The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(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. The Company on September
21, 2018 acquired MemoryMD, Inc. (“MemoryMD”), a privately held Delaware corporation formed in February 2015. MemoryMD is
a cloud computing 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, 2021 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 in piezo motor technology with a multi-million
dollar investment in research and development of affordable piezoelectric motors to meet, and exceed, 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,
the Company is now a holding company pursuing both the Memory MD Business and Piezo Business.
Reverse Merger and Corporate Restructure
On September 21, 2018, the Company entered into
a merger agreement (the “Merger Agreement”) with MemoryMD and AFGG Acquisition Corp. to acquire MemoryMD (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 the Company’s common stock. Accordingly, the Company
acquired 100% of MemoryMD in exchange for the issuance of shares of the Company’s common stock and MemoryMD became the Company’s
wholly owned subsidiary. The Company issued an additional 4,083,252 shares of its common stock upon the automatic conversion at the closing
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 6,495,000 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.
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 Agreement
As of immediately prior to the closing of the
Acquisition, the Company entered into an Assignment and Assumption Agreement with Chromium 24 LLC, pursuant to which Chromium 24 LLC assumed
all of the Company’s remaining assets and liabilities through the closing of the Acquisition. Accordingly, as of the closing of
the Acquisition, Brain Scientific had no assets or liabilities other than the shares of MemoryMD acquired in the Acquisition.
Name Change and Increase in Authorized Shares
On September 18, 2018, the Company filed an amendment
to its certificate of incorporation with the Nevada Secretary of State to change its name to Brain Scientific Inc. On September 18, 2018,
FINRA approved of the name change as well as a ticker symbol change, which was effective as of September 19, 2018. In addition, the Company
increased its authorized shares of common stock from 50,000,000 to 200,000,000 and created and authorized 10,000,000 shares of undesignated
preferred stock.
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. 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.
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, MemoryMD, MemoryMD – Russia, MemoryMD – Europe and BRSF Acquisition Inc.
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 and warrants.
The Effects of COVID-19
The World Health Organization (WHO) declared the
coronavirus outbreak a pandemic on January 30, 2020. Since the outbreak in China in December 2019, COVID-19 has expanded its impact to
Europe, where all of our operations reside, as well as our employees, suppliers and customers. While the disruption is currently expected
to be temporary, there is considerable uncertainty around the duration of the closings and shelter-in-place orders and the ultimate impact
of governmental initiatives. However, the financial impact and duration cannot be reasonably estimated at this time.
Cash and Cash Equivalents
The Company considers all highly liquid temporary
cash investments with an original maturity of three months or less to be cash equivalents. At September 30, 2021 and December 31, 2020,
the Company had no cash equivalents.
The Company’s cash is held with financial
institutions, and the account balances may, at times, exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit. Accounts
are insured by the FDIC up to $250,000 per financial institution. The Company has not experienced any losses in such accounts with these
financial institutions. As of September 30, 2021, and December 31, 2020, the Company had $0 and $22,856, respectively, in excess over
the FDIC insurance limit.
Inventory
Inventory consists of finished goods that are
valued at lower of cost or market using the weighted average method. As of September 30, 2021, and December 31, 2020, the Company
had inventory totaling $1,814 and $1,461, respectively.
Property, Equipment and Depreciation
Property and equipment are recorded at cost, less
depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Expenditures for
repair and maintenance are charged to operations as incurred. Property and equipment consisted of computer equipment, with an estimated
useful life of three years. Depreciation expense was $302 and $1,027 for the nine months ended September 30, 2021 and 2020, respectively.
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:
|
●
|
Short-term
lease accounting policy election allowing lessees to not recognize right-of-use assets and liabilities for leases with a term of 12 months
or less.
|
|
●
|
The
option to not separate lease and non-lease components for certain equipment lease asset categories such as freight car, vehicles and
work equipment.
|
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
nine months ended September 30, 2021 are from the sale of medical devices purchased from Neurotech, a related party.
Research and Development Costs
The Company expenses all research and development
costs as they are incurred. Research and development includes expenditures in connection with in-house research and development salaries
and staff costs, application and filing for regulatory approval of proposed products, regulatory and scientific consulting fees, as well
as contract research, data collection, and monitoring, related to the research and development of the cloud infrastructure, data imaging,
and proprietary products and technology. Research and development costs recognized in the statement of operations for the nine months
ended September 30, 2021 and 2020 were $386,646 and $208,026, respectively.
Sales and Marketing
Advertising and marketing costs are expensed as
incurred. Advertising and marketing costs recognized in the statement of operations for the nine months ended September 30, 2021 and 2020
were $182,480 and $126,587, 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 September 30, 2021, 6,737,609, and 4,403,828 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.
The Company did not have any other Level 1 or
Level 2 assets or liabilities as of September 30, 2021 and December 31, 2020.
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 September 30, 2021.
Liabilities
|
|
Amounts
at Fair
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative liability – conversion feature
|
|
$
|
257,413
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
257,413
|
|
Derivative liability - warrants
|
|
|
1,488,070
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,488,070
|
|
Total
|
|
$
|
1,745,483
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,745,483
|
|
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 September 30, 2021, and December 31, 2020, the Company had no unrecognized uncertain income tax positions.
On December 22, 2017, the passage of legislation
commonly referred to as the Tax Cuts and Jobs Act (“TCJA”) was enacted and significantly revised the U.S. income tax law.
The TCJA includes changes, which reduce the corporate income tax rate from 34% to 21% for years beginning after December 31, 2017. On
December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued and allows a company to recognize provisional
amounts when it does not have the necessary information available, prepared or analyzed, including computations, in reasonable detail
to complete its accounting for the change in tax law. SAB 118 provides for a measurement of up to one year from the date of enactment.
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 nine months ended September 30, 2021, the Company had $526,797 in revenues, a net
loss of $2,535,184 and had net cash used in operations of $1,207,276. Additionally, as of September 30, 2021, the Company had working
capital deficit, stockholders’ deficit and accumulated deficit of $6,549,978, $6,549,978 and $10,491,678, respectively. It is management’s
opinion that these conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of
twelve months from the date of the issuance of these financial statements.
The financial statements do not include any adjustments
to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities
that may result from the outcome of this uncertainty.
Successful completion of the Company’s development
program and, ultimately, the attainment of profitable operations are dependent upon future events, including obtaining adequate financing
to fulfill its development activities, acceptance of the Company’s patent applications and ultimately achieving a level of sales
adequate to support the Company’s cost structure. However, there can be no assurances that the Company will be able to secure additional
equity investments or achieve an adequate sales level.
NOTE 4 – CONVERTIBLE NOTES PAYABLE
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 ten 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 ten 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 ten 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 ten 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 ten 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, 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 October 21, 2022 (extended 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 principal amount of the Aggregate Advance, or so much thereof as has been advanced to the Company by the Grid Investors
from time to time pursuant to the Grid Notes, will be payable on April 21, 2021, unless sooner converted into shares of the Company’s
common stock 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 date of the Grid Notes, all of the remaining unpaid outstanding principal amount
and accrued and unpaid interest (the “Outstanding Balance”) under the Grid Notes shall automatically convert into such number
of shares of the Company’s common stock obtained by dividing the Outstanding Balance by the Conversion Price. The Grid Notes may
not be prepaid by the Company in whole or in part without the prior written consent of the respective Grid Investor.
The Grid Notes contain customary events of default,
which, if uncured, entitle the Grid Investors to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid
interest on, their Grid Notes.
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 Redeemable
Note in the original principal amount of $157,500 (the “September 1 Note”). The net amount received by the Company for the
sale 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 of the Company’s common stock pursuant
to the conversion terms contained 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 Agreement
On September 22, 2020, the Company entered into
a Securities Purchase Agreement (the “September Purchase Agreement”) dated as of September 22, 2020 (the “September
22 Issuance Date”) and issued and sold to an investor a Promissory Note (the “September 22 Note”) 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.
The net amount received by the Company during
the year ended December 31, 2020 was approximately $505,000 after payment of certain fees to the investor or on behalf 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, 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. 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% 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:
|
|
September 30,
2021
|
|
Dividend yield
|
|
|
0
|
%
|
Expected volatility
|
|
|
8.2% - 88.2
|
%
|
Risk free interest rate
|
|
|
0.10% - 0.67
|
%
|
Contractual terms (in years)
|
|
|
0.08 - 4.73
|
|
Conversion/Exercise price
|
|
$
|
0.21 - $1.20
|
|
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.
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.
During the nine months ended September 30, 2021
and 2020, the Company had expenses related to sales and marketing costs of $49,469 and $36,109, respectively, to an entity controlled
by Mr. Sakharov, a former director and executive officer of the Company.
During the year ended December 31, 2019, an affiliate
of Boris Goldstein, the Company’s Chairman 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, 2021 and December 31, 2020, the balance 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.
NOTE 9 – LEASES
The Company has inventoried all 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 qualify 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, the Company entered
into a 12-month lease agreement ending December 31, 2020, with a third party in Russia. 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 expense for the nine months ended September
30, 2021 and 2020 was $5,619 and $31,973, respectively.
The Company has one lease agreement with terms
up to 2 years for the lease of office space. The assets and liabilities from operating leases are recognized at the commencement date
based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates
or implicit rates, when readily determinable. Short-term leases, which have an initial term of 12 months or less, are not recorded on
the balance sheet.
The Company’s operating lease does not provide
an implicit rate that can readily be determined. Therefore, we use a discount rate based on our incremental borrowing rate, which is determined
using the interest rate of our debt as of July 1, 2020.
The Company’s weighted-average remaining
lease term relating to its operating leases is 1.17 years, with a weighted-average discount rate of 12%.
The Company incurred lease expense for its operating
leases of $34,917 and $0 which was included in “General and administrative expenses,” for the nine months ended September
30, 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, timing and uncertainty of cash flows arising from the Company’s operating leases as of September 30, 2021.
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
|
|
$
|
-
|
|
At December 31, 2020, the operating lease right
of use asset was $69,632. Supplemental balance sheet information related to the lease as of September 30, 2021 was:
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 10 – STOCKHOLDERS’ DEFICIT
Preferred Stock
The Company has authorized 10,000,000 shares of
undesignated preferred stock with a $0.001 par value. As of September 30, 2021, no preferred shares have been issued and these shares
are considered blank check preferred shares with no terms, limitations, or rights associated with them.
Common Stock
The Company has authorized 200,000,000 shares
of common stock with a $0.001 par value per share. The holders of common stock are entitled to one vote for each share of common stock
held at the time of vote. As of 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 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. During the nine months ended September 30,
2021, the Company issued 17,300 shares of common stock and 3,460 warrants 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.
On January 14, 2019, the Board of Directors approved
the issuance of options to purchase an aggregate of 800,000 and 200,000 shares of common stock to Boris Goldstein and Vadim Sakharov (a
former director and executive officer 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 200,000 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 activity
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, the remaining value of the
stock options totaling approximately $125,570 will be amortized into the statement of operations consistent with the period for which
the services will be rendered.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
Financial Advisory Agreement
On February 1, 2017, the Company entered into
a one-year agreement with a third party to act as the Company’s exclusive financial advisor (the “Financial Advisor”).
In consideration for services, the Company will pay a cash fee equal to 8% 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.
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 13 – 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 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 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 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.