The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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. Upon completion of the acquisition, MemoryMD 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 MemoryMD, the surviving entity and accounting acquirer. MemoryMD is a 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 Company is headquartered in New York.
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 120,000 are expected to be cancelled as soon as practicable. 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.
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 and MemoryMD - Russia. The
operations of the newly formed 100% wholly owned subsidiaries, MemoryMD – Russia and MemoryMD Europe, are included beginning
April 1, 2019 and July 1, 2019, respectively. 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 December 31, 2020 and December 31, 2019, the Company had no cash equivalents.
The
Company’s cash is held with financial institutions, and the account balances may, at times, exceed the Federal Deposit Insurance
Corporation (FDIC) insurance limit. Accounts are insured by the FDIC up to $250,000 per financial institution. The Company has
not experienced any losses in such accounts with these financial institutions. As of December 31, 2020 and December 31, 2019,
the Company had $22,856 and $11,436, respectively, in excess over the FDIC insurance limit.
Accounts Receivable
Accounts receivable are carried at net realizable
value and are reviewed for collectibility on an ongoing basis. For the years ended December 31, 2020 and 2019, the Company did not recognize
any allowances for doubtful accounts.
Inventory
Inventory
consists of finished goods that are valued at lower of cost or market using the weighted average method. As of December
31, 2020, and December 31, 2019, the Company had inventory totaling $1,461 and $0, respectively.
Property
and Equipment
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.
Convertible
Notes Payable
The
Company has issued convertible notes, which contain variable conversion features, whereby the outstanding principal and accrued
interest automatically convert into common shares at a fixed price which may be a discount to the common stock at the time of
conversion. Some of the conversion features of these notes are contingent upon future events, whereby, the holder agreed not to
convert until the contingent future event has occurred.
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 technique 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.
The
Company also applied a Black Scholes (“BSM”) analysis for the tainted notes and tainted warrants with simple fixed
conversion and exercise prices. The BSM derivative valuation assumes these tainted securities are held till maturity.
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.
|
As a result of the above, the adoption of ASC
842 did not have a material effect on the consolidated financial statements.
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 revenue for the years ended December
31, 2020 and 2019 is from the sale of medical devices purchased from Neurotech, a related party.
Research
and Development
The
Company expenses all research and development costs as they are incurred. Research and development includes expenditures in connection
with in-house research and development salaries and staff costs, application and filing for regulatory approval of proposed products,
regulatory and scientific consulting fees, as well as contract research, data collection, and monitoring, related to the research
and development of the cloud infrastructure, data imaging, and proprietary products and technology. Research and development costs
recognized in the statement of operations for the years ended December 31, 2020 and 2019 were $275,926 and $103,616, respectively.
Sales
and Marketing
Advertising
and marketing costs are expensed as incurred. Advertising and marketing costs recognized in the statement of operations for the
years ended December 31, 2020 and 2019 were $244,774 and $95,165, 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 years ended December 31,
2020 and 2019, 7,415,040 and 1,502,250, respectively, of anti-dilutive securities were excluded from the computation.
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 Level 1 or Level 2 assets or liabilities as of December 31, 2020 and the Company did not have any other
Level 1, Level 2 or Level 3 assets or liabilities as of December 31, 2019.
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 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 December 31, 2020, and
December 31, 2019, the Company had no unrecognized uncertain income tax positions.
Recent
Issued Accounting Pronouncements
From
time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board (“FASB”) or other
standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed, the Company does
not believe that the impact of recently issued standards that are not yet effective will have a material impact on the Company’s
financial position or results of operations upon adoption.
In
June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)
2016-13, “Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected
credit losses at the point a loss is probable to occur, rather than expected to occur, which will generally result in earlier
recognition of allowances for credit losses. The new guidance is effective for fiscal years beginning after December 15,
2019, including interim periods within those fiscal years. The Company adopted ASU 2016-13 in the first quarter of 2020 and the
adoption did not have a material impact on its condensed consolidated financial statements.
NOTE
3 – GOING CONCERN
The
accompanying financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company
as a going concern for a period of one year from the issuance of these financial statements. For the year ended December 31, 2020,
the Company had $544,275 in revenues, a net loss of $4,284,785 and had net cash used in operations of $1,173,409. Additionally,
as of December 31, 2020, the Company had working capital deficit, stockholders’ deficit and accumulated deficit of $4,765,850,
$4,796,824 and $7,956,862, 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 – PROPERTY AND EQUIPMENT
Property
and equipment, net consists of the following:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Computer equipment
|
|
$
|
4,105
|
|
|
$
|
4,105
|
|
Less: Accumulated depreciation
|
|
|
(3,807
|
)
|
|
|
(2,431
|
)
|
Total
|
|
$
|
302
|
|
|
$
|
1,674
|
|
Depreciation
expense was $1,372 and $1,330 for the years ended December 31, 2020 and 2019, respectively.
NOTE
5 – CONVERTIBLE NOTES PAYABLE
January
2019 Debt Offering
In
January 2019, the Company commenced an offering of up to $500,000 pursuant to which the Company will issue convertible notes to
investors. On January 18, 2019, 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. On February 28, 2020, 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.
On February 24, 2021, the January 18, 2019 convertible note was further extended to January 18, 2022. On February 28, 2020, 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. On February 24, 2021, the February 5, 2019 convertible note was further extended to February 5, 2022.
On July 22, 2020 the Company and the holder of the July 23, 2019 convertible note agreed to extend the maturity date of July 23,
2020 to February 21, 2021. On February 24, 2021, the July 23, 2019 convertible note 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. The Company
recorded $66,035 of accrued interest and has a total outstanding principal balance of $380,000 as of December 31, 2020.
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.
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 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 (the “Maturity Date”), as may be extended at the option of the Investor.
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 Warrant. 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 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. The Company calculated
the Warrants at fair value of $130,768 using the Monte Carlo model, which was recognized as a discount to the Note and is being
amortized as interest expense over the remaining term of the notes. The Note is considered a derivative liability due to the variable
market-based conversion price upon default. The Warrant is accounted for as a discount to the Note, and therefore fair valued
and recorded as a derivative liability as well. On March 18, 2020, the Warrant was revalued and recorded as a derivative liability
in the amount of $255,899. On December 31, 2020, the Warrant derivative was valued at $109,026. For the year ended December 31,
2020, the Company recorded a gain on the change in fair market value of derivative liabilities in the amount of $146,873 in relation
to the Warrant derivative.
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.
In
the year ended December 31, 2019, the Company recorded a total debt discount of $155,768 related to the above convertible notes.
During the year ended December 31, 2020 the Company recorded an additional debt discount of $176,274 related to the above convertible
notes. Amortization of the debt discount is recorded as interest expense and a total of $332,042 was amortized during the year
ended December 31, 2020.
Subsequent to the balance sheet date, due to the
partial conversion of an outstanding convertible loan, certain anti-dilution provisions were triggered, resulting in the reset of the
warrant amounts, warrant exercise price and the conversion price. Please see Note 15.
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.
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. During the year ended December 31, 2020, 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 $159,917 was amortized during the
year ended December 31, 2020.
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. The Company recorded $17,532 of accrued interest and has a total outstanding principal balance of $250,000 as
of December 31, 2020.
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. During the
year ended December 31, 2020, the Company recorded debt discount of $157,500 related to the September 1 Note. Amortization of
the debt discount is recorded as interest expense and a total of $54,370 was amortized during the year ended December 31, 2020.
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 terms of the Convertible Note mentioned below were triggered
which reset the interest rate of the Convertible Note to 12%. The Company recorded $6,471 of accrued interest and has a total
outstanding principal balance of $157,500 as of December 31, 2020.
The
unpaid outstanding principal amount and accrued and unpaid interest under the September 1 Note shall be convertible into shares
of common stock at any time on or after the September 1 Issuance Date at the option of the investor. The conversion price shall
be equal to 60% of the lowest closing bid price for the common stock, subject to certain exceptions and adjustments contained
in the September 1 Note, for the fifteen prior trading day period. From the September 1 Issuance Date until 180 days after the
September 1 Issuance Date, upon 3 days’ notice to the investor, the Company shall have the right to pre-pay the entire remaining
principal amount of the September 1 Note, subject to the pre-payment terms contained in the September 1 Note.
The
conversion of the September 1 Note is subject to a beneficial ownership limitation of 4.99% (or 9.9% upon notice of the investor)
of the number of shares of common stock outstanding immediately after giving effect to such conversion. The September 1 Note is
further subject to a “most-favored nation” clause in the event the Company offers a more favorable conversion discount,
interest rate, look back period or other more favorable term to another party for any financings while the September 1 Note is
in effect, subject to certain exceptions contained in the September 1 Note.
The
September 1 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 1 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 1 Note further contains monetary penalties in the event of certain
events of default.
At
the investor’s election, if the Company fails for any reason to deliver to the investor underlying shares upon conversion
by the 3rd business day thereafter and if the investor incurs a Failure to Deliver Loss (as defined in the September 1 Note),
then the Company must make the investor whole in relation to such loss.
Upon
certain sale events as specified in the September 1 Note, the Company shall, upon request of the investor, redeem the September
1 Note in cash for 150% of the principal amount, plus accrued but unpaid interest through the date of redemption, or at the election
of the investor, such Holder may convert the unpaid principal amount of the September 1 Note (together with the amount of accrued
but unpaid interest) into shares of Company common stock immediately prior to such sale event at the conversion price specified
in the September 1 Note.
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, provide 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. During
the year ended December 31, 2020, 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 $105,815 was amortized during the year ended December 31,
2020. The Company has a total outstanding principal balance of $600,000 as of December 31, 2020.
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 a non-convertible promissory note with a warrant exercise price that was more favorable
than the terms of the September 22 Note. The amount of shares under the September Warrants was reset to 1,505,882 with an exercise
price of $1.20.
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. (see Note 7)
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.
NOTE
6 – NOTES PAYABLE
On
October 23, 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. During the year
ended December 31, 2020 the Company recorded $6,996 of interest expense and has a total outstanding principal balance of $50,000
and accrued interest of $1,356 as of December 31, 2020.
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. The Company recorded $2,060 of accrued interest and has
a total outstanding principal balance of $20,000 as of December 31, 2020.
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. During the year
ended December 31, 2020, 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 $2,466 was amortized during the year ended December 31, 2020. The Company
has a total outstanding principal balance of $300,000 as of December 31, 2020.
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.
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 7)
NOTE
7 – DERIVATIVE LIABILITIES
The
Company evaluated the terms and conditions of the Notes and Convertible Notes Payable (see Notes 5 and 6) 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 year ended December 31,
2020:
|
|
Amount
|
|
Balance on December 31, 2019
|
|
$
|
-
|
|
Issuances to debt discount
|
|
|
1,330,752
|
|
Issuances to interest expense
|
|
|
2,513,323
|
|
Net extinguishment
|
|
|
79,621
|
|
Change in fair value of derivative liabilities
|
|
|
(801,801
|
)
|
Change in fair value of warrant liabilities
|
|
|
(558,953
|
)
|
Balance on December 31, 2020
|
|
$
|
2,562,942
|
|
The
fair value of the derivative conversion features and warrant liabilities as of December 31, 2020 were calculated using a Monte-Carlo
option model valued with the following assumptions:
|
|
December 31,
2020
|
|
Dividend yield
|
|
|
0
|
%
|
Expected volatility
|
|
|
46.4% - 82.2
|
%
|
Risk free interest rate
|
|
|
0.05% - 0.36
|
%
|
Contractual terms (in years)
|
|
|
0.08 - 4.30
|
|
Conversion/Exercise price
|
|
$
|
0.80 - $1.28
|
|
NOTE
8 – 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 December 31, 2020 and December 31, 2019, total liability to the financing company reflected
in Other Liabilities is $4,595 and $6,377, 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
9 – 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 December 31, 2020, and December 31, 2019, the balance was $55,530 and $55,530, respectively.
During the years ended December 31, 2020 and 2019,
the Company purchased an aggregate of $406,187 and $386,421 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 years ended December 31, 2020 and 2019,
the Company had expenses related to research and development costs of $26,920 and $50,713, respectively, to an entity controlled by Mr.
Sakharov, a former director and executive officer of the Company.
During the years ended December 31, 2020 and 2019,
the Company had expenses related to sales and marketing costs of $53,578 and $0, 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. As of December 31, 2020 and 2019, the balance was $50,000
and $50,000, respectively.
On
September 1, 2018, the Company entered into a sublease agreement with a company controlled by the Company’s Chairman, whereby
the Company makes payments to the related party for shared office space. This lease was terminated on March 31, 2019. For the
years ended December 31, 2020 and 2019, the Company made approximately $0 and $4,900, respectively, in rent payments to the related
party.
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 December 31, 2020 and 2019, the balance was $217,000 and
$217,000, respectively.
NOTE
10 – INCOME TAXES
The
Company files corporate income tax returns in the United States (federal) and New York. The Company is subject to federal, state
and local income tax examinations by tax authorities through inception.
As
of December 31, 2020 and 2019, the Company had federal and state net operating loss carry forwards of $9,252,000 and $3,617,000,
respectively that may be offset against future taxable income which will begin to expire in 2036 through 2040.
There
was a foreign provision for income tax during the year ended December 31, 2020. The tax effects of temporary differences which
give rise to deferred tax assets (liabilities) are summarized as follows:
|
|
For the Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net operating loss carry forwards
|
|
$
|
2,596,740
|
|
|
$
|
1,016,339
|
|
Stock based compensation
|
|
|
12,089
|
|
|
|
3,596
|
|
Depreciation
|
|
|
304
|
|
|
|
(22
|
)
|
Valuation allowance
|
|
|
(2,609,133
|
)
|
|
|
(1,019,913
|
)
|
Net Deferred Tax Asset
|
|
$
|
-
|
|
|
$
|
-
|
|
In
assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences become deductible. Deferred tax assets consist
primarily of the tax effect of NOL carry-forwards. The Company has provided a full valuation allowance on the deferred tax assets
because of the uncertainty regarding its realizability.
Reconciliation
of the statutory federal income tax to the Company’s effective tax:
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
%
|
|
|
%
|
|
Statutory federal tax rate
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
State taxes, net of federal benefit
|
|
|
9.39
|
%
|
|
|
6.99
|
%
|
Derivative revaluation
|
|
|
6.67
|
%
|
|
|
|
%
|
Other
|
|
|
0.04
|
%
|
|
|
|
%
|
Valuation allowance
|
|
|
-37.09
|
%
|
|
|
-27.70
|
%
|
Provision for income taxes
|
|
|
0.00
|
%
|
|
|
0.30
|
%
|
The
Company’s policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes
in the statement of operations. As of December 31, 2020 and 2019 the Company had no unrecognized tax benefits. There
were no changes in the Company’s unrecognized tax benefits during the years ended December 31, 2020 and 2019. The Company
did not recognize any interest or penalties during fiscal 2020 or 2019 related to unrecognized tax benefits.
All
tax years remain open to examination for federal income tax purposes and by other major taxing jurisdictions to which the Company
is subject.
NOTE
11 – 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 lease 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.
Beginning
June 1, 2019, the Company entered into a 10-month lease agreement ending September 30, 2020 with a third party in Russia. The
Company is paid rent at a rate of 12,000 Rubles ($161) 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 year ended December 31, 2020 and 2019 was $38,870 and $85,771, 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 1.67 years, with a weighted-average
discount rate of 12%.
The
Company incurred lease expense for its operating leases of $23,278 and $0 which was included in “General and administrative
expenses,” for the year ended December 31, 2020 and 2019, respectively.
The
Company had operating cash flows used in operating leases of $18,272 for the year ended December 31, 2020.
The
following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating
leases as of December 31, 2020.
Maturity of Lease Liability
|
|
|
|
2021
|
|
|
48,334
|
|
2022
|
|
|
32,699
|
|
Total undiscounted operating lease payments
|
|
$
|
81,033
|
|
Less: Imputed interest
|
|
|
(7,964
|
)
|
Total operating lease liabilities
|
|
|
73,069
|
|
Less: Current portion of operating lease
|
|
|
(41,793
|
)
|
Long-term portion of operating lease
|
|
$
|
31,276
|
|
At December 31, 2019, the operating lease right
of use asset was $0. Supplemental balance sheet information related to the lease as of December 31, 2020 was:
Operating lease right-of-use asset
|
|
$
|
69,632
|
|
|
|
|
|
|
Lease liability, current portion
|
|
|
41,793
|
|
Lease liability, long-term
|
|
|
31,276
|
|
Total operating lease liability
|
|
$
|
73,069
|
|
|
|
|
|
|
Weighted average remaining lease term (months)
|
|
|
20
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
12
|
%
|
NOTE
12 – STOCKHOLDERS’ DEFICIT
Preferred
Stock
The
Company has authorized 10,000,000 shares of undesignated preferred stock with a $0.001 par value. As of December 31, 2020, no
preferred shares have been issued and these shares are considered blank check preferred shares with no terms, limitations, or
rights associated with them.
Common
Stock
The
Company has authorized 200,000,000 shares of common stock with a $0.001 par value per share. The holders of common stock are entitled
to one vote for each share of common stock held at the time of vote. As of December 31, 2020, the Company has deemed 19,628,258
shares outstanding or deemed outstanding.
Shares
Issued for Services
On
December 4, 2019, the Company entered into an agreement with an advisor to memorialize certain services rendered to the Company.
Pursuant to the terms of the agreement, in consideration for those services, the Company issued the advisor 75,000 shares of common
stock. The shares were valued at $0.12 per share or $9,150.
On
October 1, 2019, the Company entered into a three-month agreement with an advisor for consulting services. Pursuant to the agreement,
the Company shall pay the advisor 4,000 shares of common stock a month. As of December 31, 2019, the Company has issued 4,000
shares at a value of $0.12 per share or $488. The agreement was terminated on October 31, 2019.
On
October 7, 2019, the Company entered into a three-month agreement with an advisor for consulting services. Pursuant to the agreement,
the Company shall pay the advisor 7,500 shares of common stock a month. As of December 31, 2019, the Company has issued 22,500
shares at a value of $0.12 per share or $2,745.
On
August 8, 2018, the Company entered into a one-year agreement with an advisor for consulting services, as extended for an additional
one-year period. Pursuant to the agreement, as amended, the Company has the right to pay $5,000 or issue the advisor a maximum
of 6,667 shares of common stock on a quarterly basis, beginning the quarter ended December 31, 2018. The Company elected to issue
26,668 shares for the services provided during the year ended December 31, 2019 at an average value of $0.08 per share or $1,653.
The Company elected to issue 9,899 shares for the services provided during the year ended December 31, 2020 at an average value
of $1.52 per share or $15,000.
On
August 28, 2018, the Company entered into a one-year agreement with an advisor for consulting services, as extended for an additional
one-year period. Pursuant to the agreement, as amended, the Company has the right to pay $5,000 or issue the advisor a maximum
of 6,667 shares of common stock on a quarterly basis, beginning the quarter ended December 31, 2018. The Company elected to issue
26,668 shares for the services provided during the year ended December 31, 2019 at an average value of $0.08 per share or $1,653.
The Company elected to issue 9,899 shares for the services provided during the year ended December 31, 2020 at an average value
of $1.52 per share or $15,000.
On
September 1, 2019, the Company entered into a four-month agreement with an advisor for consulting services. Pursuant to the agreement,
the Company shall pay the advisor 5,000 shares of common stock a month. As of December 31, 2019, the Company has issued 20,000
shares for services provided by the advisor at an average value of $0.10 per share or $2,000. On June 1, 2020 the Company entered
into an additional four-month agreement with an advisor for consulting services. Pursuant to the agreement, the Company shall
pay the advisor 7,000 shares of common stock a month. As of December 31, 2020, the Company has issued 28,000 shares for services
provided by the advisor at an average value of $1.14 per share or $32,025.
On November 13, 2020, the Company entered into a six-month agreement
with a consultant to provide services to the Company. As compensation for such services, the Company has agreed to pay the consultant
$6,000 in cash and allowed the consultant to purchase 100,000 shares of the Company’s restricted common stock for a total purchase
price of $500. The fair value per share on the November 13, 2020 issuance date was $1.00 or $100,000. During 2020 the Company recorded
$26,019 of consulting expenses.
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.
As of December 31, 2020, the Company has recorded $45,706 in stock-based compensation.
December
31, 2019 Securities Purchase Agreement
During
the year ended December 31, 2019, in connection with the Securities Purchase Agreement (see Note 5), the company issued 100,000
warrants to a third party. The warrants were initially accounted for as a discount to the December 31, 2019 convertible note and
therefore fair-valued using the Monte Carlo model. On March 18, 2020 upon the Initial Public Offering and the existence of a market
for the common stock, the warrants were considered a derivative liability and as such are presented at every reporting period
at fair value. Upon inception, the warrants were evaluated with the following assumptions:
|
-
|
The
stock price of $0.1208 would fluctuate with an annual volatility
|
|
-
|
The
projected volatility curve was based on historical volatility of comparable companies for the valuation period and the remaining
term of the warrants. The volatility used was 85.2%.
|
|
-
|
The
stock price projection was modeled such that it follows a geometric Brownian motion with constant drift and a constant volatility,
starting with market prices.
|
|
-
|
The
warrants are exercised at maturity, December 31, 2024, by the holder if they are in the money based on the adjusted exercise price
(adjusted for full ratchet reset events).
|
|
-
|
The
warrants have a fixed $1.25 exercise price subject to full ratchet reset provisions. Capital raising events triggering a reset
to 100% of the projected stock price (no discount to the market) are projected for the warrants on 6/30/20, 6/30/21 and 6/30/22.
|
|
-
|
The
cash flows are discounted to net present values using risk free rates. Discount rates were based on risk free rates in effect
based on the remaining term.
|
As
a result of certain terms granted as part of the issuance of the December 28 notes (see Note 6) the abovementioned warrants were
reset from 100,000 to 125,000, and the exercise price was adjusted from $1.25 to $1.00.
Convertible
Grid Notes
On
April 21, 2020, in connection with the issuance of the Grid Notes (see Note 5), the company issued 1,500,000 warrants (the Grid
Warrants) to a third party. The Grid Warrants were accounted for as a derivative liability and are presented at every reporting
period at fair value. At issuance the Grid Warrants were fair-valued using the Monte Carlo model with the following assumptions:
|
-
|
The
projected volatility curve was based on historical volatility of comparable companies for the valuation period and the remaining
term of the warrants. The volatility used was 72.5%.
|
|
-
|
The
stock price projection was modeled such that it follows a geometric Brownian motion with constant drift and a constant volatility,
starting with market prices.
|
|
-
|
The
warrants are exercisable at any time commencing 18 months from the issuance date and expire on April 21, 2025.
|
|
-
|
The
warrants have a fixed $0.80 exercise.
|
|
-
|
The
cash flows are discounted to net present values using risk free rates. Discount rates were based on risk free rates in effect
based on the remaining term.
|
September
22, 2020 Securities Purchase Agreement
On
September 22, 2020, in connection with the September Purchase Agreement (see Note 5), the company issued 1,411,764 warrants (the
September Warrants) to a third party. The September Warrants were accounted for as a derivative liability and are presented at
every reporting period at fair value. At issuance the September Warrants were fair-valued using the Monte Carlo model with the
following assumptions:
|
-
|
The
projected volatility curve was based on historical volatility of comparable companies for the valuation period and the remaining
term of the warrants. The volatility used was 84.0%.
|
|
-
|
The
stock price projection was modeled such that it follows a geometric Brownian motion with constant drift and a constant volatility,
starting with market prices.
|
|
-
|
The
warrants are may be exercised at any time until the three year anniversary of the Warrants; provided, however, in the event the
Company repays the September 22 Note in its entirety on or prior to the Maturity Date, 705,882 September Warrants shall automatically
expire and may only be exercised in the event it does not so automatically expire.
|
|
-
|
The
warrants have a fixed $1.28 exercise price subject to full ratchet reset provisions. Capital raising events triggering a reset
to 100% of the projected stock price (no discount to the market) are projected for the warrants on 6/30/20, 6/30/21 and 6/30/22.
|
|
-
|
The
cash flows are discounted to net present values using risk free rates. Discount rates were based on risk free rates in effect
based on the remaining term.
|
As a result of certain terms granted as part of the issuance of the
December 28 notes (see Note 6) the abovementioned warrants were reset from 1,411,764 to 1,505,882, and the exercise price was adjusted
from $1.28 to $1.20.
The
following table summarized the warrant activity for the years ended December 31, 2020 and 2019:
Warrants
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Balance Outstanding, December 31, 2018
|
|
|
402,250
|
|
|
$
|
0.40
|
|
|
|
4.72
|
|
|
$
|
-
|
|
Granted
|
|
|
100,00
|
|
|
$
|
1.25
|
|
|
|
5.00
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance Outstanding, December 31, 2019
|
|
|
502,250
|
|
|
$
|
0.57
|
|
|
|
3.98
|
|
|
$
|
201,125
|
|
Granted
|
|
|
3,530,882
|
|
|
|
1.02
|
|
|
|
3.90
|
|
|
|
150,000
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance Outstanding, December 31, 2020
|
|
|
4,033,132
|
|
|
$
|
0.97
|
|
|
|
3.39
|
|
|
$
|
351,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2020
|
|
|
2,533,132
|
|
|
$
|
1.06
|
|
|
|
2.84
|
|
|
$
|
201,125
|
|
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 are reserved for issuance under the 2018 Plan. As of December 31, 2020, the Company has granted and
has 1,800,000 options outstanding, as well as 333,972 shares of restricted common stock issued under the 2018 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 expense will be amortized over the vesting period and a total of $6,417 and $10,432 was recorded during the years
ended December 31, 2020 and 2019, respectively.
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 $23,790 was recorded during the year ended December 31, 2020.
The
following table summarized the option activity for the years ended December 31, 2020 and 2019:
Options
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Balance Outstanding, December 31, 2018
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
-
|
|
Granted
|
|
|
1,800,00
|
|
|
$
|
0.75
|
|
|
|
10.00
|
|
|
|
-
|
|
Forfeited
|
|
|
(800,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance Outstanding, December 31, 2019
|
|
|
1,000,000
|
|
|
$
|
0.75
|
|
|
|
9.05
|
|
|
$
|
150,000
|
|
Granted
|
|
|
800,000
|
|
|
|
0.75
|
|
|
|
10.00
|
|
|
|
120,000
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance Outstanding, December 31, 2020
|
|
|
1,800,000
|
|
|
$
|
0.75
|
|
|
|
8.51
|
|
|
$
|
270,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2020
|
|
|
1,400,000
|
|
|
$
|
0.75
|
|
|
|
8.34
|
|
|
$
|
210,000
|
|
For
future periods, the remaining value of the stock options totaling approximately $28,230 will be amortized into the statement of
operations consistent with the period for which the services will be rendered.
NOTE
13 – CONCENTRATIONS
In
the years ending December 31, 2020 and 2019, respectively, the Company purchased 99.28% and 99.84% of its medical devices for
resale and distribution from Neurotech, a company that Vadim Sakharov, a former director and executive officer of the Company,
is a shareholder and executive manager.
NOTE
14 – 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
15 – 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.
Loan
Extensions
Subsequent
to the balance sheet date, the January 18, 2019, February 5, 2019 and July 23, 2019 convertible notes (see Note 5) were extended
to January 18, 2022, February 5, 2022 and February 21, 2022, respectively.
On
February 8, 2021, the Company entered into a third Allonge to the Convertible Note (see Note 5) which 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.
February
8, 2021 Loan
On
February 8, 2021, the Company signed a loan agreement in the amount on $500,000 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.
Stock
Option Agreements
On
January 26, 2021 the Company granted a director 16,779 fully vested stock options. On February 11, 2021, the Company granted certain
employees options to purchase an aggregate number of 125,000 shares of common stock, exercisable at $1.50 per share which will
vest over a 24-month period as follows: 25% 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.
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.
Loan
Conversion
On March 16, 2021, the Company received a Notice
of Conversion from the holder of the Diamond Note, electing to convert $20,000 of outstanding principal and $871 of outstanding interest
into 27,828 common shares at an applicable conversion price of $0.75 per share. This conversion triggered certain anti-dilution provisions
of the Note (See note 5) and as a result, the conversion price of the Note was reduced to $0.75, and the warrant amount was reset to 166,667
with an exercise price of $0.75 per share.
Financial
Services Agreement
On
February 25, 2021, the Company signed a contract with a financial services provider in connections with future potential transactions.
At the closing of the potential transactions, the financial services provider will be entitled to fees in the form of cash, warrants
and shares of common stock dependent on the amount of funds raised as part of the transaction.