UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended SeptemberJune 30, 20212022
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _____ to _____
Commission file number: 333-209325
BRAIN SCIENTIFIC INC.
(Name of Registrant in Its Charter)
| Nevada | 81-0876714 | |
| State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
125 Wilbur Place, Suite 1706700 Professional Parkway
Bohemia, NY 11716Lakewood Ranch, Florida 34240
(Address of principal executive offices)
(917) 388-1578
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate by check whether the registrant: (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). Yes ☒ No ☐
Indicate by check mark whether 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”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act).
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Non-accelerated filer ☒ | Smaller reporting company ☒ | Emerging 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 50,206,823105,401,858 shares of Common Stock, $0.001 par value, at NovemberAugust 15, 2021.2022.
BRAIN SCIENTIFIC INC.
Index
i
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Brain Scientific Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 3,543,225 | $ | 785,363 | ||||
| Accounts receivable | 5,925 | 16,922 | ||||||
| Inventory | 130,880 | 146,090 | ||||||
| Advances to officers | - | 16,941 | ||||||
| Prepaid expenses and other current assets | 235,136 | 166,458 | ||||||
| TOTAL CURRENT ASSETS | 3,915,166 | 1,131,774 | ||||||
| Property and equipment, net | 113,380 | 122,979 | ||||||
| Intangible assets, net | 10,535,903 | 10,920,577 | ||||||
| Goodwill | 913,184 | 913,184 | ||||||
| Operating lease right-of-use asset | 126,227 | 191,702 | ||||||
| Other long-term assets | 85,000 | 95,000 | ||||||
| TOTAL ASSETS | $ | 15,688,860 | $ | 13,375,216 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 2,831,051 | $ | 2,987,264 | ||||
| Accounts payable and accrued expenses - related party | 75,000 | 75,000 | ||||||
| Accrued interest | 26,725 | 356,998 | ||||||
| Convertible notes payable, net | 1,379,323 | 337,000 | ||||||
| Notes payable | - | 320,000 | ||||||
| Loans payable | 6,667 | 6,667 | ||||||
| Notes payable - related party | 103,172 | 155,989 | ||||||
| Derivative liabilities | 2,141,640 | - | ||||||
| Operating lease liability, current portion | 78,381 | 104,591 | ||||||
| TOTAL CURRENT LIABILITIES: | 6,641,959 | 4,343,509 | ||||||
| Convertible notes payable, net | - | 9,635,551 | ||||||
| Operating lease liability, net of current portion | 50,385 | 91,089 | ||||||
| TOTAL LIABILITIES | 6,692,344 | 14,070,149 | ||||||
| Commitments and contingencies– Note 17 | ||||||||
| STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Preferred stock, $0.001 par value; 10,000,000 shares authorized, 0 shares issued and outstanding as of June 30, 2022 and December 31, 2021 | - | - | ||||||
| Common stock, $0.001 par value; 200,000,000 shares authorized, 105,401,858 and 50,217,308 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | 105,402 | 50,217 | ||||||
| Additional paid in capital | 35,848,956 | 21,537,763 | ||||||
| Accumulated deficit | (26,952,530 | ) | (22,278,923 | ) | ||||
| Accumulated other comprehensive loss | (5,312 | ) | (3,990 | ) | ||||
| TOTAL STOCKHOLDERS' EQUITY (DEFICIT) | 8,996,516 | (694,933 | ) | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 15,688,860 | $ | 13,375,216 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
Brain Scientific Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETSSTATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| REVENUE | $ | 38,464 | $ | 7,732 | $ | 198,052 | $ | 9,207 | ||||||||
| COST OF GOODS SOLD | 37,968 | 3,122 | 144,643 | 3,697 | ||||||||||||
| GROSS PROFIT | 496 | 4,610 | 53,409 | 5,510 | ||||||||||||
| SELLING, GENERAL AND ADMINISTRATIVE | ||||||||||||||||
| Research and development | 83,004 | 27,979 | 167,721 | 83,144 | ||||||||||||
| Professional fees | 256,408 | 208,979 | 444,174 | 325,886 | ||||||||||||
| Sales and marketing expenses | 213,781 | 281,271 | 405,252 | 325,044 | ||||||||||||
| Share based compensation | 280,510 | - | 578,811 | - | ||||||||||||
| General and administrative expenses | 1,359,103 | 551,691 | 2,544,559 | 1,044,303 | ||||||||||||
| TOTAL SELLING, GENERAL AND ADMINISTRATIVE | 2,192,806 | 1,069,920 | 4,140,517 | 1,778,377 | ||||||||||||
| LOSS FROM OPERATIONS | (2,192,310 | ) | (1,065,310 | ) | (4,087,108 | ) | (1,772,867 | ) | ||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Interest expense | (1,614,335 | ) | (55,432 | ) | (1,886,254 | ) | (114,217 | ) | ||||||||
| Other income | 1 | - | 6,905 | - | ||||||||||||
| Gain on forgiveness of paycheck protection loan | - | - | - | 112,338 | ||||||||||||
| Change in fair market value of derivative liabilities | 1,090,759 | - | 1,090,759 | - | ||||||||||||
| Gain/loss on settlement of derivatives | 201,097 | - | 201,097 | - | ||||||||||||
| Foreign currency transaction loss | 1,119 | - | 994 | - | ||||||||||||
| TOTAL OTHER EXPENSE | (321,359 | ) | (55,432 | ) | (586,499 | ) | (1,879 | ) | ||||||||
| LOSS BEFORE INCOME TAXES | (2,513,669 | ) | (1,120,742 | ) | (4,673,607 | ) | (1,774,746 | ) | ||||||||
| PROVISION FOR INCOME TAXES | - | - | - | - | ||||||||||||
| NET LOSS | (2,513,669 | ) | (1,120,742 | ) | (4,673,607 | ) | (1,774,746 | ) | ||||||||
| OTHER COMPREHENSIVE LOSS | ||||||||||||||||
| Foreign currency translation adjustment | (1,773 | ) | - | (1,322 | ) | - | ||||||||||
| TOTAL COMPREHENSIVE LOSS | (2,515,442 | ) | (1,120,742 | ) | (4,674,929 | ) | (1,774,746 | ) | ||||||||
| NET LOSS PER COMMON SHARE | ||||||||||||||||
| Basic and diluted | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.08 | ) | $ | (0.06 | ) | ||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | ||||||||||||||||
| Basic and diluted | 61,105,989 | 29,520,454 | 55,800,957 | 29,520,454 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Brain Scientific Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
| September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 26,519 | $ | 272,856 | ||||
| Accounts receivable | 15,352 | 1,460 | ||||||
| Inventory | 1,814 | 1,461 | ||||||
| Prepaid expenses and other current assets | 57,838 | 93,807 | ||||||
| Prepaid expenses and other current assets - related party | 700 | 700 | ||||||
| Operating lease right-of-use asset | 40,093 | 69,632 | ||||||
| TOTAL CURRENT ASSETS | 142,316 | 439,916 | ||||||
| Property and equipment, net | - | 302 | ||||||
| TOTAL ASSETS | $ | 142,316 | $ | 440,218 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 1,524,122 | $ | 994,908 | ||||
| Accounts payable and accrued expenses - related party | 75,000 | 6,600 | ||||||
| Notes payable | 1,149,916 | 72,466 | ||||||
| Convertible notes payable, net | 1,771,133 | 1,192,804 | ||||||
| Derivative liabilities | 1,745,483 | 2,562,942 | ||||||
| Finance lease - short term | 4,595 | 4,595 | ||||||
| Loans payable | 6,667 | 6,667 | ||||||
| Loans payable - related party | 373,003 | 322,991 | ||||||
| Operating lease liability, current portion | 42,375 | 41,793 | ||||||
| TOTAL CURRENT LIABILITIES: | 6,692,294 | 5,205,766 | ||||||
| Operating lease liability, net of current portion | - | 31,276 | ||||||
| TOTAL LIABILITIES | 6,692,294 | 5,237,042 | ||||||
| Commitments and contingencies | - | - | ||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Preferred stock, $0.001 par value; 10,000,000 shares authorized, 0 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | - | - | ||||||
| Common stock, $0.001 par value; 200,000,000 shares authorized, 20,526,349 and 19,628,258 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | 20,526 | 19,628 | ||||||
| Additional paid in capital | 3,924,999 | 3,144,490 | ||||||
| Accumulated deficit | (10,491,678 | ) | (7,956,862 | ) | ||||
| Accumulated other comprehensive loss | (3,825 | ) | (4,080 | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | (6,549,978 | ) | (4,796,824 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 142,316 | $ | 440,218 | ||||
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Comprehensive | |||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Loss | Total | |||||||||||||||||||
| Balances at December 31, 2021 | 50,217,308 | $ | 50,217 | $ | 21,537,763 | $ | (22,278,923 | ) | $ | (3,990 | ) | $ | (694,933 | ) | ||||||||||
| Fair value of stock options vested | - | - | 235,690 | - | - | 235,690 | ||||||||||||||||||
| Issuance of common stock for services | 360,695 | 361 | 129,489 | - | - | 129,850 | ||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | 451 | 451 | ||||||||||||||||||
| Net loss | - | - | - | (2,159,938 | ) | - | (2,159,938 | ) | ||||||||||||||||
| Balances at March 31, 2022 | 50,578,003 | $ | 50,578 | $ | 21,902,942 | $ | (24,438,861 | ) | $ | (3,539 | ) | $ | (2,488,880 | ) | ||||||||||
| Fair value of stock options vested | - | - | 280,510 | - | - | 280,510 | ||||||||||||||||||
| Conversion of convertible debt into common shares | 54,823,855 | 54,824 | 13,665,504 | - | - | 13,720,328 | ||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | (1,773 | ) | (1,773 | ) | ||||||||||||||||
| Net loss | - | - | - | (2,513,669 | ) | - | (2,513,669 | ) | ||||||||||||||||
| Balances at June 30, 2022 | 105,401,858 | $ | 105,402 | $ | 35,848,956 | $ | (26,952,530 | ) | $ | (5,312 | ) | $ | 8,996,516 | |||||||||||
| Balances at December 31, 2020 | 29,520,454 | $ | 29,520 | $ | 11,141,129 | $ | (13,178,237 | ) | $ | - | $ | (2,007,588 | ) | |||||||||||
| Net loss | - | - | - | (654,004 | ) | - | (654,004 | ) | ||||||||||||||||
| Balances at March 31, 2021 | 29,520,454 | $ | 29,520 | $ | 11,141,129 | $ | (13,832,241 | ) | $ | - | $ | (2,661,592 | ) | |||||||||||
| Net loss | - | - | - | (1,120,742 | ) | - | (1,120,742 | ) | ||||||||||||||||
| Balances at June 30, 2021 | 29,520,454 | $ | 29,520 | $ | 11,141,129 | $ | (14,952,983 | ) | $ | - | $ | (3,782,334 | ) | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Brain Scientific Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (4,673,607 | ) | $ | (1,774,746 | ) | ||
| Change in net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | 401,744 | 11,838 | ||||||
| Amortization of debt discount and non-cash interest expense | 1,339,218 | - | ||||||
| Change in fair market value of derivative liabilities | (1,090,759 | ) | - | |||||
| Gain on forgiveness of paycheck protection loan | - | (112,338 | ) | |||||
| Gain on settlement of lease | (1,660 | ) | - | |||||
| Fair value of stock options vested | 578,811 | - | ||||||
| Gain on debt extinguishment | (201,099 | ) | - | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 10,997 | (6,221 | ) | |||||
| Inventory | 15,210 | (22,313 | ) | |||||
| Advances to officers | 16,941 | (3,480 | ) | |||||
| Prepaid expenses and other current assets | (68,678 | ) | (38,064 | ) | ||||
| Other long-term assets | 10,000 | - | ||||||
| Accounts payable and accrued expenses | (17,474 | ) | 238,976 | |||||
| Accrued interest | 407,997 | 114,218 | ||||||
| Operating lease liabilities, net | 221 | 1,053 | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | $ | (3,272,138 | ) | $ | (1,591,077 | ) | ||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash issued for notes receivable | $ | - | $ | (70,000 | ) | |||
| Purchase of property and equipment | (7,471 | ) | (28,618 | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | $ | (7,471 | ) | $ | (98,618 | ) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible notes payable, net of issuance costs | $ | 6,421,610 | $ | 2,819,982 | ||||
| Repayment of related party loan | (53,000 | ) | - | |||||
| Repayment of convertible note payable | (10,000 | ) | - | |||||
| Repayment of promissory note and interest | (320,000 | ) | - | |||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | $ | 6,038,610 | $ | 2,819,982 | ||||
| Effect of exchange rate changes on cash | (1,139 | ) | - | |||||
| NET CHANGE IN CASH | 2,757,862 | 1,130,287 | ||||||
| CASH AT BEGINNING OF THE PERIOD | 785,363 | 68,943 | ||||||
| CASH AT END OF THE PERIOD | $ | 3,543,225 | $ | 1,199,230 | ||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Cash paid for interest | $ | 106,039 | $ | - | ||||
| Cash paid for taxes | $ | - | $ | - | ||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities | ||||||||
| Accounts payable settled with share issuance | $ | 129,850 | $ | - | ||||
| Services received settled with derivative warrants | $ | 156,399 | $ | - | ||||
| Convertible notes payable and accrued interest converted to common shares | $ | 13,921,427 | $ | - | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Brain Scientific Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| REVENUE | $ | 184,905 | $ | 144,761 | $ | 526,797 | $ | 365,265 | ||||||||
| COST OF GOODS SOLD | 110,337 | 118,501 | 335,801 | 286,315 | ||||||||||||
| GROSS PROFIT | 74,568 | 26,260 | 190,996 | 78,950 | ||||||||||||
| SELLING, GENERAL AND ADMINISTRATIVE | ||||||||||||||||
| Research and development | 154,533 | 64,681 | 386,646 | 208,026 | ||||||||||||
| Professional fees | 197,270 | 150,063 | 508,802 | 367,136 | ||||||||||||
| Sales and marketing expenses | 58,441 | 38,418 | 182,480 | 126,587 | ||||||||||||
| General and administrative expenses | 209,856 | 237,589 | 1,078,948 | 647,364 | ||||||||||||
| TOTAL SELLING, GENERAL AND ADMINISTRATIVE | 620,100 | 490,751 | 2,156,876 | 1,349,113 | ||||||||||||
| LOSS FROM OPERATIONS | (545,532 | ) | (464,491 | ) | (1,965,880 | ) | (1,270,163 | ) | ||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Interest expense | (162,279 | ) | (1,355,356 | ) | (721,576 | ) | (2,991,591 | ) | ||||||||
| Other income | (53 | ) | - | (53 | ) | 8,260 | ||||||||||
| Loss on debt extinguishment | (56,331 | ) | (176,467 | ) | (442,226 | ) | (176,467 | ) | ||||||||
| Change in fair market value of derivative liabilities | 446,894 | 1,050,921 | 595,956 | 717,104 | ||||||||||||
| Foreign currency transaction loss | (381 | ) | 34 | (409 | ) | (25 | ) | |||||||||
| TOTAL OTHER INCOME (EXPENSE) | 227,850 | (480,868 | ) | (568,308 | ) | (2,442,719 | ) | |||||||||
| LOSS BEFORE INCOME TAXES | (317,682 | ) | (945,359 | ) | (2,534,188 | ) | (3,712,882 | ) | ||||||||
| PROVISION FOR INCOME TAXES | (3 | ) | - | (628 | ) | |||||||||||
| NET LOSS | (317,685 | ) | (945,359 | ) | (2,534,816 | ) | (3,712,882 | ) | ||||||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||
| Foreign currency translation adjustment | 84 | 271 | 255 | (588 | ) | |||||||||||
| TOTAL COMPREHENSIVE LOSS | $ | (317,601 | ) | $ | (945,088 | ) | $ | (2,534,561 | ) | $ | (3,713,470 | ) | ||||
| NET LOSS PER COMMON SHARE | ||||||||||||||||
| Basic | $ | (0.02 | ) | $ | (0.05 | ) | $ | (0.13 | ) | $ | (0.19 | ) | ||||
| Diluted | $ | (0.02 | ) | $ | (0.05 | ) | $ | (0.16 | ) | $ | (0.19 | ) | ||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | ||||||||||||||||
| Basic | 20,502,034 | 19,426,400 | 20,046,331 | 19,396,993 | ||||||||||||
| Diluted | 22,903,347 | 19,426,400 | 20,181,766 | 19,396,993 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Brain Scientific Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Unaudited)
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Comprehensive | |||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income | Total | |||||||||||||||||||
| Balances at December 31, 2020 | 19,628,258 | $ | 19,628 | $ | 3,144,490 | $ | (7,956,862 | ) | $ | (4,080 | ) | $ | (4,796,824 | ) | ||||||||||
| Fair value of stock options vested | 89,130 | - | - | 89,130 | ||||||||||||||||||||
| Conversion of convertible promissory note | 27,828 | 28 | 43,968 | - | - | 43,996 | ||||||||||||||||||
| Common stock issued in debt extinguishment | 50,000 | 50 | 74,950 | - | - | 75,000 | ||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | 122 | 122 | ||||||||||||||||||
| Net loss | - | - | - | (3,197,829 | ) | - | (3,197,829 | ) | ||||||||||||||||
| Balances at March 31, 2021 | 19,706,086 | $ | 19,706 | $ | 3,352,538 | $ | (11,154,691 | ) | $ | (3,958 | ) | $ | (7,786,405 | ) | ||||||||||
| Fair value of stock options vested | - | - | 22,091 | - | - | 22,091 | ||||||||||||||||||
| Restricted shares vested | 64,927 | 65 | 53,952 | - | - | 54,017 | ||||||||||||||||||
| Conversion of convertible promissory note | 605,572 | 606 | 319,681 | - | - | 320,287 | ||||||||||||||||||
| Issuance of common shares and warrants | 17,300 | 17 | 29,425 | - | - | 29,442 | ||||||||||||||||||
| Common stock issued in debt extinguishment | 50,000 | 50 | 52,450 | - | - | 52,500 | ||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | 49 | 49 | ||||||||||||||||||
| Net income | - | - | - | 980,698 | - | 980,698 | ||||||||||||||||||
| Balances at June 30, 2021 | 20,443,885 | $ | 20,444 | $ | 3,830,137 | $ | (10,173,993 | ) | $ | (3,909 | ) | $ | (6,327,321 | ) | ||||||||||
| Fair value of stock options vested | - | - | 22,334 | - | - | 22,334 | ||||||||||||||||||
| Restricted shares vested | 32,464 | 32 | 54,578 | - | - | 54,610 | ||||||||||||||||||
| Common stock issued in debt extinguishment | 50,000 | 50 | 17,950 | - | - | 18,000 | ||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | 84 | 84 | ||||||||||||||||||
| Net loss | - | - | - | (317,685 | ) | - | (317,685 | ) | ||||||||||||||||
| Balances at September 30, 2021 | 20,526,349 | $ | 20,526 | $ | 3,924,999 | $ | (10,491,678 | ) | $ | (3,825 | ) | (6,549,978 | ) | |||||||||||
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Comprehensive | |||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income | Total | |||||||||||||||||||
| Balance at December 31, 2019 | 19,380,460 | $ | 19,381 | $ | 2,756,798 | $ | (3,672,077 | ) | $ | 366 | $ | (895,532 | ) | |||||||||||
| Fair value of stock options vested | - | - | 5,914 | - | - | 5,914 | ||||||||||||||||||
| Issuance of common stock for services | 3,334 | 3 | 9,999 | - | - | 10,002 | ||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | (1,053 | ) | (1,053 | ) | ||||||||||||||||
| Net loss | - | - | - | (951,660 | ) | - | (951,660 | ) | ||||||||||||||||
| Balances at March 31, 2020 | 19,383,794 | $ | 19,384 | $ | 2,772,711 | $ | (4,623,737 | ) | $ | (687 | ) | $ | (1,832,329 | ) | ||||||||||
| Fair value of stock options vested | - | - | 8,038 | - | - | 8,038 | ||||||||||||||||||
| Issuance of common stock for services | 13,802 | 14 | 20,276 | - | - | 20,290 | ||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | 194 | 194 | ||||||||||||||||||
| Net loss | - | - | - | (1,815,863 | ) | - | (1,815,863 | ) | ||||||||||||||||
| Balances at June 30, 2020 | 19,397,596 | 19,398 | 2,801,025 | (6,439,600 | ) | (493 | ) | (3,619,670 | ) | |||||||||||||||
| Fair value of stock options vested | - | 8,127 | - | - | 8,127 | |||||||||||||||||||
| Issuance of common stock for services | 30,662 | 30 | 31,705 | - | - | 31,735 | ||||||||||||||||||
| Common stock issued in debt extinguishment | 50,000 | 50 | 74,950 | - | - | 75,000 | ||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | 271 | 271 | |||||||||||||||||||
| Net loss | - | - | (945,359 | ) | - | (945,359 | ) | |||||||||||||||||
| Balances at September 30, 2020 | 19,478,258 | 19,478 | $ | 2,915,807 | $ | (7,384,959 | ) | $ | (222 | ) | $ | (4,449,896 | ) | |||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Brain Scientific Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (2,534,816 | ) | $ | (3,712,882 | ) | ||
| Change in net loss to net cash used in operating activities: | ||||||||
| Depreciation expense | 302 | 1,027 | ||||||
| Amortization of debt discount and non-cash interest expense | 611,191 | 2,921,860 | ||||||
| Change in fair value of derivative liabilities | (595,956 | ) | (717,104 | ) | ||||
| Loss on debt extinguishment | 442,226 | 176,467 | ||||||
| Fair value of stock options vested | 134,839 | 22,079 | ||||||
| Common stock issued for services | 107,343 | 62,027 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (13,892 | ) | 864 | |||||
| Inventory | (353 | ) | (4,084 | ) | ||||
| Prepaid expenses and other current assets | 35,969 | 3,816 | ||||||
| Accounts payable and accrued expenses | 538,626 | 558,332 | ||||||
| Accounts payable - related party | 68,400 | (2,663 | ) | |||||
| Other liabilities | - | (1,782 | ) | |||||
| Operating lease liabilities, net | (1,155 | ) | 3,702 | |||||
| NET CASH USED IN OPERATING ACTIVITIES | $ | (1,207,276 | ) | $ | (688,341 | ) | ||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | $ | - | $ | - | ||||
| NET CASH USED IN INVESTING ACTIVITIES | $ | - | $ | - | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible notes payable | $ | 500,000 | $ | 476,700 | ||||
| Proceeds from note payable | 853,067 | 20,000 | ||||||
| Proceeds from share issuance | 29,442 | 6,667 | ||||||
| Proceeds from warrant issuance | 1,230 | |||||||
| Proceeds from related party loans | 50,000 | |||||||
| Repayment of promissory note | (473,067 | ) | - | |||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | $ | 960,672 | $ | 503,367 | ||||
| Effect of exchange rate changes on cash | 267 | (702 | ) | |||||
| NET CHANGE IN CASH | (246,337 | ) | (185,676 | ) | ||||
| CASH AT BEGINNING OF THE PERIOD | 272,856 | 261,436 | ||||||
| CASH AT END OF THE PERIOD | $ | 26,519 | $ | 75,760 | ||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Cash paid for interest | $ | 14,533 | $ | 9,867 | ||||
| Cash paid for taxes | $ | - | $ | - | ||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities | ||||||||
| Discounts related to warrants issued in connection with convertible debentures | $ | - | $ | |||||
| Debt discount and derivative liability associated with convertible and non-convertible notes payable | $ | - | $ | 679,667 | ||||
| Conversion of convertible debt into common shares | $ | 166,912 | $ | - | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BRAIN SCIENTIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20212022
(unaudited)
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, 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 Company has two lines of operations. The MemoryMD subsidiary 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 “MemoryMD Business”). On October 1, 2021caps. The Piezo subsidiary group is focused on the Company completed a merger with Piezo Motion Corp., a Delaware corporation (“Piezo”), and BRSF Acquisition Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”). Merger Sub was merged with and into Piezo, whereby Merger Sub ceased to exist and Piezo survived as a wholly owned subsidiary of the Company (the “Piezo Merger”). Piezo is a leader inultrasonic standing wave-type piezo motor technology with a multi-million dollar investmentfor rotary and linear motion and has experience in the research and development, as well as the manufacturing of affordable piezoelectricpiezo motors to meet, and exceed,for high-tech industries across the needs of today’s global markets. Piezo is committed to the development of innovative piezoelectric polymer actuators and electrode components that enhance their functionality in a multitude of applications. Its current business is to work with startups, OEMs, research institutions, and industrial companies from around the world empowering the visionaries behind their products (the “Piezo Business”). Post the Piezo Merger, theglobe. The Company is now a holding company pursuing both the Memory MD Business and Piezo Business.headquartered in 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 owned subsidiary.
The Merger was effected pursuant to the Merger Agreement. The Merger was accounted for as a reverse merger whereby Piezo was 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 the remaining 120,000 were cancelled prior to September 30, 2021. Total shares issued as a result of the Acquisition was 13,421,752.stock.
The Acquisition has been accounted for as a reverse recapitalization of Brain Scientific 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 as 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 AgreementAcquisition Accounting
AsThe fair value 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 remainingBrain Scientific assets acquired 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.assumed was based upon management’s estimates assisted by an independent third-party valuation firm.
Name Change and Increase in Authorized SharesThe following table summarizes the allocation of purchase price of the acquisition:
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.
| 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: | ||||
| Licenses and trademarks | ||||
| Brain Scientific Trade Name | 133,000 | |||
| MemoryMD Trade Name | 533,000 | |||
| Neurocap Trade Name | 188,000 | |||
| Neuro EEG Trade Name | 11,000 | |||
| Customer relationships | ||||
| Customer Relationships | (29,000 | ) | ||
| Patent products | ||||
| 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 | ||
Unaudited Interim Financial Information
The Company has prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These consolidated financial statements are unaudited and, in the Company’s opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of its balance sheets, operating results, and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for 2021.2022. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes.
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 subsidiaries, Piezo Motion Corp, Discovery Technology International, Inc., MemoryMD, Inc., MemoryMD – Russia and MemoryMD – Europe and BRSF Acquisition Inc.- Europe. All significant consolidated transactions and balances have been eliminated in consolidation.
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, warrants and warrants.derivative liabilities.
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 SeptemberJune 30, 20212022 and December 31, 2020,2021, 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 SeptemberJune 30, 2021,2022, and December 31, 2020,2021, the Company had $0$3,196,350 and $22,856,$277,989, respectively, in excess over the FDIC insurance limit.
Inventory
Inventory consists of raw material, parts and finished goods that are valued at lower of cost or market using the weighted average method. As of September 30, 2021, and December 31, 2020, the Company had inventory totaling $1,814 and $1,461, respectively.
Property Equipment and DepreciationEquipment
Property, plant and equipment are recordedcarried at cost, less depreciation.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 three7 years. Depreciation expense was $302 and $1,027 for the nine months ended September 30, 2021 and 2020, respectively.
Intangible assets, net
Intangible assets are measured at cost less accumulated amortization and impairment losses, if any.
Intangible assets are amortized on a straight-line basis over their estimated useful lives, which do not exceed the contractual period, if any. The estimated useful lives, residual values, and amortization methods are reviewed at each year end, and any changes in estimates are accounted for prospectively.
| Patents | 3-15 years | ||
| Licenses and trademarks | 9 years | ||
| Customer relationships | 13 years |
Amortization expense is included in the consolidated income statement within general and administrative expenses.
The asset is tested for impairment if there is a trigger for impairment.
Goodwill
Goodwill represents the excess of the 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 reporting 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 at a discount to the common stock at the time of conversion. For certain notes, the conversion features are contingent upon future events, whereby, the holder agreed not to convert until the contingent future event has occurred.
Derivative Instruments
The Company evaluates its convertible notes and warrants to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815. The result of this accounting treatment is that the fair value of the embedded derivative is recorded as a liability and marked-to-market each balance sheet date. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.
The Company utilizes the Monte Carlo method that values the liability of the debt conversion feature, derivative financial instruments and derivative warrants in cases where there may be multiple embedded features, or the features of the bifurcated derivatives may be so complex that a Black-Scholes valuation does not consider all of the terms of the instrument. Therefore, the fair value may not be appropriately captured by simple models. The Monte Carlo method applied generates many possible (but random) price paths for the underlying (or underlyings) via simulation, and then calculates the associated payment value of the derivative features. The price of the underlying common stock is modeled such that it follows a geometric Brownian motion with constant drift, and constant volatility. The stock price is determined by a random sampling from a normal distribution. Since the underlying random process is the same, for enough price paths, the value of derivative is derived from path dependent scenarios and outcomes.
From time to time, certain of the Company’s embedded conversion features on debt and outstanding warrants have been treated as derivative liabilities for accounting purposes under ASC 815 due to insufficient authorized shares to fully settle conversion features of the instruments if exercised. In this case, the Company utilized the latest inception date sequencing method to reclassify outstanding instruments as derivative instruments. These contracts were recognized at fair value with changes in fair value recognized in earnings until such time as the conditions giving rise to such derivative liability classification were settled.
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on their balance sheets as a right-of-use asset with a corresponding lease liability. Lessor accounting under the standard is substantially unchanged. Additional qualitative and quantitative disclosures are also required. The Company adopted the standard effective January 1, 2019 using the cumulative-effect adjustment transition method, which applies the provisions of the standard at the effective date without adjusting the comparative periods presented. The Company adopted the following practical expedients and elected the following accounting policies related to this standard update:
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 receiving a letter of acceptance from the 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, as well as revenue from the sale of goods purchased through manufacturers of medical devices. Primarily all revenues for the ninesix months ended SeptemberJune 30, 20212022 are from the sale of medical devices purchased from Neurotech, a related party. Revenues for the six months ended June 30, 2021 of $9,207 related to the sales of evaluation kits.
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 ninethree and six months ended SeptemberJune 30, 2022 were $83,004 and $167,721, respectively. Research and development costs recognized in the statement of operations for the three and six months ended June 30, 2021 were $27,979 and 2020 were $386,646 and $208,026,$83,144, respectively.
Sales and Marketing
Advertising and marketing costs are expensed as incurred. Advertising and marketing costs recognized in the statement of operations for the ninethree and six months ended SeptemberJune 30, 2022 were $213,781 and $405,252, respectively. Advertising and marketing costs recognized in the statement of operations for the three and six months ended June 30, 2021 were $281,271 and 2020 were $182,480 and $126,587,$325,044, 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.
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 three and nine months ended SeptemberJune 30, 2022 and 2021, 6,737,609,89,244,202, and 4,403,8280 anti-dilutive securities were excluded from the computation, respectively.
| Three months ended September 30, | Three months ended September 30, | Nine months ended September 30, | Nine months ended September 30, | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net loss | $ | (317,685 | ) | (945,359 | ) | (2,534,816 | ) | (3,712,882 | ) | |||||||
| Loss on settlement of debt | (16,517 | ) | - | - | - | |||||||||||
| Change of fair value of derivatives | (133,031 | ) | - | (610,775 | ) | - | ||||||||||
| Adjusted net loss | $ | (467,233 | ) | (945,359 | ) | (3,145,591 | ) | (3,712,882 | ) | |||||||
| Denominator: Weighted average shares outstanding used in computing net loss per share | ||||||||||||||||
| Basic | 20,502,736 | 19,426,400 | 20,046,331 | 19,396,993 | ||||||||||||
| Effect of dilutive warrants | 257,029 | - | 135,435 | - | ||||||||||||
| Effect of convertible note weighted shares | 2,144,284 | - | - | - | ||||||||||||
| Diluted | $ | 22,903,347 | 19,426,400 | 20,181,766 | 19,396,993 | |||||||||||
| Net loss per share applicable to common shareholders: | ||||||||||||||||
| Basic | $ | (0.02 | ) | (0.09 | ) | (0.13 | ) | (0.14 | ) | |||||||
| Diluted | $ | (0.02 | ) | (0.09 | ) | (0.16 | ) | (0.14 | ) | |||||||
Fair Value of Financial Instruments
The Company’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 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.
As of June 30, 2022, the Company had a Level 3 financial instrument related to the derivative liabilities related to the issuance of convertible debt and warrants. The Company did not have any other Level 1, Level 2 or Level 23 assets or liabilities as of September 30, 2021 and December 31, 2020. 2021.
Fair Value of Financial Assets and Liabilities Measured on a Recurring Basis
Financial liabilities measured at fair value on a recurring basis are summarized below and disclosed on the consolidated balance sheet as of SeptemberJune 30, 2021.2022.
| Liabilities | Amounts at Fair Value | Level 1 | Level 2 | Level 3 | Amounts at Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
| Derivative liability – conversion feature | $ | 257,413 | $ | - | $ | - | $ | 257,413 | $ | 1,118,000 | $ | - | $ | - | $ | 1,118,000 | ||||||||||||||||
| Derivative liability - warrants | 1,488,070 | - | - | 1,488,070 | ||||||||||||||||||||||||||||
| Derivative liability – warrants | 1,023,640 | - | - | 1,023,640 | ||||||||||||||||||||||||||||
| Total | $ | 1,745,483 | $ | - | $ | - | $ | 1,745,483 | $ | 2,141,640 | $ | - | $ | - | $ | 2,141,640 | ||||||||||||||||
Financial liabilities measured at fair value on a recurring basis are summarized below and disclosed on the consolidated balance sheet as of December 31, 2020.
| Liabilities | Amounts at Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
| Derivative liability – conversion feature | $ | 345,708 | $ | - | $ | - | $ | 345,708 | ||||||||
| Derivative liability - warrants | 2,217,234 | - | - | 2,217,234 | ||||||||||||
| Total | $ | 2,562,942 | $ | - | $ | - | $ | 2,562,942 | ||||||||
Income Taxes
The Company accounts for income taxes using the asset-and-liability method in accordance with ASC Topic 740, “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 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.
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 SeptemberJune 30, 2021,2022, and December 31, 2020,2021, 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.
Reclassification
Certain prior period balances have been reclassified to conform to current year presentation.
Recently 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.
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 ninesix months ended SeptemberJune 30, 2021,2022, the Company had $526,797$198,052 in revenues, a net loss of $2,535,184$4,674,929 and had net cash used in operations of $1,207,276.$3,272,138. Additionally, as of SeptemberJune 30, 2021,2022, the Company had an accumulated deficit and negative working capital deficit, stockholders’ deficitof $26,952,530 and accumulated deficit of $6,549,978, $6,549,978 and $10,491,678, respectively.$2,726,793. 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 – INVENTORY
| June 30, 2022 | December 31, 2021 | |||||||
| Raw materials | $ | 77,124 | $ | 93,190 | ||||
| Parts | 11,857 | 11,857 | ||||||
| Finished goods | 41,899 | 41,043 | ||||||
| Total | $ | 130,880 | $ | 146,090 | ||||
NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
| June 30, 2022 | December 31, 2021 | |||||||
| Prepaid insurance | $ | 68,714 | $ | 105,900 | ||||
| Other prepaid expenses | 152,044 | 46,170 | ||||||
| Lease deposits | 14,378 | 14,378 | ||||||
| Other assets | - | 10 | ||||||
| Total | $ | 235,136 | $ | 166,458 | ||||
As of June 30, 2022 and December 31, 2021, there was a total amount of $85,000 and $95,000 of long-term prepaid insurance, respectively.
NOTE 6 – PROPERTY AND EQUIPMENT
Property and equipment, net consists of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| Machinery and equipment | $ | 184,149 | $ | 176,678 | ||||
| Leasehold improvements | 12,283 | 12,283 | ||||||
| 196,432 | 188,961 | |||||||
| Less: Accumulated depreciation | (83,052 | ) | (65,982 | ) | ||||
| Total | $ | 113,380 | $ | 122,979 | ||||
Depreciation expense was $8,695 and $17,070 for the three and six months ended June 30, 2022, respectively. Depreciation expense was $6,505 and $11,838 for the three and six months ended June 30, 2021, respectively.
NOTE 7 – INTANGIBLE ASSETS, NET
The components of the acquired intangible assets were as follows:
| June 30, 2022 | December 31, 2021 | Average Estimated Life | |||||||
| Patent products | $ | 10,277,000 | $ | 10,277,000 | 3.3 - 15.4 | ||||
| Licenses and trademarks | 865,000 | 865,000 | 9 | ||||||
| Customer relationships | (29,000 | ) | (29,000 | ) | 12.5 | ||||
| Intangible assets | $ | 11,113,000 | $ | 11,113,000 | |||||
| Less: Accumulated depreciation | (577,097 | ) | (192,423 | ) | |||||
| Total | $ | 10,535,903 | $ | 10,920,577 | |||||
NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable as of June 30, 2022 and December 31, 2021 consisted of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| Trade payables | $ | 1,243,580 | $ | 1,101,028 | ||||
| Accrued payroll and related expenses | 1,398,031 | 1,593,925 | ||||||
| Accrued expenses | 188,356 | 255,820 | ||||||
| Customer deposits | 1,084 | 36,491 | ||||||
| Total | $ | 2,831,051 | $ | 2,987,264 | ||||
NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES – RELATED PARTY
Accounts payable related parties as of June 30, 2022 and December 31, 2021 consists of accrued director’s fees in the amount of $75,000.
NOTE 10 – CONVERTIBLE NOTES PAYABLE – SHORT TERM
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 to one of the debt agreements increasing the debt by $20,000, resulting in an outstanding balance of the assumed convertible debt as of December 31, 2021 of $337,000. The assumed convertible debt is made up of the 2019 Note and the Convertible Grid note whose terms are described below. During the three months ended June 30, 2022, the Company converted the Grid Notes totaling $250,000 into common stock, added $33,000 of accrued interest to the 2019 Note principal as per an amendment to the agreement, and paid off $10,000 of principal of the 2019 Note, resulting in a balance of $110,000 at June 30, 2022.
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. On March 31, 2022 the Company signed an allonge amending the Note, extending the maturity date to December 31, 2022 and amended the outstanding balance and payment schedule to provide for seven monthly payments of $10,000 plus interest at the rate of 14% per annum. The first monthly payment is payable on June 30, 2022. A final payment of $50,000 plus interest is due upon maturity. During the three months ended June 30, 2022, the Company added accrued interest of $33,000 to the 2019 Note principal as per an amendment to the agreement, and paid off $10,000 of principal of the 2019 Note, resulting in a balance of $110,000 at June 30, 2022.
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. In 2021, the terms of the Grid Warrants were amended extending the first date of exercise to October 21, 2022.
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, was payable on April 21, 2021, which was amended to April 21, 2022. The Company had a total outstanding principal balance of $250,000 as of December 31, 2021 and accrued interest and $28,032 as of December 31, 2021, respectively. During the three months ended June 30, 2022, the Grid Notes and accrued interest were converted into 287,282 shares of common stock.
2022 Notes
On June 13, 2022, the Company consummated the first closing of a private placement offering whereby the Company entered into a Securities Purchase Agreement (SPA), dated as of June 13, 2022 with thirteen accredited investors, pursuant to which the investors purchased from the Company, for an aggregate purchase price of $5,110,000, (i) 10% Original Issue Discount Senior Secured Convertible Debentures (the “2022 Notes”), in the principal amount of $5,659,500 and (ii) 18,896,493 warrants to purchase shares of common stock of the Company at the same price as the debt conversion price. In addition, 2,015,626 warrants were issued to the book-runner of this offering (together with the 18,896,493 investor warrants – the “2022 warrants”). The 2022 Notes mature on June 13, 2023 and bear interest at an annual rate of 10%.
The 2022 Warrants shall be exercisable at any time on or after the earlier of (i) the maturity date; or (ii) the closing of a registered offering of the Company’s securities for aggregate gross proceeds to the Company of at least $5,000,000, resulting in the listing for trading of the Common Stock on the NYSE American or The Nasdaq Capital Market (the “Qualified Offering”), and on or prior to December 13, 2028 (if no Qualified Offering has been consummated occurred on or prior to the maturity date of the 2022 Notes) or the date that is five years and six months following the closing of the Qualified Offering.
The 2022 Notes contain mandatory and voluntary conversion features as follows:
(a) Mandatory Conversion.
In the event a Qualified Offering is consummated prior to the maturity date of the 2022 Notes, the 2022 Notes automatically convert into shares of Common Stock, immediately upon the occurrence of a Qualified Offering (the “Mandatory Conversion”). The exercise price per share of Common Stock pursuant to the Warrant shall mean, in the case of a Mandatory Conversion, the price of the Common Stock (or unit, if units are offered in the Qualified Offering) in the Qualified Offering.
(b) Voluntary Conversion.
The holders of the 2022 Notes have the right (subject to the conversion limitations set forth therein) from time following the maturity date and prior to a Mandatory Conversion to convert all or any part of the outstanding and unpaid principal and interest then due under the 2022 Notes into fully paid and non-assessable shares of Common Stock (the “Voluntary Conversion”). The exercise price per share of Common Stock pursuant to the Warrant shall mean, in the case of a Voluntary Conversion, the lower of (i) $0.25 per share or (ii) 75% of the average of the VWAP of the Company’s Common Stock during the ten (10) Trading Day period immediately prior to the maturity date.
In connection with the Offering, each of Piezo Motion Corp., and Memory MD, Inc., (the “Company Subsidiaries”) agreed to execute, in favor of the holders of the 2022 Notes, a guarantee to jointly and severally, unconditionally and irrevocably, guarantee to the holders the prompt and complete payment and performance when due of the Company’s obligations pursuant to the SPA.
In connection with the Offering, the Company entered into a security agreement by and among the Company, each of the holders and the Company Subsidiaries, whereby the Company agreed to grant each of the holders a security interest in all of the assets of the Company, to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the 2022 Notes and the Company Subsidiaries’ obligations under the Guarantee.
The Company evaluated the terms and conditions of the 2022 Notes under the guidance of ASC 815. The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit, the equity environment is tainted, and all additional convertible debentures and warrants are included in the value of the derivative liabilities. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion options and warrants and shares to be issued were recorded as derivative liabilities on the issuance date and revalued at each reporting period. The Company evaluated the fair value of the derivatives utilizing the “with and without scenario” using options pricing models and Monte Carlo simulation, and a probability weighted value. The variables used were remaining life of 0.5 – 1.20 years, exercise price of 0.33-0.36, annual risk-free rates of 2.5%-2.8%, annualized volatility of 100.00% and no expected dividend yield. As at June 30, 2022, the fair value of derivative liabilities in respect of the conversion feature and the warrants were $1,118,000 and $1,023,640, respectively.
NOTE 11 – NOTES PAYABLE
December 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 commitment fee of 250,000 shares of common stock, provide that Warrant B is returnable to the Company upon the repayment of the December 28 Note, as an additional incentive for the repayment of the December 28 Note. The net amount received by the Company during the year ended December 31, 2020 was approximately $265,000 after payment of certain fees to the investor or on behalf of the investor. The December 28 Note bears interest commencing on the December 28 Issuance Date at a fixed rate of 12% per annum on any unpaid principal balance, and will be payable, along with the principal amount, on December 28, 2021.
A lump-sum interest payment for one year is due on the December 28 Issuance Date and added to the principal balance and payable on the maturity date of the December 28 Note or upon acceleration or by prepayment or otherwise, notwithstanding the number of days which the principal is outstanding. Principal payments shall be made in 6 installments each in the amount of $56,000 commencing 180 days following the Issue Date (as defined in the Note) and continuing thereafter each 30 days for 5 months. The Company recorded debt discount of $300,000 related to the December 28 Note, which was fully amortized as of December 31, 2021.
On December 28, 2021, the December 28 Note was amended to add $33,600 of interest, and to amend the payment terms to two equal payments of $184,800 due on February 28, 2022 and March 31, 2022. During the six months ended June 30, 2022, the Company repaid all of the outstanding principal and interest.
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. The December Warrants include a cashless exercise provision as set forth therein.
NOTE 412 – CONVERTIBLE NOTES PAYABLE
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, February 5, 2019 and July 23, 2019, the Company issued three such convertible notes payable to three investors for $100,000, $130,000 and $150,000, respectively. The notes bear interest at a fixed rate of 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 $1,000,000 (“Qualified Financing”) or other event pursuant to which conversion shares are to be issued pursuant to the terms of the note. The Company and the holder of the January 18, 2019 convertible note agreed to extend the maturity date of the January 18, 2019 convertible note to January 18, 2021, which was further extended to January 18, 2022. The Company and the holder of the February 5, 2019 convertible note agreed to extend the maturity date of the February 5, 2019 convertible note to February 5, 2021, which was further extended to January 18, 2022. The Company and the holder of the July 23, 2019 convertible note agreed to extend the maturity date of the July 23, 2020 convertible note to February 21, 2021, which was further extended to February 21, 2022.
The notes are convertible into common stock 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 common 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 either payable on demand as of the closing of such change of control or Initial Public Offering (‘IPO”) or convertible into shares of common stock immediately prior to such change of control transaction or IPO transaction at a price per share equal to the lesser of the per share value of the common stock as determined by the Company’s Board of Directors or the per share consideration to be received by the holders of the common stock in such change of control or IPO transaction. Based on the terms of the conversion, the holders may receive a discount, and the notes are considered to have a contingent beneficial conversion feature. If conversion of the debt occurs, the Company will recognize an expense related to the intrinsic value. In the event that the Company consummates a financing prior to the maturity date, other than a Qualified Financing, and the economic terms thereof are more favorable to the investors in such financing than the terms of the note, the note shall automatically be amended to reflect such more favorable economic terms. The Company recorded $94,529 of accrued interest and has a total outstanding principal balance of $380,000 as of September 30, 2021. Subsequent to the balance sheet date, these notes and accrued interest were converted into new debt agreements as part of the merger agreement (See Note 13).
December 31, 2019 Securities Purchase Agreement
On December 31, 2019, the Company entered into a Securities Purchase Agreement and issued and sold to a third party investor 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”). The aggregate purchase price received by the Company was $250,000 after an original issue discount of $25,000. A one-time interest charge of 8% was applied on December 31, 2019 and will be payable, along with the Principal, on July 31, 2020, as may be extended at the option of the Investor.
On August 5, 2020, the Company entered into an Allonge to the Convertible Note, dated as of August 8, 2020, which amended the Note. The allonge amended the Note by, among other things, extending the maturity date of the loan until October 31, 2020. As consideration for the allonge, the original principal amount was increased by 10 percent, and the Company agreed to issue 50,000 shares of its common stock to the investor that were valued at fair market value of $75,000. The Company evaluated the allonge for debt modification in accordance with ASC 470-50 and concluded that the debt qualified for debt extinguishment as the 10% cash flow test was met. As a result, the $297,000 of principal and accrued interest was written off, new debt was recorded at fair value as of August 5, 2020 in the amount of $324,500 and the Company recorded a net loss on extinguishment of debt in the amount of $176,467.
On October 29, 2020, the Company entered into a second Allonge to the Convertible Note which amended the Note. The allonge amended the Note by, among other things, extending the maturity date of the loan until January 31, 2021. As consideration for the allonge, the original principal amount was increased by 10 percent, and the Company agreed to issue 50,000 shares of its common stock to the investor that were valued at fair market value of $75,000. The Company evaluated the allonge for debt modification in accordance with ASC 470-50 and concluded that the debt qualified for debt extinguishment as the 10% cash flow test was met. As a result, the $324,500 of principal and accrued interest was written off, new debt was recorded at fair value as of October 29, 2020 in the amount of $359,370 and the Company recorded a net loss on extinguishment of debt in the amount of $115,524.
On December 28, 2020, the Company issued a non-convertible promissory note with interest terms that were more favorable than the terms of the Convertible Note. As a result of that issuance, certain abovementioned terms of the Convertible Note were triggered which reset the interest rate of the Convertible Note to 12%. The effect of the interest rate reset resulted in increases of $2,310 to the balance of the Convertible Note, $11,000 of accrued interest, $11,000 of interest expense and $2,310 of loss on extinguishment of debt. For the year ended December 31, 2020, the Company recorded a net loss on extinguishment of debt in the amount of $294,301. The Company has a total outstanding principal balance under the Note of $339,680 and $33,000 of accrued interest as of December 31, 2020.
On February 8, 2021 the Company entered into a third Allonge to the Convertible Note which amended the Note. The allonge amended the Note by, among other things, extending the maturity date of the loan until May 1, 2021. As consideration for the allonge, the original principal amount was increased by 10 percent, and the Company agreed to issue 50,000 shares of its common stock to the investor that were valued at fair market value of $75,000. The Company evaluated the allonge for debt modification in accordance with ASC 470-50 and concluded that the debt qualified for debt extinguishment as the 10% cash flow test was met. As a result, the $372,680 of principal and accrued interest was written off, new debt was recorded at fair value as of February 8, 2021 in the amount of $409,948 and the Company recorded a net loss on extinguishment of debt in the amount of $165,442.
On May 4, 2021, the Company entered into a fourth Allonge to the Convertible Note which amended the Note. The allonge amended the Note by, among other things, extending the maturity date of the loan until August 1, 2021. As consideration for the allonge, the original principal amount was increased by 10 percent, and the Company agreed to issue 50,000 shares of its common stock to the investor that were valued at fair market value of $52,500. The Company evaluated the allonge for debt modification in accordance with ASC 470-50 and concluded that the debt qualified for debt extinguishment as the 10% cash flow test was met. As a result, the $409,948 of principal and accrued interest was written off, new debt was recorded at fair value as of May 4, 2021 in the amount of $450,943 and the Company recorded a net loss on extinguishment of debt in the amount of $155,313.
On August 4, 2021, the Company entered into a fifth Allonge to the Convertible Note which amended the Note. The allonge amended the Note by, among other things, extending the maturity date of the loan until November 1, 2021. As consideration for the allonge, the original principal amount was increased by 10 percent, and the Company agreed to issue 50,000 shares of its common stock to the investor that were valued at fair market value of $18,000. The Company evaluated the allonge for debt modification in accordance with ASC 470-50 and concluded that the debt qualified for debt extinguishment as the 10% cash flow test was met. As a result, the $450,943 of principal and accrued interest was written off, new debt was recorded at fair value as of August 4, 2021 in the amount of $496,037 and the Company recorded a net loss on extinguishment of debt in the amount of $118,769.
On August 23, 2021, the Company entered into a sixth Allonge to the Convertible Note which amended the Note. The allonge amended the Note by, among other things, increasing the amount of principal and interest outstanding to $500,000, and providing for 5 monthly payments of $100,000 beginning with August 31, 2021, with the final payment due December 31, 2021. The Company evaluated the allonge for debt modification in accordance with ASC 470-50 and concluded that the debt qualified for debt extinguishment as the 10% cash flow test was met. As a result, the $496,037 of principal and accrued interest was written off, new debt was recorded at fair value as of August 23, 2021 in the amount of $500,000 and the Company recorded a net gain on extinguishment of debt in the amount of $74,672. The Company repaid the first $100,000 scheduled repayment on August 31, 2021.
The Company recorded a total debt discount of $332,042 related to the above convertible notes. Amortization of the debt discount was recorded as interest expense and a total of $332,042 was fully amortized during the year ended December 31, 2020.
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 shall be equal to 80% multiplied by the price per share paid by the investors in the next capital raising transaction consummated by the Company in the amount of $1,000,000 or more (the “Qualified Financing”), subject to adjustments as provided in the Note. In the event the investor elects to convert the Note prior to a Qualified Financing, the conversion price shall be the effective exercise price per share from time to time pursuant to the Note. At any time prior to the maturity date of the Note, upon 10 business days’ notice to the investor, the Company shall have the right to pre-pay the entire remaining principal amount of the Note subject to the pre-payment terms contained in the Note. The note is valued at face value and not considered a derivative since the Qualified Financing is at the control of the Company.
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 an original term of five years. On May 4, 2021, relating to a loan extension, the warrant expiration date was extended to December 31, 2027. 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.
Due to the conversion of an outstanding convertible loan, certain anti-dilution provisions were triggered, resulting in the reset of the warrant amounts from 125,000 to 594,389, warrant exercise price from $1.00 to $0.21 and the conversion price was capped at $0.21.
Convertible Grid Notes
On April 21, 2020,In conjunction with the closing of the Merger on October 1, 2021, the Company issuedconducted an initial closing under a Convertible Grid Promissory Noteprivate offering (the “Caleca Note”“Offering”) to Thomas J. Caleca (“Caleca”of 10% convertible promissory notes due and payable on April 1, 2023 (the “2021 Notes”), an existing stockholder. As part of the Company, pursuant to which Caleca agreed to advance toOffering, the Company exchanged the aggregate principal amount2020 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 $125,000 (the “Caleca Aggregate Advance”). Thedebt assumed in the merger into 2021 Notes. At the merger, the Company also issued a convertible promissory note to Caleca a common stock purchase warrant (the “Caleca Warrant”), granting Calecaan investor in the right to purchase up to 750,000 sharesamount of $2,950,000 with proceeds of $2,850,000 net of an original issuance discount, with the same terms as the 2021 Notes. The balance of the debt discount at December 31, 2021 was $83,364. 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 at a per share exercise price of $0.80 (subject to adjustment as set forth inis listed for trading on the Caleca Warrant).
Also on April 21, 2020, the Company issued a Convertible Grid Promissory NoteNASDAQ stock exchange (the “Brown Note”“Uplist”), and together with(ii) 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 October 21, 2022 (extendeddate that is eighteen months from 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.
On April 22, 2020, the Grid Investors each made their first cash advance of $25,000 pursuant to the terms of the Grid Notes, for an aggregate cash advance to the Company of $50,000 (the “First Advance”). The Grid Investors made additional cash advances to the Company pursuant to the terms of their Grid Notes. As of December 31, 2020, a total of $250,000 in principal was advanced to the Company. The Company recorded debt discount of $233,893 related to the Grid Notes. Amortization of the debt discount is recorded as interest expense and a total of $73,976 was amortized during the nine months ended September 30, 2021, and the debt discount is fully amortized as of September 30, 2021.
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 principalissuance, a warrant to purchase an 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 pursuant to the terms of the Grid Notes. On April 20, 2021, the maturity date was extended to April 21, 2022. The Company recorded $20,532 of accrued interest and has a total outstanding principal balance of $250,000 as of September 30, 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 dateequal to such holder’s Warrant Share Amount. For purposes of the Grid Notes, allforegoing, a holder’s “Warrant Share Amount” means (i) if such Warrant is issued in connection with the Uplist, one half of the remaining unpaid outstandinginitial principal amountbalance of such Holder’s Note at issuance divided by the lesser of (A) $0.40, and accrued(B) and unpaid interest (the “Outstanding Balance”the greater of (x) $0.20 and (y) one hundred twenty percent (120%) underof the Grid Notes shall automatically convert into such number of shares ofclosing price for the Company’s common stock obtained by dividingon the Outstanding Balance bytrading day prior to 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 unpaidUplist, and (ii) if such Warrant is issued otherwise than in connection with the Uplist, the initial principal amountbalance of and all accrued and unpaid interest on, their Grid Notes.
September 1, 2020 Securities Purchase Agreement
On September 1, 2020 (the “September 1 Issuance Date”), the Company entered into a Securities Purchase Agreement and issued and sold to an investor an 8% Convertible Redeemablesuch Holder’s Note, in the original principal amount of $157,500 (the “September 1 Note”). The net amount receiveddivided by the Company forlesser of (A) $0.40, and (B) and the salegreater of (x) $0.20 and (y) one hundred twenty percent (120%) of the September 1 Note was $142,500 after an original issue discount of $15,000 and after payment of the investor’s legal fees.
The September 1 Note bears interest commencing on the September 1 Issuance Date at a fixed rate of 8% per annum on any unpaid principal balance, and will be payable, along with the principal amount, on September 1, 2021, unless such interest is earlier converted into shares ofvolume weighted average price (“VWAP”) for the Company’s common stock pursuant toover 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 terms containedfeatures as detailed in the September 1 Note. The Company recorded debt discount of $157,500 related to the September 1 Note. During the nine months ended September 30, 2021, the September 1 Note and all outstanding accrued interest was fully converted into 633,400 shares of common stock.
September 22, 2020 Securities Purchase Agreementagreement.
On September 22, 2020,December 21, 2021, the Company consummated the second closing of the Offering whereby the Company entered into a Securities Purchase Agreement (the “September Purchase Agreement”“SPA”) dated as of September 22, 2020 (the “September 22 Issuance Date”) and issued and soldwith three accredited investors, pursuant to an investor a Promissory Note (the “September 22 Note”)which the investors purchased from the Company, 2021 Notes in the aggregate original principal amount of $600,000, of which $100,000 aggregate principal amount was borrowed as of the Issuance Date with the balance of the principal borrowed on October 19, 2020. Also pursuant to the September Purchase Agreement, in connection with the issuance of the September Note, the Company issued two common stock purchase warrants (separately, “Warrant A” and “Warrant B”, and together, the “September Warrants”) to the investor, allowing the investor to purchase an aggregate of 1,411,764 shares of the Company’s common stock, with Warrant A being a commitment fee of 705,882 shares of common stock, and Warrant B being fully earned upon issuance as an additional commitment fee of 705,882 shares of common stock, provided that Warrant B is returnable to the Company upon the repayment of the September 22 Note, as an additional incentive for the repayment of the September 22 Note.$900,000.
The net amount received byDuring the six months ended June 30, 2022, the Company during the year ended December 31, 2020 was approximately $505,000 after payment of certain fees to the investor or on behalfconsummated additional closings of the investor.
In the event the Company breaches any of the covenants set forth in Section 4 of the Purchase Agreement, and in addition to any other remedies available to the Buyer pursuant to the Purchase Agreement, it will be considered an Event of Default under the September 22 Note and the Company shall pay to the Buyer certain liquidated damages as set forth in the September 22 Note in cash or in shares of common stock at the option of the Buyer. If the Buyer elects to have the Company pay such liquidated damages in shares of common stock, such shares shall be issued at the conversion price at the time of payment.
The September 22 Note bears interest commencing on the September 22 Issuance Date at a fixed rate of 12% per annum on any unpaid principal balance, and will be payable, along with the principal amount, on September 22, 2021, unless such interest is earlier converted into shares of the common stock pursuant to the conversion terms contained in the September 22 Note.
A lump-sum interest payment for one year is due on the September 22 Issuance Date and added to the principal balance and payable on the maturity date of the September 22 Note or upon acceleration or by prepayment or otherwise, notwithstanding the number of days which the principal is outstanding. Principal payments shall be made in 6 installments each in the amount of $100,000 commencing 180 days following the applicable Issue Date (as defined in the Note) and continuing thereafter each 30 days for 5 months. The Company recorded debt discount of $600,000 related to the September 22 Note. Amortization of the debt discount is recorded as interest expense and a total of $227,089 was amortized during the nine months ended September 30, 2021. On March 21, 2021, the Company repaid $100,000 of the outstanding principal. On April 27, 2021, the Company repaid an additional $100,000. On May 21, 2021, the Company entered into an allonge that extended the maturity date to July 9, 2021 and waived all requirements for monthly principal payments until the new maturity date. On August 23, 2021, the Company entered into an Allonge which increases the amount of outstanding principal and interest to $519,200, payable in three installments of which $173,067 was due no later than August 31, 2021, $173,067 was due no later than September 30, 2021 and the final payment of $173,066 is due no later than October 31, 2021. The Company evaluated the allonge for debt modification in accordance with ASC 470-50 and concluded that the debt qualified for debt extinguishment as the 10% cash flow test was met. As a result, the $472,000 of principal and accrued interest was written off, new debt was recorded at fair value as of August 23, 2021 in the amount of $519,200 and the Company recorded a net loss on extinguishment of debt in the amount of $72,861. The Company repaid the first scheduled payment on August 31, 2021 and the second payment on October 1, 2021.
The unpaid outstanding principal amount and accrued and unpaid interest under the September 22 Note shall be convertible into shares of common stock at any time on or after the September 22 Issuance Date at the option of the investor. The conversion price shall be equal to the lesser of (subject to equitable adjustments): (i) the lowest Market Price (as defined in the September 22 Note) during the previous five Trading Day (as defined in the September 22 Note) period ending on the latest complete Trading Day prior to the September 22 Issuance Date, and (ii) the Variable Conversion Price (as defined in the September 22 Note). The conversion price shall be adjusted downwards upon certain events as set forth in the September 22 Note.
The September 22 Note is subject to adjustment in the event of certain events, including mergers or consolidations of the Company, distributions of assets to holders of common stock, stock repurchases, and dilutive issuances (other than “Exempt Issuances” as defined in the September 22 Note).
Provided that an event of default under the September 22 Note has not occurred, the Company may prepay in whole or in part the amounts outstanding under the September 22 Note by making a payment to the investor of an amount in cash equal to the sum of: (w) the then outstanding principal amount of the September 22 Note plus (x) accrued and unpaid interest on the unpaid principal amount of the September 22 Note plus (y) default interest, if any.
The conversion of the September 22 Note and the exercise of the Warrants are 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 or exercise, as the case may be.
The September 22 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 September 22 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 September 22 Note further contains monetary penalties in the event of certain events of default or breaches.
The September 22 Note is further subject to a “most-favored nation” clause in the event the Company issues any security with any term more favorable to the holder of such security.
The September Warrants each have an exercise price of $1.28, subject to customary adjustments, and may be exercised at any time until the three-year anniversary of the September Warrants; provided, however, in the event the Company repays the September 22 Note in its entirety on or prior to the maturity date of the September 22 Note, Warrant B shall automatically expire and may only be exercised in the event it does not so automatically expire. The September Warrants include a cashless exercise provision as set forth therein.
On December 28, 2020, the Company issued the December Warrants (as defined in Note 5 below) with an exercise price that was lower than the exercise price of the September Warrants. Accordingly, the amount of shares under the September Warrants was reset to 1,505,882 with an exercise price per share of $1.20.
February 8, 2021 Loan
On February 8, 2021, the Company signed a loan agreement in the amount of $500,000 (the “February 8 Loan”) pursuant to which the Company would enter into a business combination with the lender subject to the terms and conditions defined in the agreement. The loan bears interest of 10% and matures upon the earlier of 6 months or the date that the business combination becomes effective. In the case of a business combination becoming effective, the loan shall convert immediately into or be credited towards such transaction. Subsequent to the balance sheet date, this note and outstanding accrued interest was converted into a new debt agreement as part of the merger agreement (See Note 13).
Derivative Accounting for the Convertible Notes Payable
The Company evaluated the terms and conditions of the Note, the Grid Notes, the September 1 Note, and the September 22 Note under the guidance of ASC 815. The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit, the equity environment is tainted, and all additional convertible debentures and warrants are included in the value of the derivative liabilities. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion options and warrants and shares to be issued were recorded as derivative liabilities on the issuance date and revalued at each reporting period.
Certain of the Company’s embedded conversion features on debt and outstanding warrants are treated as derivative liabilities for accounting purposes under ASC 815 due to insufficient authorized shares to settle these outstanding contracts, or due to other rights connected with these contracts, such as registration rights. In the case of insufficient authorized share capital available to fully settle outstanding contracts, the Company utilizes the issuance date sequencing method to reclassify outstanding contracts as derivative instruments. These instruments do not trade in an active securities market. As a result, the conversion terms of the Note, the Grid Notes, the September 1 Note, and the September 22 Note are treated as a derivative liability. (see Note 6)
NOTE 5 – NOTES PAYABLE
October 21, 2019 Note
On October 21, 2019, an investor of the Company subscribed for a promissory note (the “October Note”) and loaned to the Company $50,000.
The October Note bears interest at a fixed rate of 14% per annum, computed based on a 360-day year of twelve 30-day months, which interest will be payable quarterly until the maturity date. The principal amount and any accrued and unpaid interest due under the October Note was originally to mature on October 21, 2020, subject to a thirty-day grace period. On November 13, 2020, the Company entered into an allonge with the investor that extended the maturity date of the note to April 21, 2021, which was further extended until October 21, 2021. During the nine months ended September 30, 2020 the Company recorded $5,247 of interest expense and has a total outstanding principal balance of $50,000 and accrued interest of $6,603 as of September 30, 2021.
The October Note contains customary events of default, which, if uncured, entitle the lender to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, the October Note.
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 February Note bears interest at a fixed rate of 12% per annum, computed based on a 360-day year of twelve 30-day months, which interest will be payable quarterly until the maturity date. The principal amount and any accrued and unpaid interest due under the February Note were originally payable on July 1, 2020. On July 28, 2020 the Company entered into an allonge, effective July 1, 2020, to extend the original maturity date to February 21, 2021, which was further extended until February 21, 2022. The Company recorded $2,993 of accrued interest and has a total outstanding principal balance of $20,000 as of September 30, 2021.
The February Note contains customary events of default, which, if uncured, entitle the lender to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, the February Note.
December 28, 2020 Note
On December 28, 2020,Offering whereby the Company entered into a Securities Purchase Agreement (the “December Purchase Agreement”“SPA”) dated as of December 28, 2020 (the “December 28 Issuance Date”) and issued and soldwith additional investors, pursuant to an investor a Promissory Note (the “December 28 Note”)which the investors purchased from the Company, 2021 Notes in the aggregate principal amount of $300,000. Pursuant to$2,000,000.
As of December 31, 2021, the December Purchase Agreement, in connection withtotal amount of 2021 Notes principal outstanding was $9,718,915. As part of 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 shares2022 Notes, all of the Company’s common stock, with Warrant A being a commitment fee of 250,0002021 Notes and accrued interest, as well as an additional 10% discount, was converted into shares of common stock, and Warrant B being fully earned upon issuance as an additional commitment fee of 250,000 shares of common stock, provide that Warrant B is returnable to the Company upon the repaymentstock. The holders of the December 28 Note, as an additional incentive for the repayment2021 Notes, in connection with their original investment, will also be entitled to warrants based on 50% coverage of the December 28 Note.
The net amount received by the Company during the year ended December 31, 2020 was approximately $265,000their original investment amount. These warrants will have a term of four years after payment of certain fees to the investor or on behalf of the investor.
The December 28 Note bears interest commencing on the December 28 Issuance Date at a fixed rate of 12% per annum on any unpaid principal balance,issuance and will be payable, along with the principal amount, on December 28, 2021.
A lump-sum interest payment for one year is due on the December 28 Issuance Date and added to the principal balance and payable on the maturity date of the December 28 Note or upon acceleration or by prepayment or otherwise, notwithstanding the number of days which the principal is outstanding. Principal payments shall be made in 6 installments each in the amount of $56,000 commencing 180 days following the Issue Date (as defined in the Note) and continuing thereafter each 30 days for 5 months. The Company recorded debt discount of $300,000 related to the December 28 Note. Amortization of the debt discount is recorded as interest expense and a total of $224,384 was amortized during the nine months ended September 30, 2021. The Company has a total outstanding principal balance of $300,000 as of September 30, 2021.
Provided that an event of default under the December 28 Note has not occurred, the Company may prepay in whole or in part the amounts outstanding under the December 28 Note without a prepayment penalty.
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.
April 27, 2021 Note
On April 27, 2021, the Company signed a loan agreement in the amount of $100,000 (the “April 2021 Note”). The April 2021 Note bears interest at a fixed rate of 10%$0.25 per annum, which will be payable on the maturity date of October 27, 2021. The Company recorded $4,192 of accrued interest and has a total outstanding principal balance of $100,000 as of September 30, 2021.
The April 2021 Note contains customary events of default, which, if uncured, entitle the lender to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, the April 2021 Note.
May 6, 2021 Note
On May 6, 2021, the Company signed a loan agreement in the amount of $150,000, (the “May 2021 Note”). The May 2021 Note bears interest at a fixed rate of 10% per annum, which will be payable on the maturity date of November 6, 2021. The Company recorded $5,959 of accrued interest and has a total outstanding principal balance of $150,000 as of September 30, 2021.
The May 2021 Note contains customary events of default, which, if uncured, entitle the lender to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, the May 2021 Note.
2021 Bridge Notes
During the period from June 22, 2021 through September 1, 2021, Piezo (please see Note 13 Subsequent Event) loaned the Company a total of $603,067 in the form of non-convertible promissory notes (the “2021 Bridge Notes”). The 2021 Bridge Notes do not bear interest and are payable on the maturity date of September 30, 2021.
The 2021 Notes contain customary events of default, which, if uncured, entitle the lender to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, the 2021 Notes.
Derivative Accounting for the December 28, 2020 Note
The Company evaluated the terms and conditions of the December 28, 2020 Note and the accompanying December Warrants under the guidance of ASC 815. Certain of the Company’s outstanding warrants are treated as derivative liabilities for accounting purposes under ASC 815 due to insufficient authorized shares to settle these outstanding contracts, or due to other rights connected with these contracts, such as registration rights. In the case of insufficient authorized share capital available to fully settle outstanding contracts, the Company utilizes the issuance date sequencing method to reclassify outstanding contracts as derivative instruments. These instruments do not trade in an active securities market. As a result, the December Warrants are treated as a derivative liability. (see Note 6)
NOTE 6 – DERIVATIVE LIABILITIES
The Company evaluated the terms and conditions of the Notes and Convertible Notes Payable (see Notes 4 and 5) and pursuant to ASC 815-15 Embedded Derivatives, certain conversion options and outstanding warrants were recorded as derivative liabilities on the issuance date and revalued at each reporting period.
The table below provides a summary of the changes in fair value, including net transfers in and/or out of all financial liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2021:
| Amount | ||||
| Balance on December 31, 2020 | $ | 2,562,942 | ||
| Issuances to Additional paid in capital | 1,230 | |||
| Settlement upon note conversion/repayment | (137,580 | ) | ||
| Net extinguishment | (85,153 | ) | ||
| Change in fair value of derivative liabilities | 134,438 | |||
| Change in fair value of warrant liabilities | (730,394 | ) | ||
| Balance on September 30, 2021 | $ | 1,745,483 | ||
The fair value of the derivative conversion features and warrant liabilities as of September 30, 2021 were calculated using a Monte-Carlo option model valued with the following assumptions:
2021 | ||||
NOTE 7 – OTHER LIABILITIES
In 2016, the Company recorded a liability in connection with the sale of two Electroencephalograms (“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. As of September 30, 2021, and December 31, 2020, total liability to the financing company reflected in Other Liabilities is $4,595 and $4,595, respectively. The Company did not make payments in the current quarter and are in discussion as to future payments since the equipment was not returned as per the agreement.
NOTE 8 – RELATED PARTY TRANSACTIONS
During the year ended December 31, 2018, an entity controlled by Mr. Vadim Sakharov, a former director and executive officer of the Company, provided a $50,000 non-interest-bearing, no-term loan to the Company. An additional $5,530 of non-interest bearing no-term proceeds were loaned to the Company during the year ended December 31, 2019. As of September 30, 2021, and December 31, 2020, the balance was $55,530 and $55,530, respectively.
During the nine months ended September 30, 2021 and 2020, the Company purchased an aggregate of $335,675 and $284,703, respectively, of medical devices for resale and distribution from Neurotech, a company that Mr. Sakharov, a former director and executive officer of the Company, is a shareholder and executive manager.
During the nine months ended September 30, 2021 and 2020, the Company had expenses related to research and development costs of $140,154 and $19,700, respectively, to an entity controlled by Boris Goldstein, the Company’s Chairman of the Board.
share.
During the nine months ended September 30, 2021 and 2020, the Company had expenses related to general and administrative costs of $23,298 and $12,148, respectively, to an entity controlled by Mr. Sakharov, a former director and executive officer of the Company.NOTE 13 – NOTES PAYABLE – RELATED PARTY
DuringAs part of the nine months ended September 30,October 1, 2021 merger with Piezo Motion Corp. and 2020,BRSF Acquisition Corp., the Company had expensesassumed $155,530 of related party loans from entities related to salesthe former executives and marketing costs of $49,469 and $36,109, respectively, to an entity controlled by Mr. Sakharov, a former director and executive officerdirectors of the Company.
When assumed, these loans did not bear interest and had a maturity date of December 31, 2021. On March 9, 2022, the loans were amended to provide for an interest rate of 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. On May 6, 2022 the payment terms were further amended to payments of $53,000 with accrued interest on May 31, 2022 and August 1, 2022, and a payment of $49,000 plus accrued interest on October 1, 2022.During the yearthree months ended December 31, 2019, an affiliate of Boris Goldstein,June 30, 2022, the Company’s ChairmanCompany repaid $53,000 of the Board, provided an aggregate total of $50,000, in a non-interest-bearing, no-term loan to the Company. During the nine months ended September 30, 2021, the affiliate provided an additional $50,000 of non-interest-bearing, no-term loans to the Company. As of September 30, 2021outstanding principal and December 31, 2020, the balance at June 30, 2022 was $100,000 and $50,000, respectively.
During the year ended December 31, 2019, an affiliate of Nickolay Kukekov, a director of the Company, provided an aggregate total of $217,000 in non-interest-bearing, no-term loans to the Company. As of September 30, 2021 and December 31, 2020, the balance was $217,000 and $217,000, respectively.$102,530.
NOTE 914 – LEASES
The Company has inventoried alltwo leases where the Company is a lessee as of the initial date of application and has examined other contracts with suppliers, vendors, customers and other outside parties to identify whether such contracts contain an embedded lease as defined under the new guidance. The Company’s lease population comprises of leases for corporate office space and a warehouse that are year-to-year basis with monthly rent ranging from approximately $150 to $3,200 and qualifyaccounted for under the practical expedient of short-term leases. The Company does not have exclusive rights of control to any assets in the customer and vendor contracts reviews and does not have any financing leases as of the date of adoption of ASC 842.
Beginning January 1, 2020, theThe Company entered into a 12-month 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 December 31, 2020, with a third party in Russia.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 is paying rent at a rate of 17,900 Rubles ($240) per month.
Additionally, the Company also rents a warehouse. Beginning December 1, 2018, the Company entered into a 6-month warehouse rental agreement for $2,980 per month. The lease was renewed on June 1, 2019 for an additional year ending May 31, 2020, for $3,171 per month. The Company leased the warehouse for an additional three months and left the premises in the third quarter of 2020.
Total rent expensewill account for the nine months ended September 30, 2021lease under ASC 842 whereby the operating lease right-of-use assets and 2020 was $5,619 and $31,973, respectively.liabilities are recognized at the present value of the future lease payments at the lease commencement date.
The Company has onehad a lease agreement with terms up to 2 years for the lease of office space. The assets and liabilities from operating leases arewere 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. This lease was settled on January 1, 2022, and the Company recorded a gain of $1,660 in respect of the early settlement.
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 which is determined usingused at the interest rate of our debt as of July 1, 2020.date closest to lease inception.
The Company’s weighted-average remaining lease term relating to its operating leases is 1.171.7 years, with a weighted-average discount rate of 12%10.00%.
The Company incurred lease expense for its operating leases of $34,917$42,993 and $0 which was included in “General and administrative expenses,” for the ninesix months ended SeptemberJune 30, 2022 and 2021, and 2020, respectively.
The Company had operating cash flows used in operating leases of $1,155 for the nine months ended September 30, 2021.
The following table presents information about the amount and timing and uncertainty of cash flowsliabilities arising from the Company’s operating leaseslease as of SeptemberJune 30, 2021.2022:
| Maturity of Lease Liability | ||||
| 2021 | 12,260 | |||
| 2022 | 32,700 | |||
| Total undiscounted operating lease payments | $ | 44,960 | ||
| Less: Imputed interest | (2,585 | ) | ||
| Total operating lease liabilities | 42,375 | |||
| Less: Current portion of operating lease | (42,375 | ) | ||
| Long-term portion of operating lease | $ | - | ||
| Maturity of operating lease liabilities for the following fiscal years: | ||||
| 2022 | $ | 42,981 | ||
| 2023 | 88,325 | |||
| 2024 | 7,378 | |||
| Total undiscounted finance lease payments | 138,684 | |||
| Less: Imputed interest | 9,918 | |||
| Present value of finance lease liabilities | $ | 128,766 | ||
At June 30, 2022, the operating lease right of use assets was $126,227. Supplemental balance sheet information related to the lease as of June 30, 2022 was:
| Operating lease right-of-use asset | $ | 126,227 | ||
| Lease liability, current portion | 78,381 | |||
| Lease liability, long-term | 50,385 | |||
| Total operating lease liability | $ | 128,766 |
NOTE 15 – STOCKHOLDERS’ DEFICIT
Preferred Stock
The Company has authorized 10,000,000 shares of undesignated preferred stock with a $0.001 par value. As of June 30, 2022, 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 June 30, 2022, the Company had 105,401,858 shares outstanding or deemed outstanding.
In June 2022, as part of the issuance of the 2022 Notes, prior convertible debt and accrued interest was converted into 54,823,855 shares of common stock.
Shares Issued for Services
In January 2022, the Company issued 360,695 shares to a service provider in respect of $129,850 of outstanding payables.
Warrants
The following table summarized the warrant activity for the six months ended June 30, 2022:
| Number of | Weighted Average Exercise | Weighted Average Remaining Contractual | Aggregate Intrinsic | |||||||||||||
| Warrants | Shares | Price | Term | Value | ||||||||||||
| Balance Outstanding, December 31, 2021 | 9,258,191 | $ | 0.45 | 6.85 | $ | 304,799 | ||||||||||
| Granted | 20,912,119 | 0.11 | 5.40 | - | ||||||||||||
| Forfeited | (47,059 | ) | 1.28 | 1.23 | - | |||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Expired | - | - | - | - | ||||||||||||
| Balance Outstanding, June 30, 2022 | 30,123,251 | $ | 0.21 | 5.70 | $ | 1,339,465 | ||||||||||
| Exercisable, June 30, 2022 | 7,711,132 | $ | 0.38 | 7.08 | $ | - | ||||||||||
Equity Incentive Plan
As of September 21, 2018, the 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 10th 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 grant. An aggregate of up to 3,500,000 of the Company’s common stock was reserved for issuance under the 2018 Plan. 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 8,000,000. As of June 30, 2022, the Company has granted and has 7,859,147 options outstanding, as well as 107,876 shares of restricted common stock issued under the 2018 Plan.
At December 31, 2020,On October 1, 2021, the operating lease rightBoard of use assetDirectors 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 $69,632. Supplemental balance sheet information related tocalculated using the lease asBlack-Scholes pricing model with the following assumptions: (i) expected life 5years, (ii) volatility of September 30, 2021 was: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, 2021.
On December 10, 2021, the Board of Directors approved the issuance of options to purchase an aggregate of 2,718,247 shares of common stock to 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, 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, 2021.
On May 19, 2022, the Board of Directors approved the issuance of options to purchase an aggregate of 1,086,129 shares of common stock to certain employees of the Company. The options have an exercise price of $0.31 per share with vesting terms of one quarter/half vesting on November 19, 2022 and the remainder monthly ratably through May 19, 2023. The options will expire on May 19, 2032. The aggregate fair value of $271,324 was calculated using the Black-Scholes pricing model with the following assumptions: (i) expected life of 5 years, (ii) volatility of 115.0%, (iii) risk free rate of 2.80% (iv) dividend rate of zero, (v) stock price of $0.31, and (vi) exercise price of $0.31. The expense will be amortized over the vesting period and a total of $31,184 was recorded since issuance and through June 30, 2022.
The following table summarized the option activity for the six months ended June 30, 2022:
| Number of | Weighted Average Exercise | Weighted Average Remaining Contractual | Aggregate Intrinsic | |||||||||||||
| Options | Shares | Price | Term | Value | ||||||||||||
| Balance Outstanding, December 31, 2021 | 11,753,422 | $ | 0.36 | 9.47 | $ | 196,825 | ||||||||||
| Granted | 1,086,129 | 0.31 | 9.89 | - | ||||||||||||
| Forfeited | (476,190 | ) | 0.21 | 9.45 | - | |||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Expired | - | - | - | - | ||||||||||||
| Balance Outstanding, June 30, 2022 | 12,363,361 | $ | 0.36 | 9.04 | $ | - | ||||||||||
| Exercisable, June 30, 2022 | 9,028,262 | $ | 0.40 | 8.85 | $ | - | ||||||||||
For future periods, the remaining value of the stock options totaling approximately $806,779 will be amortized into the statement of operations consistent with the period for which the services will be rendered.
| Operating lease right-of-use asset | $ | 40,093 | ||
| Lease liability, current portion | 42,375 | |||
| Lease liability, long-term | - | |||
| Total operating lease liability | $ | 42,375 | ||
| Weighted average remaining lease term (months) | 11 | |||
| Weighted average discount rate | 12 | % |
NOTE 1016 – STOCKHOLDERS’ DEFICITRELATED PARTY TRANSACTIONS
Preferred Stock
The Company rents office space from a company in which Hassan Kotob, CEO, has authorized 10,000,000 shares of undesignated preferred stock with a $0.001 par value. As of Septemberan ownership. For the three and six months ended June 30, 2021, no preferred shares have been issued2022 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 September 30, 2021, the Company had 20,526,439 shares outstanding or deemed outstanding.
Share Offering
The Company is currently involved in a Regulation A+ share offering pursuant to which the Company is offering up to a maximumincurred rental expense of 1,111,111 units, with each unit consisting of five shares of common stock, par value $0.001,$9,900 and a warrant to purchase one share of common stock, par value $0.001, at an offering price of $9.00 per unit or $1.80 per share of common stock, for a maximum aggregate offering of $10,000,000. During the nine months ended September 30, 2021, the Company issued 17,300 shares of common stock and 3,460 warrants$19,800, respectively, in respect of this offering.
Shares Issued for Services
On October 15, 2020, the Company granted to a newly-hired non-executive officer of the Company 292,174 restricted shares under the Company’s 2018 Equity Incentive Plan, which vest quarterly in equal amounts commencing January 15, 2021 and ending January 15, 2022. 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. During the nine months ended September 30, 2021, 97,391 shares had vested and the Company recognized $162,050 of stock-based compensation.
Warrants
The following table summarized the warrant activity for the nine months ended September 30, 2021:
| Number of | Weighted Average Exercise | Weighted Average Remaining Contractual | Aggregate Intrinsic | |||||||||||||
| Warrants | Shares | Price | Term | Value | ||||||||||||
| Balance Outstanding, December 31, 2020 | 4,033,132 | $ | 0.97 | 3.14 | $ | 83,036 | ||||||||||
| Granted | 472,849 | 0.02 | 3.89 | - | ||||||||||||
| Forfeited | - | - | - | - | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Expired | - | - | - | - | ||||||||||||
| Balance Outstanding, September 30, 2021 | 4,505,981 | $ | 0.87 | 2.70 | $ | 83,036 | ||||||||||
| Exercisable, September 30, 2021 | 3,005,981 | $ | 0.90 | 2.27 | $ | 83,036 | ||||||||||
Equity Incentive Plan
As of September 21, 2018, the 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 10th 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 grant. An aggregate of up to 3,500,000 of the Company’s common stock was reserved for issuance under the 2018 Plan. In July 2021, this amount was increased to an aggregate of up to 8,000,000 shares. As of September 30, 2021, the Company has granted and has 1,941,779 options outstanding, as well as 339,972 shares of restricted common stock issued under the 2018 Plan.office.
On January 14, 2019,November 12, 2021, the BoardCompany entered into a Representation Agreement with 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 the worldwide sales manager for our NeuroCap, NeuroEEG and their accessories. LOK is responsible for the evaluation of Directors approved the issuance of options to purchase an aggregate of 800,000regional distribution, development, recruitment and 200,000 shares of common stock to Boris Goldstein and Vadim Sakharov (a former director and executive officertraining of the Company), respectively. The options have an exercise price of $0.75 per share which will vest over a 24-month period as follows: 25% (or 200,000distribution network and 50,000, respectively) shall vest six months after the grant date with the remaining options will vest on a monthly basis at a rate of 1/24th per month. The options will expire on January 14, 2029. The aggregate fair value of $17,111 was calculated using the Black-Scholes pricing model with the following assumptions: (i) expected life 10 years, (ii) volatility of 77%, (iii) risk free rate of 2.71% (iv) dividend rate of zero, (v) stock price of $0.042, and (vi) exercise price of $0.75. The full amount was expensed as of December 31, 2020.
On 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 Black-Scholes pricing model with the following 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 vesting period and a total of $19,329 was recorded during the nine months ended September 30, 2021.
On January 26, 2021, the Board of Directors approved the issuance of options to purchase an aggregate of 16,779 shares of common stock to Nickolay Kukekov. The options have an exercise price of $1.49 per share and fully vested on the initial grant date. The options will expire on January 26, 2031. The aggregate fair value of $20,817 was calculated using the Black-Scholes pricing model with the following assumptions: (i) expected life 10 years, (ii) volatility of 85.5%, (iii) risk free rate of 1.05% (iv) dividend rate of zero, (v) stock price of $1.49, and (vi) exercise price of $1.49. The expense was recognized in full on the initial grant date.
On February 11, 2021, the Board of Directors approved the issuance of options to purchase an aggregate of 125,000 shares of common stock, 50,000 to Irina Nazarova, and 25,000 each to Denis Serikov, Olesia Sukhaporova and Roman Bondarenko. The options have an exercise price of $1.50 per share which will vest over a 30-month period as follows: 25% (or 12,500 and 6,250, respectively) shall vest six months after the grant date with the remaining options will vest on a monthly basis at a rate of 1/24th per month. The options will expire on February 11, 2031. The aggregate fair value of $156,655 was calculated using the Black-Scholes pricing model with the following assumptions: (i) expected life 10 years, (ii) volatility of 85.9%, (iii) risk free rate of 1.16% (iv) dividend rate of zero, (v) stock price of $1.50, and (vi) exercise price of $1.50. The expense will be amortized over the vesting period and a total of $39,723 was recorded during the nine months ended September 30, 2021.
The following table summarized the option activityprovide in-country customer support. Fees for the nine months ended September 30, 2021:
| Number of | Weighted Average Exercise | Weighted Average Remaining Contractual | Aggregate Intrinsic | |||||||||||||
| Options | Shares | Price | Term | Value | ||||||||||||
| Balance Outstanding, December 31, 2020 | 1,800,000 | $ | 0.75 | 8.51 | $ | - | ||||||||||
| Granted | 141,779 | 1.50 | 9.37 | - | ||||||||||||
| Forfeited | - | - | - | - | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Expired | - | - | - | - | ||||||||||||
| Balance Outstanding, September 30, 2021 | 1,941,779 | $ | 0.80 | 7.88 | $ | - | ||||||||||
| Exercisable, September 30, 2021 | 1,751,935 | $ | 0.77 | 7.77 | $ | - | ||||||||||
For future periods,services are 10% of sales occurring through the remaining value of the stock options totalingdistribution channels. The contract term is for three years. To date, we have paid LOK approximately $125,570 will be amortized into the statement of operations consistent with the period$4,750 for which the services will be rendered. training platform development but no other service fees and no commissions.
NOTE 1117 – 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, 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.
NOTE 12 – MERGER
On June 11, 2021, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Piezo Motion Corp., a Delaware corporation (“Piezo”), and BRSF Acquisition Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger Sub”). Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will be merged with and into Piezo, Merger Sub will cease to exist and Piezo will survive as a wholly-owned subsidiary of the Company (the “Merger”).
At the effective time of the Merger (the “Effective Time”), each outstanding share of Piezo capital stock will be automatically converted into the right to receive that number of shares of Company common stock equal to 100% of the issued and outstanding shares of Company common stock on a “fully diluted basis” (as defined in the Merger Agreement) calculated as of the Effective Time (the “Exchange Ratio”). Following the consummation of the Merger, former stockholders of Piezo are expected to own approximately 50% of the Company and current stockholders of the Company are expected to own approximately 50% of the Company, in each case based on the fully diluted shares of the Company prior to the consummation of the Merger. The Exchange Ratio and the actual number of shares of Company common stock to be issued to the Piezo stockholders is not yet determinable and will be based on, in part, whether and to what extent the Company’s existing indebtedness is converted into Company common stock or repaid in cash at or prior to the Effective Time, and is expected to result in the former Piezo stockholders owning a majority of the Company’s issued and outstanding shares of common stock as of immediately after the Effective Time. The completion of the Merger is subject to various customary conditions, as well as the closing of a capital raise by the Company of at least $5.0 million (the “Offering”), including any interim bridge financing raised by either Company or Piezo that is convertible into the Offering. Pursuant to the terms of the Merger Agreement, the Company is obligated to issue to certain affiliates and non-affiliates of the Company, options and warrants to purchase an aggregate number of shares equal to 20% of the issued and outstanding shares of Company common stock immediately after the Effective Time. The Merger officially closed on October 1, 2021.
NOTE 1318 – 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 June 11,2021 Brain Scientific Inc. (the “Company”) entered intoIn August 2022, the Company’s shareholders approved an Agreement and Planincrease in the number of Merger and Reorganization (the “Merger Agreement”) with Piezo Motion Corp., a Delaware corporation (“Piezo”), and BRSF Acquisition Inc., a Delaware corporation and wholly owned subsidiaryauthorized shares of the Company (“Merger Sub”). Pursuantfrom 200,000,000 to the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub was to be merged with and into Piezo, whereby Merger Sub would cease to exist and Piezo would survive as a wholly owned subsidiary of the Company (the “Merger”). On October 1,2021 the Company, Piezo and the Merger Sub entered into an Amendment to Merger Agreement (the “Merger Agreement Amendment”) to revise certain provisions within the Merger Agreement involving the post-Merger composition of Company management and certain post-Merger arrangements with the Company’s outgoing principal executive officer. The Merger was completed on October 1, 2021.
At the effective time of the Merger on October 1, 2021 (the “Effective Time”), shares of common stock, par value $0.0001 per share, of Piezo, representing all of Piezo’s issued and outstanding common stock immediately prior to the Effective Time (the “Piezo Shares”) were converted into an aggregate of 29,520,454 shares of common stock, par value $0.001 per share of the Company (the “Merger Shares”), with such Merger Shares representing, upon issuance, 50% of the Company’s issued and outstanding common stock on a fully diluted basis. At the Effective Time, Piezo had no outstanding options, warrants, convertible notes or other securities exercisable for or convertible into shares of Piezo common stock
Upon closing of the Merger on October 1, 2021, the Company issued 160,000 shares of common stock to a consultant for services provided to the Company. The issuance of these shares was contingent on the successful closing of the Merger.750,000,000.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statements
The following discussion should be read in conjunction with our unaudited financial statements and related notes included in Item 1, “Financial Statements,” of this Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q.
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 Quarterly Report on Form 10-Q 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
Through our wholly owned subsidiary, MemoryMD,We are a MedTech company with two innovative product lines: neurology and motion products. Since October 1, 2021, we have had two direct subsidiaries, each of which we acquired in the Merger, we are seeking to provide a centralized platform for data acquisition and analysis of EEG data that combines innovative medical device technologies with cloud-based telehealth services. Both our NeuroCap, a pre-gelled disposable EEG headset, and NeuroEEG, a 16 channel, portable, cloud-enabled data acquisition platform for EEG activity, received FDA clearance to market in 2018. Our discussionis focused on MemoryMD refers only to the business of MemoryMD, as the Merger closed subsequent to the endone of our September 30, 2021 quarter.complimentary product lines.
The Company is not currently offering any data analysis services.products of our subsidiary Memory MD, Inc., hereinafter referred to as the Neurology Products, are medical devices designed for the neurology market. The Company is primarily focused on establishing diagnostic protocolsproducts of our subsidiary Piezo Motion Corp., hereinafter referred to identify pathological risk factors involvingas the brain,Motion Products, are small piezoelectric motors which are designed for and driving novel insights into cognitive health that support early treatmentexpected to have valuable and beneficial uses as motors within medical devices and devices outside of neurological disorders.the MedTech industry
In 2019,Since the merger between Brain Scientific Inc. and Piezo Motion Corp., we commenced actinghave focused on building an experienced team and platform to grow revenues from existing products and introduce new technologies to the market while leveraging our store of intellectual property.
Historically, we have financed our operations principally through the issuance of convertible debt. Based on our current operating plan, substantial doubt about our ability to continue as a going concern for a period of at least one year from the date that the financial statements included in this prospectus are issued exists. Our ability to continue as a going concern depends on our ability to raise additional capital, through the sale of equity or debt securities, to support our future operations. If we are unable to secure additional capital, we will be required to curtail our operations and take additional measures to reduce costs. We have provided additional disclosure in Note 1 to the condensed consolidated financial statements and under Liquidity below.
Our financial statements are based upon the Piezo Motion Corp. financials up until the Piezo Acquisition. The combined company financials are provided inclusive of the operations of the Company unrelated to Piezo Motion Corp. for the fourth quarter of 2021. The accounting is based upon reverse merger accounting due to the majority of outstanding shares after the Piezo Acquisition were with the Piezo shareholders.
The majority of our revenue in 2021 was from 4th quarter sales from our subsidiary which operates as a distributor of third-party medical devices in Russia (including those purchased(except for $38,309 from a company affiliated with onePiezo Motion Corp. sales and $6,194 of sales from Memory MD in the U.S.). The Russian invasion of Ukraine on February 24, 2022 has impacted our former officers and directors), which resulted in all of our revenue for 2019. Sales in Russia also represent the majority of all revenue in fiscal 2020 andRussian operations for the three and nine months ended September 30, 2021. While we intendforeseeable future. With the uncertainty raised due to continue the salecontinued Russian invasion of third-party medical devices,Ukraine, we do not intend for it to be our primary source of revenueanticipate having continued sales in Russia in the long-term and expectforeseeable future. No decision has been made as to curtail or cease this line of operations as, if and when we commence generating material, recurring revenues from our products, of which we can give 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 continue, will continue to be material or will be sufficient to enable us to continue ourwinding down operations. We have no supply or distribution agreements in place with respect to such business. In the event that we see an opportunity to sell such products, we procure them and then re-sell them.
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.
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, although we have acted as a distributor of third-party medical devices in Russia (including those purchased from a company affiliated with one of our officers and directors) which(which has generated revenue for us. Our first products, the NeuroCapus in 2021 and NeuroEEG,2022). 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 other products are still being tested or are still under development.
We have incurred losses since inception and had an accumulated deficit of $10,491,678 as of September 30, 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. 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 and other borrowings. To fund our operations, for the nine months ended September 30, 2021, we issued $500,000 of convertible promissory notes, $853,067 of non-convertible notes, $50,000 of a related party loan and $30,672 from the issuance of common stock and warrants. For the year ended December 31, 2020, we issued convertible promissory notes for aggregate gross proceeds of $897,700 and a promissory note for gross proceeds of 285,000.Corporate History
We needwere initially organized on November 18, 2013 as a Nevada limited liability company under the name Global Energy Express LLC. On December 18, 2015, we converted from a Nevada limited liability company under the name Global Energy Express LLC to obtain substantial additional funding in connection witha Nevada corporation under the name All Soft Gels Inc. On September 18, 2018, we changed 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 unablename from All Soft Gels Inc. to raise additional funds when neededBrain Scientific Inc. and changed our ticker symbol on favorable terms or at all. Our failurethe OTC Market 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.“BRSF”.
Recent DevelopmentsOn 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 MemoryMD, 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 business of MemoryMD as our sole business.
On June 11,2021 Brain Scientific Inc. (the “Company”)11, 2021, we entered into an Agreement and Plan ofa merger agreement (the “Piezo Merger and Reorganization (the “Merger Agreement”) with Piezo Motion Corp., a Delaware corporation (“Piezo”), and BRSF Acquisition Inc., a Delaware corporation and wholly owned subsidiary ofCorp. to acquire Piezo Motion. (the “Piezo Acquisition”). The transactions contemplated by the Company (“Piezo Merger Sub”).Agreement were consummated on October 1, 2021. Pursuant to the terms and subject toof the conditions set forth in thePiezo Merger Agreement, Merger Sub was to be merged with and intoall outstanding shares of Piezo whereby Merger Sub would cease to exist andMotion were exchanged for shares of our common stock. Accordingly, we acquired 100% of Piezo would survive as a wholly owned subsidiaryMotion in exchange for the issuance of the Company (the “Merger”). On October 1,2021 the Company, Piezo and the Merger Sub entered into an Amendment to Merger Agreement (the “Merger Agreement Amendment”) to revise certain provisions within the Merger Agreement involving the post-Merger composition of Company management and certain post-Merger arrangements with the Company’s outgoing principal executive officer. The Merger was completed on October 1, 2021.
At the effective time of the Merger on October 1, 2021 (the “Effective Time”), shares of common stock par value $0.0001 per share, of Piezo, representing all of Piezo’s issued and outstanding common stock immediately prior to the Effective Time (the “Piezo Shares”) were converted into an aggregate of 29,520,454 shares of common stock, par value $0.001 per share of the Company (the “Merger Shares”), with such Merger Shares representing, upon issuance, 50% of the Company’s issued and outstanding common stock on a fully diluted basis. At the Effective Time, Piezo had no outstanding options, warrants, convertible notes or other securities exercisable for or convertible into shares of Piezo common stock
Post-Merger the Company is a holding company pursuing two lines of business through its wholly owned subsidiaries, MemoryMD and Piezo. Piezo is committed to the development of innovative piezoelectric polymer actuators and electrode components that enhance their functionality in a multitude of applications. Its current business is to work with startups, OEMs, research institutions, and industrial companies from around the world empowering the visionaries behind their products (the “Piezo Business”). Post the Piezo Merger, the Company is now a holding company pursuing both the Memory MD Business and Piezo Business.Motion became our wholly-owned subsidiary.
Through September 1, 2021, we borrowed an aggregate of $603,000 from Piezo for working capital purposes pursuant to non-interest bearing notes, each of which have a maturity date of September 30, 2021.
Financial Overview
Revenue
ForRevenues for the ninesix months ended SeptemberJune 30, 2021, we have2022 were generated approximately $527,000 of revenue primarily through our acting as a distributor offrom the Russian subsidiary for distributing third-party medical devices in Russia (including those purchased from a company affiliated with one of our former officers and directors), while we continue to commercialize our products. The revenue for the three months ended June 30, 2022 proportionally saw an increase in our sales of Neurology and Motion Products, with $9,102 and $4,312, respectively. While we intend to continue generating revenues through the sale of third-party medical devices, we do not intend for it to be our primary source of revenue in the long-term. Sales for piezoelectric motors decreased from 2021 as the Company focused on the final commercialization of the Blue Series of motors. Revenues for the six months ended June 30, 2021 of $9,207 related to the sales of evaluation kits. We do not expect to generate recurring, material revenue from our products 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 solely rely on generating substantial and material revenue from the distribution of third-party medical devices.
General and Administrative
General and administrative expenses consist primarily of personnel-related costs for administration, product management, engineering and 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, clinical, product development and financial matters, and product costs. We anticipate that our general and administrative expenses will significantly increasebe steady in the futurenear to support our continued research and development activities, commercialization of our products, if approved,Products and maintaining the increased costs of operating asinfrastructure for 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.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 remain substantiallybe maintained at the same for the next sixcurrent level until we begin generating revenue from our existing Neurology and Motion Products. We anticipate it will then begin to nine monthsincrease as we continue to developexploit additional patents in our Motion Products and commercialize our products. As we develop our cloud-based computing system, we expect our researchNeurology Products, including conducting preclinical testing and development expenses to significantly increase.clinical trials.
Interest Expense
Interest expense primarily consists of amortized debt discountcosts and interest costs related to the convertible and non-convertible notes we issued in 2019, 20202022 and 2021. The convertible notes bear interest at fixed rate ranging fromof 10%-12% per annum.
Results of Operations
The following table sets forth the results of operations of the Company for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020.2021.
| Three Months Ended September 30, | Period to Period | Nine Months Ended September 30, | Period to Period | |||||||||||||||||||||
| 2021 | 2020 | change | 2021 | 2020 | change | |||||||||||||||||||
| Revenue | $ | 184,905 | $ | 144,761 | $ | 40,144 | $ | 526,797 | $ | 365,265 | $ | 161,532 | ||||||||||||
| Cost of goods sold | $ | 110,337 | $ | 118,501 | $ | (8,164 | ) | $ | 335,801 | $ | 286,315 | $ | 49,486 | |||||||||||
| Research and development | $ | 154,533 | $ | 64,681 | $ | 48,308 | $ | 386,646 | $ | 208,026 | $ | 178,620 | ||||||||||||
| Professional fees | $ | 197,270 | $ | 150,063 | $ | 47,207 | $ | 508,802 | $ | 367,136 | $ | 141,666 | ||||||||||||
| Sales and marketing expenses | $ | 58,441 | $ | 38,418 | $ | 20,023 | $ | 182,480 | $ | 126,587 | $ | 55,893 | ||||||||||||
| General and administrative | $ | 209,856 | $ | 237,589 | $ | (27,733 | ) | $ | 1,078,948 | $ | 647,364 | $ | 431,584 | |||||||||||
| Interest expense | $ | 162,279 | $ | 1,355,356 | $ | (1,193,077 | ) | $ | 721,576 | $ | 2,991,591 | $ | (2,270,125 | ) | ||||||||||
| Loss on debt extinguishment | $ | 56,331 | $ | 176,467 | $ | (120,136 | ) | $ | 442,226 | $ | 176,467 | $ | 265,759 | |||||||||||
| Change in fair market value of derivative liabilities | $ | 446,894 | $ | 1,050,921 | $ | (604,027 | ) | $ | 595,956 | $ | 717,104 | $ | (121,148 | ) | ||||||||||
| Three Months Ended June 30, | Period to Period | |||||||||||
| 2022 | 2021 | change | ||||||||||
| Revenue | $ | 38,464 | $ | 7,732 | $ | 30,732 | ||||||
| Cost of goods sold | $ | 37,968 | $ | 3,122 | $ | 34,846 | ||||||
| Research and development | $ | 83,004 | $ | 27,979 | $ | 55,025 | ||||||
| Professional fees | $ | 256,408 | $ | 208,979 | $ | 47,429 | ||||||
| Sales and marketing expenses | $ | 213,781 | $ | 281,271 | $ | (67,490 | ) | |||||
| General and administrative | $ | 1,359,103 | $ | 551,691 | $ | 807,412 | ||||||
| Share based compensation | $ | 280,510 | $ | - | $ | 280,510 | ||||||
| Interest expense | $ | 1,614,335 | $ | 55,432 | $ | 1,558,903 | ||||||
Three Months Ended SeptemberJune 30, 20212022 vs. Three Months Ended SeptemberJune 30, 20202022
Revenues
Revenue for the three months ended SeptemberJune 30, 20212022 was $184,905,$38,464, compared to $144,761$7,732 for the three months ended SeptemberJune 30, 2020.2021. In the three months ended SeptemberJune 30, 2021 and 2020,2022, we generated our revenue primarily through our Russian subsidiary acquired in the merger, acting as a distributor of third-party medical devices in Russia (including those purchased from a company affiliated with one of our former officers and directors). The increase was due primarily from an increase in post COVID demand.Revenues for the three months ended June 30, 2021 of $7,732 related to the sales of evaluation kits.
General and administrative expenses
General and administrative expenses were $209,856$1,359,103 for the three months ended SeptemberJune 30, 2021,2022, compared to $237,589$551,691 for the three months ended SeptemberJune 30, 2020.2021. The decreaseincrease in general and administrative expenses werewas primarily due to an increase in payroll and related expenses, expenses associated with a decrease in consulting fees.combined company post-merger and being a public entity, and amortization of intangible assets.
Research and development expenses
Research and development expenses were $154,533$83,004 for the three months ended SeptemberJune 30, 2021,2022, compared to $64,681$27,979 for the three months ended SeptemberJune 30, 2020.2021. The increase in research and development expenses were primarily due to increased activities in getting products to market.our Ukrainian office as well as payroll expenses.
Professional fees
Professional fees were $197,270$256,408 for the three months ended SeptemberJune 30, 2021,2022, compared to $150,063$208,979 for the three months ended SeptemberJune 30, 2020.2021. The increase was primarily due to an increase in legal, accounting and consulting fees in the current year duequarter relating to regulatory requirements, capital raising and merger related expenses.the Company being publicly traded.
Interest expense
Interest expense for the three months ended SeptemberJune 30, 20212022 was $162,279,$1,614,335 consisting of interest expense of $40,256$291,571 and amortization of debt issuance costs and discounts of approximately $122,023$1,322,764 related to the Company’s convertible and non-convertible promissory notes. Interest expense for the three months ended June 30, 2021 consisted of interest expense relating to convertible notes payable.
| Six Months Ended June 30, | Period to Period | |||||||||||
| 2022 | 2021 | change | ||||||||||
| Revenue | $ | 198,052 | $ | 9,207 | $ | 188,845 | ||||||
| Cost of goods sold | $ | 144,643 | $ | 3,697 | $ | 140,946 | ||||||
| Research and development | $ | 167,721 | $ | 83,144 | $ | 84,577 | ||||||
| Professional fees | $ | 444,174 | $ | 325,886 | $ | 118,288 | ||||||
| Sales and marketing expenses | $ | 405,252 | $ | 325,044 | $ | 80,208 | ||||||
| General and administrative | $ | 2,544,559 | $ | 1,044,303 | $ | 1,500,256 | ||||||
| Share based compensation | $ | 578,811 | $ | - | $ | 578,811 | ||||||
| Interest expense | $ | 1,886,254 | $ | 114,217 | $ | 1,772,037 | ||||||
NineSix Months Ended SeptemberJune 30, 20212022 vs. NineSix Months Ended SeptemberJune 30, 20202022
Revenues
Revenue for the ninesix months ended SeptemberJune 30, 20212022 was $526,797,$198,052, compared to $365,265$9,207 for the ninesix months ended SeptemberJune 30, 2020.2021. In the ninesix months ended SeptemberJune 30, 2021 and 2020,2022, we generated our revenue primarily through our Russian subsidiary acquired in the merger, acting as a distributor of third-party medical devices in Russia (including those purchased from a company affiliated with one of our former officers and directors). The increase was due primarily from an increase in post COVID demand.Revenues for the six months ended June 30, 2021 related to the sales of evaluation kits.
General and administrative expenses
General and administrative expenses were $1,078,948$2,544,559 for the ninesix months ended SeptemberJune 30, 2021,2022, compared to $647,364$1,044,303 for the ninesix months ended SeptemberJune 30, 2020.2021. The increase in general and administrative expenses werewas primarily due to an increase in consulting fees related to corporate marketing and fundraising activities. In addition, salariespayroll and related expenses, increased in the current nine months due toexpenses associated with a new employeecombined company post-merger and increased stock-based compensation expenses.being a public entity and amortization of intangible assets.
Research and development expenses
Research and development expenses were $386,646$167,721 for the ninesix months ended SeptemberJune 30, 2021,2022, compared to $208,026$83,144 for the ninesix months ended SeptemberJune 30, 2020.2021. The increase in research and development expenses were primarily due to increased activities in getting products to market.our Ukrainian office as well as payroll expenses.
Professional fees
Professional fees were $508,802$444,174 for the ninesix months ended SeptemberJune 30, 2021,2022, compared to $367,136$325,886 for the ninesix months ended SeptemberJune 30, 2020.2021. The increase was primarily due to an increase in legal, accounting and consulting fees in the current year dueperiod relating to regulatory requirements, capital raising, and merger related expenses.the Company being publicly traded.
Interest expense
Interest expense for the ninesix months ended SeptemberJune 30, 20212022 was $721,576,$1,886,254 consisting of interest expense of $110,385$547,037 and amortization of debt issuance costs and discounts of approximately $611,191$1,339,217 related to the Company’s convertible and non-convertible promissory notes. Interest expense for the three months ended June 30, 2021 consisted of interest expense relating to convertible notes payable.
Liquidity and Capital Resources
While we have generated revenue in 20212022 and 2020,2021, we anticipate that we will continue to incur losses for the foreseeable future, including after any consummation of the Merger with Piezo, which we can give no assurance of success.future. Furthermore, substantially all of such revenue was generated through acting as a distributor of third-party medical devices in Russia, and we did not have any materialsignificant sales of our products. We anticipate that our expenses will increase substantially as we develop ouradditional 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. We also expect to increase our expenses as a result of the Merger.
Historically, our primary source of cash has been proceeds from the sale of convertible promissory notes and related party loans. 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.
We have no current substantial source of revenue to sustain our present activities other than as acting as a distributor of medical devices in Russia (including those purchased from a company affiliated with one of our offices and directors), which is not our primary business goal, and we do not expect to generate material revenue, from our products until, and unless we successfully expand our sales efforts for our current products, the FDA or other regulatory authorities approve our products under development, and we successfully commercialize our products. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through our distributorship revenue, 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, 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.
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, 20202021 and 2019,2020, 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 will require additional funds and/or generate revenues, to continue to fund our operating expenses. As part of the conditions to close the Merger, we have to raise an aggregate of $5 million (including $1.5 million in bridge loans to Piezo pending the closing of that transaction), which we can give no assurance of success. Even if successful, we expect to require additional funds in the short term to fund operations of the combined company and to meet the requirements to uplist to the Nasdaq market.company.
In February 2021,During the six months ended June 30, 2022, we issued a convertible promissory notenotes in the amount of $500,000. In the second quarter of 2021 we issued $320,000 of non-convertible promissory notes and received a $50,000 related party loan. In the third quarter of 2021 we issued 533,067 of non-convertible promissory notes.$7,659,500. 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. We recently launched a Regulation A+ offering pursuant to which the Company is offering up to a maximum of 1,111,111 units, with each unit consisting of five shares of common stock, par value $0.001, and a warrant to purchase one share of common stock, par value $0.001, at an offering price of $9.00 per unit or $1.80 per share of common stock, for a maximum aggregate offering of $10,000,000, the success of which cannot by assured by the Company. As of the date hereof, the Company has raised approximately $32,000 under its Regulation A+ offering.
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 is costly, and the timing of progress in pre-clinical tests and clinical trials is uncertain. 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 $1,207,276$3,272,138 for the ninesix months ended SeptemberJune 30, 20212022 compared to $688,341$1,591,077 for the ninesix months ended SeptemberJune 30, 2020.2021. This fluctuation is primarily due to an increase in net loss of $2,898,861, change in fair market value of derivative liabilities of $1,090,759, gain on debt extinguishment of $210,099 and a decreasegain on lease settlement of $1,660, partially offset by increases in amortization of debt discount of approximately $2,311,000, partially offset by a decrease$1,339,218, share based compensation expenses of $578,811, depreciation and amortization expenses of $389,906, and decreases in net lossgain on forgiveness of approximately $1,178,000, changepaycheck protection loan of $112,338 and in fair value of derivative liabilities of approximately $121,000, increases in loss on debt extinguishment of approximately $266,000, common stock issued for services of approximately $45,000, and cash used in working capital of $75,000.$91,045.
Net cash used in investing activities
Net cash used in investing activities was $0$7,471 for the ninesix months ended SeptemberJune 30, 2021,2022, compared to $98,618 for the six months ended June 30, 2021. The decrease was due primarily to a decrease in purchases of property and 2020.equipment.
Net cash provided by financing activities
Net cash provided by financing activities was $960,672$6,038,610 for the ninesix months ended SeptemberJune 30, 2021,2022, which primarily consisted of the issuances of a convertible promissory notenotes, net of issuance costs for aggregate gross proceeds of $500,000, non-convertible promissory notes in the amount of $853,067, and the receipt of a related party loan of $50,000,$6,421,610, offset by the partial repayments of convertiblenon-convertible promissory notes and accrued interest in the amount of $473,067.$383,000.
Net cash provided by financing activities was $2,819,982 for the six months ended June 30, 2021, which consisted of proceeds from the issuances of convertible promissory notes.
Net cash provided by financing activities was $503,367 for the nine months ended September, 2020, which consisted of the proceeds from the issuances of a $476,700 of convertible notes and $26,667 of non-convertible notes payable.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results 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 of the balance sheets and 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 circumstances at the time such estimates are made. Actual results may differ materially from our estimates and judgments under different assumptions or conditions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in our financial statements prospectively from the date 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, the valuation of stock options, and the valuation of derivative liabilities.
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, as well as net operating loss carryforwards. 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 deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Stock Based Compensation. The Company accounts for the grant of restricted stock awards in accordance with ASC 718, “Compensation-Stock Compensation.” ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of equity-based compensation. The expense is recognized over the period during which the employee is required to provide service in exchange for the compensation. Any remaining unrecognized balance will be recognized ratably over the life of the vesting period and is a reduction of stockholders’ equity.
The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 505-50 “Equity-Based Payments to Non-Employees.”
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying consolidated financial statements, other than those disclosed below.
In June 2016,August 2020, the Financial Accounting Standards Board (the “FASB”)FASB issued Accounting Standards Update (“ASU”) 2016-13, “Measurement2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of Credit Lossesliabilities and equity, including convertible instruments and contracts on Financial Instruments,”an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which requires measurement and recognition of expected credit losses at the point a loss is probableaims to occur, rather than expected to occur, which will generally resultreduce unnecessary complexity in earlier recognition of allowances for credit losses.U.S. GAAP. The new guidance isASU’s amendments are effective for fiscal years beginning after December 15, 2019, including2023, and interim periods within those fiscal years. The Company adoptedis currently evaluating the impact ASU 2016-13 in the first quarter of 2020 and the adoption did not2020-06 will have a material impact on its condensed consolidated financial statements.
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 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable for smaller reporting companies.
Item 4. Controls and Procedures.
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 Board of Directors 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 SeptemberJune 30, 2021.2022. Based on that review and evaluation, the Board of Directors and Chief Financial Officer, along with the management of the Company, have determined that as of SeptemberJune 30, 2021,2022, the disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is 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 officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. Specifically, we have identified the following material weakness in our disclosure controls: (i) insufficient written policies and procedures to ensure timely filing of reports that the Company files or submits under the Exchange Act, and (ii) a lack of full-time executive management, including a lack of a full-time chief executive officer and chief financial officer, and other members of management who would otherwise oversee the Company’s disclosure controls and procedures.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1. 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 1A. Risk Factors.
Not required for a Smaller Reporting Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On or about August 10, 2021,In June 2022, the Company issued 97,39154,823,855 shares of restrictedcommon stock upon vesting under its 2018 Equity Incentive Plan for services rendered to an employee.as part of the conversion of $13,634,144 outstanding convertible debt including principal and accrued interest.
Such sharesThe previously mentioned securities were issued in reliance on the exemptionexemptions from registration provided byunder the Securities Act in Section 4(a)(2) of the Securities Act of 1933, as amended, as a transaction by an issuer not involving any public offering.and/or Regulation D thereunder.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits
The exhibits listed below are hereby furnished to the SEC as part of this report:
| * | Filed herewith |
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 on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized, this 15th day of November, 2021.authorized.
| BRAIN SCIENTIFIC INC. | ||
| Dated: August 15, 2022 | By: | /s/ Hassan Kotob |
| Name: | Hassan Kotob | |
| Title: | Chief Executive Officer | |
| By: | /s/ Bonnie-Jeanne Gerety | |
| Name: | Bonnie-Jeanne Gerety | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
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