the Company had expenses related to marketing and sales costs of $15,000 and $38,347, respectively, to entities controlled by the Company’s Chairman.
During the years ended December 31, 2018 and 2017, the Company had expenses related to consulting fees of $83,377 and $0, respectively, to Mr. Sakharov.
Nickolay Kukekov, a director of the Company, is a Partner of HRA Capital. HRA Capital, through Corinthian Partners, LLC, acted as placement agent for MemoryMD’s convertible note offerings pursuant to which Corinthian received aggregate fees of $117,880 and warrants to purchase an estimated 291,740 shares of Company common stock. We expect to pay to Corinthian additional fees which are being negotiated.
In May 2018,November 12, 2021 we entered into a Patent Assignment and License BackRepresentation Agreement with Boris Goldstein,LOK Corporation International Inc. (“LOK”), a corporation in which Daniel Cloutier, a director, serves as the chief executive officer. Under the Representation Agreement, LOK acts as an international sales manager for our Chairman, SecretaryNeuroCap and Executive Vice President, Dmitriy Prilutskiy, Stanislav ZabodaevNeurologyd products and Medical Computer Systems Ltd. Pursuant to the agreement, amongaccessories. To date, we have paid LOK approximately $4,750 for training platform development but no other things, Messrs. Goldstein, Prilutskiyservice fees and Zabodaev assigned all of their rights to a patent entitled “Apparatus And Method For Conducting Electroencephalography” (Application No.: 15/898,611), to our Company, and in return, we granted to Medical Computer Systems Ltd., an unaffiliated entity who also provides manufacturing services to us, a limited, royalty-free, fully paid-up, worldwide, nonexclusive license (without the right to sublicense or assign), to the patent, to practice, make and use the inventions, ideas and information embodied therein, and to make, use, offer to sell, sell, lease or import products, services, processes, methods and materials embodying or deriving from the inventions, ideas and information from the patent and any activities derived directly therefrom; provided, however, that if and upon FDA approval of a Product, Medical Computer Systems’ aforementioned rights shall be limited to manufacturing and sales solely to our Company or on our behalf provided that we purchase from Medical Computer Systems (and Medical Computer Systems makes availableno commissions.
See Item 11. “Executive Compensation” above for sale) a minimum of 20,000 units of Products per calendar year on reasonable terms and conditions to be determined by the parties in good faith; provided further, however, that Medical Computer Systems can without any limitation sell products embodying or deriving from the inventions, ideas and information from the patent in (i) the territories that made up the former USSR (excluding the Baltic countries) and (ii) Japan. In furtherance of the foregoing first proviso, in the event we fail to purchase the annual minimum order for a particular calendar year, Medical Computer Systems’ limitation to manufacture and sell Products only to our Company pursuant to this proviso shall be suspended for the next calendar year.
On September 1, 2018, the Company entered into a sublease agreement with a company controlled by the Company’s Chairman, whereby the Company makes payments to theother related party for shared office space. For the year ended December 31, 2018, the Company has made $6,202 in rent payments to the related party.
The Acquisition
Pursuant to the Merger Agreement for the Acquisition whereby Memory MD, Inc. became a wholly-owned subsidiary of the Company, each holder of MemoryMD Shares outstanding immediately prior to the Closing received shares oftransactions involving our common stock in exchange therefore based on the Exchange Ratio, with all fractional shares rounded up to the nearest whole share. Accordingly, we issued 675,575executive officers and 337,450 shares of our common stock to Messrs. Goldstein (and his wife) and Sakharov, respectively and 6,749,000 shares of our common stock to High Technology Capital Fund LP, an affiliate of Dr. Goldstein. Furthermore, as of the Closing, Mr. Amer Samad, the sole director and executive officer of All Soft Gels, committed to tender for cancellation 6,495,000 shares of our common stock as part of the conditions to Closing, of which 6,375,000 shares have been subsequently cancelled and of which 120,000 shares are expected to be tendered to us for cancellation as soon as practicable. The Merger Agreement also provides that Drs. Goldstein and Kukekov be appointed as a director of the Company upon the Closing of the Acquisition.directors.
Related Person Transaction Policy
The Board reviews, approves and oversees any transaction between us and any related person and any other potential conflict of interest situations on an ongoing basis, in accordance with our policies and procedures, and develops policies and procedures for the approval of related party transactions. Prior to consideration of a transaction with a related person, the material facts as to the related person's relationship or interest in the transaction are disclosed to the disinterested directors. The transaction is not approved unless a majority of the members of the Board who are not interested in the transaction approve the transaction. The Board takes into account, among other factors that it deems appropriate, whether the related person transaction is on terms no less favorable to us than terms generally available in a transaction with an unrelated third-party under the same or similar circumstances and the extent of the related person's interest in the related person transaction. Our current policy with respect to approval of related person transactions is not set forth in writing.
ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES.SERVICES.
The Board has selected the independent accounting firm of Sadler GibbAccell Audit & Assoc.Compliance, P.A. (“Accell”) to audit the accountsfinancial statements of the Company for the year ending December 31, 2018.
The Board considered the tax compliance services provided by2021. Sadler, Gibb & Assoc., concluded that provision of such services is compatible with maintainingAssociates LLC audited the independencefinancial statements of the independent accountants, and approvedCompany for the provision by Sadler Gibb & Assoc. of tax compliance services with respect to the year endingyears ended December 31, 2018.30,2020.
The Board received the following information concerning the fees of the independent accountants for the years ended December 31, 20182021 and 2017,2020, has considered whether the provision of these services is compatible with independence of the independent accountants, and concluded that it is:
| | | Year Ended | |
| | | 12/31/2021 | | | 12/31/2020 | |
| Audit Fees (1) | | | 51,000 | | | | 35,000 | |
| Audit Related Fees | | | 0 | | | | 0 | |
| Tax Fees | | | 0 | | | | 0 | |
| All Other Fees | | | 0 | | | | 0 | |
| (1) | Year Ended
| |
| | 12/31/18
| | | 12/31/17
| |
Audit Fees (1)
| | $ | - | | | $ | - | |
Audit-Related Fees
| | | 37,000 | | | | - | |
Tax Fees
| | | - | | | | - | |
All Other Fees
| | | - | | | | - | |
(1)
| Audit fees represents fees for the integrated audit of our annual consolidated financial statements and reviews of the interim consolidated financial statements, and review of audit-related SEC filings; also includes fees related to issuing comfort letter(s). Also includes tax filing fees. filing. |
Audit and tax fees include administrative overhead charges and reimbursement for out-of-pocket expenses.
Pre-Approval Policies and Procedures
Our board of directors is in the process of adoptinghas not yet adopted a policy on pre-approval of audit and permissible non-audit services.
47
PART IV
ITEM 15 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements
Our financial statements as set forth in the Index to Consolidated Financial Statements attached hereto commencing on page F-1 are hereby incorporated by reference.
(b) Exhibits
The following exhibits, which are numbered in accordance with Item 601 of Regulation S-K, are filed herewith or, as noted, incorporated by reference herein.
Exhibit No. |
| Document |
2.1 |
| Agreement and Plan of Merger and Reorganization by and among Brain Scientific Inc., ASGI Acquisition Company and Memory MD, Inc. dated as of September 21, 2018 (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 27, 2018) |
3(i)
2.2 |
| Agreement and Plan of Merger and Reorganization by and among the Registrant, Piezo Motion Corp. and BASF Acquisition Inc. dated June 11, 2021 (Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on June 16, 2021) |
| 2.3 | | Amendment dated October 1, 2021 to Agreement and Plan of Merger and Reorganization dated June 11,2021 by and among the Registrant, Piezo Motion Corp. And BRSF Acquisition Inc. (Incorporated by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed on October 7, 2021) |
| 2.4 | | Certificate of Merger of BRSF Acquisition Inc. into Piezo Motion Corp. filed October 1,2021 (Incorporated by reference to Exhibit 2.3 to the Registrant’s Current Report on Form 8-K filed on October 7, 2021) |
| 3(i) | | Amended and Restated Certificate of Incorporation of Brain Scientific Inc. (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 24, 2018) |
3(ii) |
| Amended and Restated By-Laws of Brain Scientific Inc. (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 27, 2018) |
4.1 |
| Form of Common Stock Certificate (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 27, 2018) |
4.2 |
| Form of Warrant (Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed on April 1, 2019). |
| 4.3 | | Form of Common Stock Purchase Warrant (October 2021) (Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on October 7, 2021) |
10.1
4.4** | | Description of Registrant Securities |
| 10.1 | | Patent Assignment and License Back Agreement, dated May 2018, by and among Boris Goldstein, Dmitriy Prilutskiy, Stanislav Zabodaev, Memory MD, Inc. and (c) Medical Computer Systems Ltd. (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 27, 2018) |
10.2 |
| Agreement, dated as of September 21, 2018, between Brain Scientific Inc. and Amer Samad (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 27, 2018) |
10.3 |
| Sublease Agreement dated as of May 9, 2017 by and between Memory MD, Inc. and Nano Graphene Inc. (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 27, 2018) |
10.4* |
| 2018 Equity Incentive Plan (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 27, 2018) |
10.5* |
| Form of Stock Option Award Agreement pursuant to 2018 Equity Incentive Plan (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 27, 2018) |
10.6 | Assignment and Assumption Agreement (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 27, 2018)
|
10.7*
| Jesse W. Crowne Employment Agreement (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on January 30, 2019)
|
10.8
| Form of Subscription Agreement (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on February 11, 2019) |
10.9
10.7 |
| Form of Note (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on February 11, 2019) |
21.1
10.8 | | Securities Purchase Agreement (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on January 7, 2020) |
| 10.9 | | Convertible Note (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on January 7, 2020) |
| 10.10 | | Warrant (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on January 7, 2020) |
| 10.11 | | Non-Convertible Promissory Note dated February 21, 2020 (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on February 27, 2020) |
| 10.12 | | Allonge to Convertible Promissory Note dated February 28, 2020 ($130,000) (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on March 5, 2020) |
| 10.13 | | Allonge to Convertible Promissory Note dated February 28, 2020 ($100,000) (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on March 5, 2020) |
| 10.14* | | Boris Goldstein Employment Agreement (Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed on March 31, 2020) |
| 10.15* | | Vadim Sakharov Employment Agreement (Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed on March 31, 2020) |
| 10.16 | | Convertible Grid Promissory Note, dated April 21, 2020, issued to Thomas J. Caleca (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on April 27, 2020) |
| 10.17 | | Common Stock Purchase Warrant, dated April 21, 2020, issued to Thomas J. Caleca (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on April 27, 2020) |
| 10.18 | | Convertible Grid Promissory Note, dated April 21, 2020, issued to Andrew Brown (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on April 27, 2020) |
| 10.19 | | Common Stock Purchase Warrant, dated April 21, 2020, issued to Andrew Brown (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on April 27, 2020) |
| 10.20 | | Allonge to Promissory Note (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on July 29, 2020) |
| 10.21 | | Allonge to Promissory Note (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on August 3, 2020) |
| 10.22 | | Allonge to Promissory Note (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on August 11, 2020) |
| 10.23 | | Securities Purchase Agreement (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 3, 2020) |
| 10.24 | | 8% Convertible Redeemable Note (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 3, 2020) |
| 10.25 | | Securities Purchase Agreement (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 29, 2020) |
| 10.26 | | Promissory Note (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 29, 2020) |
| 10.27 | | Common Stock Purchase Warrant (Warrant A) (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 29, 2020) |
| 10.28 | | Common Stock Purchase Warrant (Warrant B) (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 29, 2020) |
| 10.29 | | Allonge #2 to Promissory Note (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on November 3, 2020) |
| 10.30 | | Allonge to Non-Convertible Promissory Note (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on November 17, 2020) |
| 10.31 | | Securities Purchase Agreement (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on December 31, 2020) |
| 10.32 | | 12% Senior Secured Promissory Note (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on December 31, 2020) |
| 10.33 | | Common Stock Purchase Warrant (Warrant A) (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on December 31, 2020) |
| 10.34 | | Common Stock Purchase Warrant (Warrant B) (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on December 31, 2020) |
| 10.35 | | Security Agreement (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on December 31, 2020) |
| 10.36 | | Allonge #3 to Promissory Note (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 8, 2021) |
| 10.37 | | Allonge #2 to Non-Convertible Promissory Note (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on April 27, 2021) |
| 10.38 | | Allonge to Convertible Grid Promissory Note (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on April 27, 2021) |
| 10.39 | | Allonge to Convertible Grid Promissory Note (Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on April 27, 2021) |
| 10.40 | | Allonge to Promissory Note (Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on April 27, 2021) |
| 10.41 | | Loan Agreement (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 3, 2021) |
| 10.42 | | Allonge #3 to Promissory Note (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 24, 2021) |
| 10.43 | | Allonge #2 to Promissory Note in favor of ProudLiving, LLC (Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on May 24, 2021) |
| 10.44 | | Allonge #2 to Promissory Note in favor of John Silvestri (Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on May 24, 2021) |
| 10.45 | | Allonge #2 to Promissory Note in favor of Len P. Mertz (Incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed on May 24, 2021) |
| 10.46 | | Allonge #2 to Promissory Note in favor of Leonard Mazur (Incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q filed on May 24, 2021) |
| 10.47 | | Promissory Note (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 28, 2021) |
| 10.48 | | Promissory Note (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 9, 2021) |
| 10.49 | | Promissory Note (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 9, 2021) |
| 10.50 | | Allonge #4 to Convertible Note with Vista Capital Investments, LLC (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 23, 2021) |
| 10.51 | | Allonge #3 with Auctus Fund LLC (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 25, 2021) |
| 10.51 | | Allonge #5 with Vista Capital Investments, LLC (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on August 25, 2021) |
| 10.51 | | Allonge #6 with Vista Capital Investments, LLC (Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on August 25, 2021) |
| 10.52 | | Promissory Note (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 9, 2021) |
| 10.53 | | Assignment and Assumption Agreement dated October 1, 2021 between the Registrant and MemoryMD, Inc. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 7, 2021) |
| 10.54 | | Form of 10% Convertible Promissory Note (October 2021) (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on October 7, 2021) |
| 10.55* | | Employment Agreement dated October 1, 2021 between the Registrant and Hassan Kotob (Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on October 7, 2021) |
| 10.56 | | Assignment Agreement dated September 28, 2021 between MemoryMD, Inc. and Boris Goldstein (Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on October 7, 2021) |
| 10.57 | | Assignment Agreement dated September 30, 2021 between MemoryMD, Inc. Vadim Sakharov and (Incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on October 7, 2021) |
| 10.58 | | Form Securities Purchase Agreement (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 28, 2021) |
| 10.59 | | Form Convertible Promissory Note (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on December 28, 2021) |
| 10.60 | | Form Common Stock Purchase Warrant (Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on December 28, 2021) |
| 10.61 | | Form Securities Purchase Agreement (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 16, 2022) |
| 10.62 | | Form Convertible Promissory Note (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 16, 2022) |
| 10.63 | | Form Common Stock Purchase Warrant (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 16, 2022) |
| 10.64* ** | | Employment Agreement dated June 1, 2021 between the Registrant and Bonnie-Jeanne Gerety |
| 10.65* ** | | Employment Agreement dated June 1, 2020 between the Registrant and Mark Broderick |
| 10.66* ** | | Employment Agreement dated June 20, 2018 between the Registrant and Nicholas Copley |
| 14.1 | | Code of Ethics (Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed on March 31, 2020) |
| 16.1 | | Letter from Sadler, Gibb & Associates LLC, dated December 2, 2021 (Incorporated by reference to Exhibit 16.1 to the Registrant’s Current Report on Form 8-K filed on December 3, 2021) |
| 21.1 | | Subsidiaries of the Registrant (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 27, 2018) |
31.1
31.1** |
| Certification Pursuantof , Chief Executive Officer, pursuant to Securities Exchange Act Rule 13(a)-14(a)13a-14(a) and 15d-14(a), as Adopted Pursuantadopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Jesse W. Crowne, Chief Executive Officer) |
31.2
31.2** |
| Certification Pursuantof Chief Financial Officer, pursuant to Securities Exchange Act Rule 13(a)-14(a)13a-14(a) and 15d-14(a), as Adopted Pursuantadopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Mark Corrao, Chief Financial Officer) |
32.1
32.1** |
| Certification Pursuantof Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, As Adopted Pursuantas adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Jesse W. Crowne, Chief Executive Officer) |
32.2
32.2** |
| Certification Pursuantof Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, As Adopted Pursuantas adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Mark Corrao, Chief Financial Officer) |
101.INS
99.1 | XBRL Instance.
| Press Release dated January 21, 2021 (Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on January 21, 2021) |
101.SCH
99.2 |
| Press Release dated March 9, 2021 (Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on March 9, 2021) |
| 99.3 | | Press Release dated March 16, 2021 (Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on March 16, 2021) |
| 99.4 | | Press Release dated March 31, 2021 (Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on March 31, 2021) |
| | Press Release dated May 24, 2021 (Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on May 24, 2021) |
| 99.5 | | Press Release dated June 16, 2021 (Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on June 16, 2021) |
| 99.6 | | Press Release dated October 4, 2021 (Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on October 7, 2021) |
| 99.7 | | Presentation Material (Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on October 18, 2021) |
| 99.8 | | Press Release, dated November 10, 2021 (Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on November 10, 2021) |
| 99.9 | | Audited Financial Information of Piezo Motion Corp as of and for the years ended December 31, 2020 and December 31, 2019. (Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K/A filed on December 15, 2021) |
| 99.10 | | Unaudited Financial Information of Piezo Motion for the nine months ended September 30, 2021 and 2020. (Incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K/A filed on December 15, 2021) |
| 99.11 | | Unaudited Pro Forma Condensed Combined Financial Information of Brain Scientific Inc. and Piezo Motion Corp. as of and for the year ended December 31, 2020 and for the nine months ended September 30, 2021. (Incorporated by reference to Exhibit 99.3 to the Registrant’s Current Report on Form 8-K/A filed on December 15, 2021) |
| 99.12 | | Presentation Material (Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on January 13, 2022) |
| 101.INS | | Inline XBRL Instance Document. |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema.Schema Document. |
101.CAL | | Inline XBRL Taxonomy Extension Calculation.Calculation Linkbase Document. |
101.DEF | | Inline XBRL Taxonomy Extension Definition.Definition Linkbase Document. |
101.LAB | | Inline XBRL Taxonomy Extension Labels.Label Linkbase Document. |
101.PRE | | Inline XBRL Taxonomy Extension Presentation.Presentation Linkbase Document. |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* Management contract or compensatory plan or arrangement.
| * | Management contract or compensatory plan or arrangement. |
48
SIGNATURES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| BRAIN SCIENTIFIC INC. | |
| | | |
| | | |
| By:
| /s/ Jesse W. Crowne
| |
| | Jesse W. Crowne
| |
| | Chief Executive Officer
| |
| | | |
| By: | /s/ Hassan Kotob |
| | Hassan Kotob |
| | Chairman and Chief Executive Officer |
| | (Principal Executive Officer) |
| | | |
| | | Dated: April 1, 2019 | March 31, 2022 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | | Title | | Date |
| | | | |
/s/ Boris Goldstein Hassan Kotob | | Chairman Secretary and Executive Vice President | | April 1, 2019
|
Boris Goldstein
| | | | |
| | | | |
/s/ Jesse W. Crowne
| | Chief Executive Officer and Director (Principal Executive Officer) | | April 1, 2019
March 31, 2022 |
Jesse W. Crowne
Hassan Kotob | | (Principal Executive Officer)
| | |
| | | | |
/s/ Vadim Sakharov Bonnie-Jeanne Gerety | | Director, President and Chief Technology Officer
| | April 1, 2019
|
Vadim Sakharov
| | | | |
| | | | |
/s/ Mark Corrao
| | Chief Financial Officer | | April 1, 2019
March 31, 2022 |
Mark Corrao
Bonnie-Jeanne Gerety | | (Principal Financial and Accounting Officer) | | |
| | | | |
/s/ Nickolay Kukekov | | Director | | April 1, 2019
March 31, 2022 |
Nickolay Kukekov | | | | |
| | | | March 31, 2022 |
| /s/ Daniel Cloutier. | | Director | | |
| Daniel Cloutier | | | | |
| | | | |
| /s/ Donald MacKenzie | | Director | | March 31, 2022 |
| Donald MacKenzie | | | | |
| | | | |
| /s/ Thomas Olivier | | Director | | March 31, 2022 |
| Thomas Olivier | | | | |
49
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