UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14C

(RULE 14c-101)

(Amendment No.    )

 

SCHEDULE 14C INFORMATION

Information Statement Pursuant to Section 14(c) of the Securities Exchange Act of 1934

 

Check the appropriate box:

 

Preliminary Information Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2))
Definitive Information Statement

 

BRAIN SCIENTIFIC INC.

(Name of Registrant as Specified in its Charter)

 

Payment of Filing Fee (Check the appropriate box):

  

No fee required
   
Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.

 

  (1)

Title of each class of securities to which transaction applies:

Common Stock, par value $0.001 per share (“Common Stock”)

     
  (2)

Aggregate number of securities to which transaction applies:

Approximately 25,000,000 shares of Common Stock to be issued to shareholders of Piezo Motion Corp. by Brain Scientific Inc. pursuant to that certain Agreement and Plan of Merger and Reorganization, dated as of June 11, 2021, by and among Brain Scientific Inc., BRSF Acquisition Inc. and Piezo Motion Corp.

     
  (3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

The proposed maximum aggregate value of the transaction was calculated based on the product of approximately 25,000,000 shares of Common Stock multiplied by $0.37 per share (the average of the high and low trading prices of the Common Stock on the OTCQB Market on July 21, 2021).

     
  (4)

Proposed maximum aggregate value of transaction:

$9,250,000.

     
  (5)

Total fee paid:

$1,850.00

 

Fee paid previously with preliminary materials.
   
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

  

  (1) Amount Previously Paid:
  (2) Form, Schedule or Registration Statement No.:
  (3) Filing Party:
  (4) Date Filed:

 

 

 

 

 

 

BRAIN SCIENTIFIC INC.

125 Wilbur Place, Suite 170

Bohemia, NY 11716

917-388-1578

  

The purpose of this letter is to inform you that on July 15, 2021, the board of directors (the “Board”) of Brain Scientific Inc., a Nevada corporation (the “Company”), and on July 16, 2021, holders of the common stock of the Company representing in the aggregate 63.00% of the voting capital stock of the Company, each by written consent in lieu of a meeting, approved the following corporate actions:

 

1.To approve and adopt an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) by and among the Company, 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 which Merger Sub will merge with and into Piezo, with Piezo surviving as a wholly-owned subsidiary of the Company;
2.To approve the issuance of shares of the Company’s common stock to the Piezo shareholders in accordance with the terms and provisions of the Merger Agreement (the “Merger Share Issuance”);
3.To approve the issuance to certain affiliates and non-affiliates of the Company of options and warrants to purchase an aggregate number of shares equal to 20% of the issued and outstanding shares of the Company’s common stock in accordance with the terms and provisions of the Merger Agreement (the “Option Issuance”);
4.To approve and adopt an amendment to the Company’s Articles of Incorporation, as amended, which makes no material changes to the existing Articles of Incorporation other than to opt out of the “Acquisition of Controlling Interest” provisions contained in Sections 78.378 through 78.3793 of the Nevada Revised Statutes (the “Charter Amendment”); and
5.To approve an amendment to the Company’s 2018 Equity Incentive Plan to increase the number of shares of common stock authorized thereunder for grant from 3,500,000 to 8,000,000 (the “Plan Amendment”).

 

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. THIS IS NOT A NOTICE OF AN ANNUAL MEETING OR SPECIAL MEETING OF STOCKHOLDERS AND NO STOCKHOLDER MEETING WILL BE HELD TO CONSIDER ANY MATTER WHICH WILL BE DESCRIBED HEREIN.

 

The accompanying Information Statement, which we urge you to read carefully, describes the Merger Agreement, Merger Share Issuance, Option Issuance, Charter Amendment, and Plan Amendment in more detail, and is being furnished to our stockholders for informational purposes only, pursuant to Section 14(c) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations prescribed thereunder. Pursuant to Rule 14c-2 under the Exchange Act, the Merger Agreement, Merger Share Issuance, Option Issuance, Charter Amendment, and Plan Amendment may not be effected until at least 20 calendar days after a Definitive Information Statement is filed with the Securities and Exchange Commission and a copy thereof is mailed to each of the Company’s stockholders.

 

BY ORDER OF THE BOARD OF DIRECTORS

 

August 3, 2021

 
   
/s/  Boris Goldstein  
Boris Goldstein, Chairman of the Board,
Executive Vice President and Secretary
 

 

 

 

 

BRAIN SCIENTIFIC INC.

 

125 Wilbur Place, Suite 170

Bohemia, NY 11716

 

917-388-1578 

 

 

 

INFORMATION STATEMENT

 

 

 

August 3, 2021

 

THIS INFORMATION STATEMENT IS BEING PROVIDED TO YOU BY THE

BOARD OF DIRECTORS OF BRAIN SCIENTIFIC INC.

 

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE

REQUESTED NOT TO SEND US A PROXY

 

THIS IS NOT A NOTICE OF A MEETING OF STOCKHOLDERS AND NO STOCKHOLDERS’

MEETING WILL BE HELD TO CONSIDER ANY MATTER DESCRIBED HEREIN.

 

 

 

This Information Statement is being furnished to the holders of shares of common stock, par value $0.001 per share (the “Common Stock”), of Brain Scientific Inc. (the “Company”). This Information Statement is being furnished in connection with the actions by written consent of the holders of a majority of the Company’s issued and outstanding shares of Common Stock taken without a meeting to approve the actions described in this Information Statement. In this Information Statement, all references to the “Company,” “we,” “us” or “our” refer to Brain Scientific Inc., a Nevada corporation.

 

Stockholders of record as of August 2, 2021 (the “Notice Record Date”) are entitled to receive this Information Statement. This Information Statement is being sent to stockholders of record on or about August 4, 2021.

 

Pursuant to Rule 14c-2 promulgated by the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the actions described herein will not become effective until at least 20 calendar days following the date on which this Information Statement is first mailed to our stockholders.

 

We will bear the entire cost of furnishing this Information Statement. We will request brokerage houses, nominees, custodians, fiduciaries and other like parties to forward this Information Statement to the beneficial owners of the Common Stock held of record by them and will reimburse such persons for their reasonable charges and expenses in connection therewith.

 

ACTIONS BY BOARD OF DIRECTORS AND CONSENTING STOCKHOLDERS

 

On July 15, 2021, in accordance with the applicable provisions of the Nevada Revised Statutes (the “NRS”), the Company’s Board of Directors (the “Board”) unanimously adopted resolutions approving the following proposed actions (each, an “Action” and collectively, the “Actions”):

 

1.To approve and adopt an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) by and among the Company, 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 which Merger Sub will merge with and into Piezo, with Piezo surviving as a wholly-owned subsidiary of the Company (the “Merger”);
2.To approve the issuance of shares of the Company’s Common Stock to the Piezo shareholders in accordance with the terms and provisions of the Merger Agreement (the “Merger Share Issuance”);

 

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3.To approve the issuance to certain affiliates and non-affiliates of the Company of options and warrants to purchase an aggregate number of shares of Common Stock equal to 20% of the issued and outstanding shares of the Company’s Common Stock immediately after the effective time of the Merger in accordance with the terms and provisions of the Merger Agreement (the “Option Issuance”);
4.To approve and adopt an amendment to the Company’s Amended and Restated Articles of Incorporation, as amended, which makes no material changes to the existing Articles of Incorporation other than to opt out of the “Acquisition of Controlling Interest” provisions contained in Sections 78.378 through 78.3793 of the NRS (the “Charter Amendment”); and
5.To approve an amendment to the Company’s 2018 Equity Incentive Plan to change the number of shares of common stock authorized thereunder for grant from 3,500,000 to 8,000,000 (the “Plan Amendment”). 

 

In order to obtain the approval of our stockholders for the Actions, we could have convened a special meeting of the stockholders for the specific purpose of voting on such matters. However, the NRS provides that any action that may be taken at any annual or special meeting of stockholders may be taken without a meeting and without prior notice if a consent in writing setting forth the action taken is signed by the holders of outstanding shares of voting capital stock having not less than the minimum number of votes that would be necessary to take such action. In order to eliminate the costs and management time involved in holding a meeting and obtaining proxies and in order to effect the above Actions as early as possible in order to accomplish the purposes hereafter described, we elected to utilize the written consent of the holders of a majority of the outstanding shares of our voting capital stock.

 

As of the close of business on July 16, 2021 (the “Voting Record Date”), there were issued and outstanding 20,473,799 shares of Common Stock

 

On the Voting Record Date, pursuant to the applicable provisions of the NRS, we received a written consent approving the Actions from holders of Common Stock holding an aggregate of 12,899,437 shares of our Common Stock, representing approximately 63.00% of our outstanding shares of voting capital stock. Thus, your consent is not required and is not being solicited in connection with the approval of the Actions.

 

The following table sets forth the names of the holders of our Common Stock who consented to the Actions (the “Consenting Stockholders”), the number of shares of the Common Stock beneficially owned, directly or indirectly, by the Consenting Stockholders as of the Voting Record Date, the total number of votes in favor of the Actions and the percentage of the issued and outstanding voting equity of the Company that voted in favor thereof.

 

Name of Consenting Stockholder  Number of Shares of
Common Stock Held
   Number of
Votes held by
such
Consenting
Stockholder
   Number of
Votes that
Voted in Favor
of the Actions
   Percentage of
voting equity
that voted in
favor of the Actions
 
High Technology Capital Fund LP (1)   6,749,000    6,749,000    6,749,000    32.96%
Andrew Brown   1,709,063    1,709,063    1,709,063    8.35%
Thomas J. Caleca   1,452,090    1,452,090    1,452,090    7.09%
Lifestyle Healthcare LLC (2)   1,384,980    1,384,980    1,384,980    6.76%
Boris Goldstein   338,125    338,125    338,125    1.65%
Irina Migalina (3)   337,450    337,450    337,450    1.65%
Len Mertz Trust   166,667    166,667    166,667    0.81%
Leonard Mazur   166,667    166,667    166,667    0.81%
M. Jainal Bhuiyan   595,395    595,395    595,395    2.91%
Total   12,899,437    12,899,437    12,899,437    63.00%

 

 
(1)Dr. Goldstein, the Company’s Chairman and Executive Vice President, is the manager of High Technology Capital Management LLC (“LLC”), the general partner of High Technology Capital Fund LP (“LP”). As the manager of the LLC, Dr. Goldstein has voting and dispositive control over the shares owned by the LP. Dr. Goldstein disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.
(2)Nickolay Kukekov, a director of the Company, has voting and dispositive power over the shares. Dr. Kukekov disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein.
(3)Ms. Migalina is Dr. Goldstein’s wife. Dr. Goldstein disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.

 

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CORPORATE ACTION TO BE TAKEN

 

Pursuant to Rule 14c-2 under the Exchange Act, the Merger, Merger Share Issuance, Option Issuance, Charter Amendment, and Plan Amendment may not be effected until at least 20 calendar days after the mailing of the this Information Statement to the Company’s stockholders.

 

QUESTIONS AND ANSWERS ABOUT THE ACTIONS

 

Q. What is the Merger?

 

A. The Company, Merger Sub, and Piezo have entered into the Merger Agreement, that sets forth the terms and conditions of the proposed acquisition of Piezo by the Company. Under the Merger Agreement, Merger Sub, a wholly-owned subsidiary of the Company will merge with and into Piezo, with Piezo surviving as a wholly owned subsidiary of the Company. A complete copy of the Merger Agreement is attached to this Information Statement as Appendix A.

 

Q. Why are the Company and Piezo proposing to effect the Merger?

 

A. The Board of Directors of each of the Company and Piezo have unanimously approved the Merger Agreement and the Merger. The merger, upon its closing, is expected to expand the overall market reach of both companies and ability to deliver innovative technologies to high growth markets. The Board of Directors of the Company believes that the Merger presents the best value opportunity available to the Company’s stockholders at this time.

 

Q. Why did I receive this Information Statement?

 

A. Applicable laws require us to provide you information regarding the Actions even though your vote is neither required nor requested for the Actions to become effective.

  

Q. Why am I not being asked to vote on the Actions?

 

A. The adoption of the Actions have been approved by written consent of holders of a majority of the outstanding shares of voting capital stock of the Company. The Company’s Board unanimously voted, approved and recommended the adoption of the Actions and determined that the Actions are advisable to and in the best interests of the Company and its stockholders. Such approval is sufficient under Nevada law, and no further approval by the Company’s stockholders is required. Therefore, your vote is not required and is not being sought. The Company is not asking you for a proxy and you are requested not to send us a proxy.

  

Q. What will I receive if the Actions are completed?

 

A. Nothing. Upon completion of the Merger, the Company’s stockholders will not receive any consideration in the Merger. At the effective time of the Merger (the “Effective Time”), all outstanding share of Piezo capital stock in the aggregate will be automatically converted into the right to receive that number of shares of the Company’s common stock equal to 100% of the issued and outstanding shares of the Company’s common stock on a “fully diluted basis” (as defined in the Merger Agreement) calculated as of immediately prior to the Effective Time (the “Exchange Ratio”). No fractional shares of Company common stock will be issued in the Merger. Following the closing of the Merger, former stockholders of Piezo are expected to own approximately 50% of the Company and stockholders of the Company through immediately prior to the Effective Time 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.

 

Q, How will the Company’s stockholders be affected by the Merger?

 

A. The Merger will have no effect on the number of shares of Company common stock held by current Company stockholders as of immediately prior to the completion of the Merger. However, it is expected that upon completion of the Merger such shares will represent an aggregate of approximately 50% of the outstanding shares of common stock of the combined company calculated on a fully diluted basis. As a result of the Exchange Ratio being based on a fully-diluted share basis, the former shareholders of Piezo at the Effective Time will collectively own a majority of the common stock of the Company, and the consummation of the Merger can be considered a change of control.

 

For example, if you are a Company stockholder and hold 5% of the outstanding shares of Company common stock calculated on a fully diluted basis immediately prior to the completion of the Merger and do not also hold common shares of Piezo, then upon completion of the Merger you will hold an aggregate of approximately 2.5% of the outstanding shares of common stock of the combined company calculated on a fully diluted basis.

  

Q. What do I need to do now?

 

A Nothing. This Information Statement is purely for your information and does not require or request you to do anything.

 

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FORWARD-LOOKING STATEMENTS

 

This Information Statement contains or incorporates both historical and “forward-looking” statements. Words such as “anticipates,” “believes,” “expects,” “intends,” “future” and similar expressions identify forward-looking statements. Any such forward-looking statements in this report reflect our current views with respect to future events and financial performance and are subject to a variety of factors that could cause our actual results to differ materially from historical results or from anticipated results expressed or implied by such forward-looking statements. There may be events in the future that cannot be accurately predicted or over which the Company has no control. Stockholders should be aware that the occurrence of the events described in this Information Statement or in the documents incorporated herein by reference could have a material adverse effect on our business, operating results and financial condition or ability to consummate the transaction. Examples of these risks include, without limitation the risks disclosed in this Information Statement and in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

  

The forward-looking statements are not guarantees of future performance, events or circumstances, and actual results may differ materially from those contemplated by the forward-looking statements. Forward-looking statements herein or in documents incorporated herein by reference speak only as of the date of this Information Statement or the applicable document incorporated herein by reference (or such earlier date as may be specified therein), as applicable, are based on current assumptions and expectations or assumptions and expectations as of the date of the document incorporated herein by reference, and are subject to the factors above, among other things, and involve risks, events, circumstances, uncertainties and assumptions, many of which are beyond our ability to control or predict. You should not place undue reliance on these forward-looking statements. We do not intend to, and do not undertake an obligation to, update these forward-looking statements in the future to reflect future events or circumstances, except as required by applicable securities laws and regulations. For more information, see the section entitled “Where You Can Find More Information” beginning on page 63. The results presented for any period may not be reflective of results for any subsequent period.

  

You should carefully read and consider the cautionary statements contained or referred to in this section in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf, and all future written and oral forward-looking statements attributable to us, are expressly qualified in their entirety by the foregoing cautionary statements.

 

ACTIONS #1, 2 and 3

MERGER AND MERGER AGREEMENT, MERGER SHARE ISSUANCE AND OPTION ISSUANCE

 

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SUMMARY

 

This summary highlights selected information from this Information Statement and may not contain all of the information that is important to you. To better understand the Merger and the Actions approved by the Board and Consenting Stockholders, you should read this entire Information Statement carefully, including the Merger Agreement attached as Appendix A and the other appendixes to which you are referred herein. For more information, please see the section entitled “Where You Can Find More Information” beginning on page 63.

 

The Companies

 

Brain Scientific Inc.

 

The Company is a neurology-focused medical device and software company seeking to provide a centralized platform for data acquisition and analysis of electroencephalography (“EEG”) data that combines innovative medical device technologies with cloud-based telehealth services. The Company in this stage is primarily focused on selling easy-to-use, affordable EEG devices to improve neurological care. The next step is expected to be to establish diagnostic protocols through the use of its products to identify pathological risk factors involving the brain, and driving novel insights into cognitive health that support early treatment of neurological disorders.

 

Piezo Motion Corp.

 

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.

 

BRSF Acquisition Inc.

 

BRSF Acquisition Inc. is a wholly-owned subsidiary of the Company, and was formed solely for the purposes of carrying out the Merger.

 

The Merger

 

The Company, Piezo and Merger Sub have entered into the Merger Agreement, which provides that, subject to the terms and conditions contained therein, at the Effective Time of the Merger, Merger Sub will merge with and into Piezo, with Piezo continuing as the surviving corporation and as a wholly-owned subsidiary of the Company. Each of the Board of Directors of the Company and Piezo have unanimously approved the Merger.

 

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Overview of the Merger Agreement

 

Merger Consideration (see page 29)

 

At the effective time of the Merger, each outstanding share of Piezo capital stock will be automatically converted into the right to receive that number of shares of the Company’s common stock equal to the Exchange Ratio (as defined in “The Merger Agreement – Merger Consideration” on page 29).

 

As a result, following the completion of the Merger, former stockholders of Piezo are expected to receive shares of Company common stock representing approximately 50% of the outstanding shares of Company common stock calculated on a fully diluted basis and current stockholders of the Company are expected to own approximately 50% of the outstanding shares of Company common stock calculated on a fully diluted basis. 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. Certain affiliates and non-affiliates of the Company will also be issued options and warrants to purchase an aggregate number of shares equal to 20% of the issued and outstanding shares of the Company’s common stock calculated as of immediately after the Effective Time.

 

Conditions to Completion of the Merger (see page 34)

 

To complete the merger, Company stockholders must approve and adopt the Merger Agreement and approve the issuance of shares of Company common stock to Piezo stockholders in connection with the Merger. In addition to obtaining such stockholder approvals, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived.

 

Termination of the Merger Agreement (see page 36)

 

Either the Company or Piezo can terminate the Merger Agreement under certain circumstances, which would prevent the Merger from being completed.

 

Fees and Expenses (see page 36)

 

The Merger Agreement provides that all fees and expenses incurred in connection with the Merger Agreement and the transactions contemplated by the Merger Agreement will be paid by the party incurring such expense; provided, that in the event that the Merger and Private Placement Offering (as defined below) are consummated, such costs and expenses shall be payable at the closing of the Merger from the proceeds of the Private Placement Offering.

 

Company Private Placement

 

Pursuant to the Merger Agreement, the Company is obligated to have a first closing of a private placement offering (the “Private Placement Offering”) of at least $5.0 million in units, including any interim bridge financing raised by either Company or Piezo that is convertible into the Private Placement Offering, each unit consisting of a 10% convertible promissory note which matures eighteen months after the initial closing (the “Notes”) and common stock purchase warrants, upon the terms and subject to the conditions of a separate securities purchase agreement.

 

Management Following the Merger

 

The Merger Agreement provides that, at or prior to the Effective Time, the Company’s Board will take the following action, to be effective upon the Effective Time: (i) increase the size of the Company’s Board from 2 to 5 members, (ii) elect to the Board Hassan Kotob (currently the CEO of Piezo); and (iii) appoint as the officers of the Company Hassan Kotob as CEO and Bonnie-Jeanne Gerety (currently the CFO of Piezo) as CFO, or, in either case with regard to clauses (ii) and (iii), such other persons designated by Piezo. The Merger Agreement also provides that the current officers of the Company shall resign from their positions with the Company effective upon the Effective Time; provided, however, that Boris Goldstein, currently the Company’s Chairman, Executive Vice President and Secretary, shall be appointed to serve for a period of one year as a consultant of the Company (or of MemoryMD, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“MemoryMD”)) in the role of Chief Scientific Officer, effective upon the Effective Time, upon terms as set forth in the Merger Agreement. The members of the Company’s current Board shall continue to serve as directors of the Company following the Effective Time.

 

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Interests of Certain Directors, Officers and Affiliates of the Company

 

In considering the recommendation of the Board with respect to issuing shares of Company common stock pursuant to the Merger Agreement and the other Actions approved by the Consenting Stockholders, Company stockholders should be aware that certain members of the Board and named executive officers of the Company have interests in the Merger that may be different from, or in addition to, interests they have as Company stockholders. The Board was aware of the following interests and considered them, among other matters, in its decision to approve the Merger Agreement. Specifically, upon completion of the Merger, Dr. Goldstein will receive cash fees with a total value of approximately $300,000. In addition, Dr. Goldstein shall be appointed to serve as a consultant of the Company or MemoryMD in the role of Chief Scientific Officer for a one year term and shall have an annual compensation of $250,000. Additionally, Mr. Goldstein shall be entitled to receive from the Company a cash payment of $200,000 upon the earlier of the Company raising an aggregate of $10,000,000 in capital after the Effective Time (but including the Private Placement Offering) or 60 days from the Effective Time. Further, the Company will pay Dr. Goldstein an additional $250,000 bonus upon the Company listing its securities on a senior exchange such as NASDAQ or New York Stock Exchange. Dr. Goldstein and his wife and an affiliate, and an affiliate of Dr. Kukekov, own shares of Common Stock and have voted in favor of the Actions, as described above under “ACTIONS BY BOARD OF DIRECTORS AND CONSENTING STOCKHOLDERS.”

 

Indemnification

 

Following the completion of the Merger, the directors and executive officers of the Company will have the right to continued indemnification to the same extent that the Company is currently permitted to indemnify such persons against certain losses pertaining to matters existing or occurring prior to the Effective Time.

 

Material U.S. Federal Income Tax Consequences of the Merger

 

Each of the Company and Piezo intends the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, which is referred to as the Code. Because the Company’s stockholders will continue to own and hold their existing shares of Company common stock following the Merger, the Merger generally will not result in U.S. federal income tax consequences to current Company stockholders.

 

Risk Factors

 

The Merger, including the possibility that the Merger may not be completed, poses a number of risks to each company’s respective stockholders, including the following:

 

the issuance of shares of Company common stock to Piezo shareholders in connection with the Merger will substantially dilute the voting power of current Company stockholders;

 

Company stockholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger;

 

the lack of a public market for Piezo shares makes it difficult to determine the fair market value of Piezo, and the merger consideration to be issued to Piezo shareholders may exceed the actual value of Piezo;

 

Company stockholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company following the completion of the Merger;

 

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the announcement and pendency of the Merger could have an adverse effect on the Company’s or Piezo’s financial condition or business prospects;

 

failure to complete the Merger may adversely affect the Company’s and Piezo’s financial results, future business and operations, as well as the market price of the Company’s common stock;

 

some of the directors and executive officers of the Company and Piezo have interests in the Merger that are different from, or in addition to, those of the other Company stockholders and Piezo shareholders;

 

the Company and Piezo will incur substantial transaction-related costs in connection with the Merger;

 

if the Company fails to continue to meet all applicable OTCQB Market requirements and starts trading on lower tiers of the OTCQB Market, it would impair the Company’s ability to complete the Merger;

 

failure to complete the Merger may result in the Company having insufficient funds to satisfy its existing secured and unsecured indebtedness, trade payables and other liabilities, and may result in its petitioning for bankruptcy court protection; and

 

even if the Merger is consummated, the Company and Piezo may fail to realize the anticipated benefits of the Merger.

 

In addition, the Company, Piezo, and the combined company are subject to various risks associated with their businesses. These risks are discussed in greater detail in the section entitled “Risk Factors” beginning on page 15.

 

Regulatory Approvals

 

As of the date of this Information Statement, neither the Company nor Piezo is required to make filings or to obtain approvals or clearances from any antitrust regulatory authorities in the United States or other countries to complete the Merger. In the United States, the Company must comply with applicable federal and state securities laws and the rules and regulations of the OTCQB Market and the Financial Industry Regulatory Authority (“FINRA”) in connection with the issuance of shares of the Company common stock and the resulting change in control of the Company and the filing of this Information Statement with the SEC.

 

OTCQB Quotation

 

The Company’s common stock currently is quoted on the OTCQB Market under the symbol “BRSF.” The Company has agreed to take whatever steps are necessary to cause the shares of Company common stock to remain eligible for quotation on the OTC Markets.

 

No Appraisal Rights or Dissenters’ Rights

 

Holders of Company common stock do not have appraisal rights in connection with the Merger or any of the other Actions described in this Information Statement under the NRS. Holders of Piezo stock may be entitled to appraisal rights in connection with the Merger.

 

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SELECTED UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA

 

The following tables present summary unaudited pro forma condensed financial data for the Company and Piezo, including comparative historical and unaudited pro forma per share data for the Company and Piezo.

 

On June 11, 2021, the Company entered into the Merger Agreement with Piezo and 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.

 

At the Effective Time of the Merger, 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 immediately prior to the Effective Time. No fractional shares of Company common stock will be issued in the Merger. 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 Merger Agreement provides that, at or prior to the Effective Time, the Company’s Board will take the following action, to be effective upon the Effective Time: (i) increase the size of the Company’s Board of Directors from 2 to 5 members, (ii) elect to the Board Hassan Kotob; and (iii) appoint as the officers of the Company Hassan Kotob and Bonnie-Jeanne Gerety, or, in either case with regard to clauses (ii) and (iii), such other persons designated by Piezo. The Merger Agreement also provides that the current officers of the Company shall resign from their positions with the Company effective upon the Effective Time; provided, however, that Boris Goldstein, currently the Company’s Chairman, Executive Vice President and Secretary, shall be appointed to serve for a period of one year as a consultant of the Company (or of MemoryMD) in the role of Chief Scientific Officer, effective upon the Effective Time, upon terms as set forth in the Merger Agreement In addition, Dr. Goldstein shall receive a special bonus as a result of the closing of the Merger and, further, is eligible to receive a special bonus in the event the Company uplists to a senior stock exchange. The members of the Company’s current Board shall continue to serve as directors of the Company following the Effective Time.

 

The accompanying unaudited pro forma condensed combined consolidated financial statements (“pro forma financial information”) has been prepared based on the historical financial statements of the Company and Piezo after giving effect to the Merger. The pro forma financial information is intended to provide information about how the Merger may have affected the Company’s historical financial statements. The unaudited pro forma combined consolidated statements of operations and comprehensive loss for the three months ended March 31, 2021, combines the historical consolidated financial statements of the Company for this period, derived from the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (“SEC”) on May 24, 2021, with the respective historical statements of operations and comprehensive loss of Piezo as if the Merger had occurred on January 1, 2021. The unaudited pro forma combined consolidated statements of operations and comprehensive loss for the year ended December 31, 2020, combines the historical consolidated financial statements of the Company for this period, derived from the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 15, 2021, with the respective historical statements of operations and comprehensive loss of Piezo as if the Merger had occurred on January 1, 2020. The unaudited pro forma condensed combined consolidated balance sheet at March 31, 2021 combines the historical consolidated balance sheet of the Company as derived from the Quarterly Report on Form 10-Q filed with the SEC on May 24, 2021, and the historical balance sheet of Piezo as of March 31, 2021 on a pro forma basis as if the Merger occurred on March 31, 2021.

 

The unaudited pro forma condensed combined financial information has been presented for illustrative purposes only and do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the Merger occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial information also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma transaction accounting adjustments represent management’s estimates based on information available as of the date of these unaudited pro forma condensed combined financial statements and are subject to change as additional information becomes available and analyses are performed.

 

9

 

 

Brain Scientific, Inc.

Pro Forma Condensed Combined Consolidated Balance Sheet

March 31, 2021

(Unaudited)

 

   Historical  Pro Forma
   Brain Scientific, Inc.  Piezo Motion Corporation and Subsidiary  Transaction Accounting Adjustments  Notes  Pro Forma Combined
ASSETS               
                
CURRENT ASSETS:               
Cash  $95,184   $695,841   $5,000,000    (a)  $5,791,025 
Inventory   1,814    49,816    -       51,630 
Advances to officers   -    13,617    -       13,617 
Prepaid expense and other current assets   39,736    19,378    -       59,114 
Prepaid expenses and other current assets - related party   700    -    -       700 
Operating lease right-of-use asset   60,087    -    -       60,087 
TOTAL CURRENT ASSETS   197,521    778,652    5,000,000       5,976,173 
                        
Property and equipment, net   126    106,531    -       106,657 
Right of use asset   -    212,716    -       212,716 
Goodwill   -    -    17,442,387    (c)   17,442,387 
                        
TOTAL ASSETS  $197,647   $1,097,899   $22,442,387      $23,737,933 
                        
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                       
                        
CURRENT LIABILITIES:                       
Accounts payable and accrued expenses  $1,029,287   $1,576,372   $-      $2,605,659 
Accounts payable and accrued expenses - related party   81,600    -    -       81,600 
Notes payable - current   146,438    1,969,982    -       2,116,420 
Convertible notes payable, net   1,898,810    -    5,000,000   (a)   6,898,810 
Derivative liabilities   4,430,413    -    -       4,430,413 
Finance lease - short term   4,595    -    -       4,595 
Loans payable   6,667    -    -       6,667 
Loans payable - related party   322,984    -    -       322,984 
Operating lease liability, current portion   43,420    66,224    -       109,644 
TOTAL CURRENT LIABILITIES   7,964,214    3,612,578    5,000,000       16,576,792 
                        
Operating lease liability, net of current portion   19,838    146,913    -       166,751 
                        
TOTAL LIABILITIES   7,984,052    3,759,491    5,000,000       16,743,543 
                        
STOCKHOLDERS’ EQUITY (DEFICIT)                       
                        
Preferred stock   -    -    -       - 
Common stock   19,706    1,006    24,717   (b)   45,429 
Additional paid in capital   3,352,538    11,169,643    6,259,021   (a), (b)   20,781,202 
Accumulated deficit   (11,154,691)   (13,832,241)   11,154,691   (b)   (13,832,241)
Accumulated other comprehensive loss   (3,958)   -    3,958       - 
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)   (7,786,405)   (2,661,592)   17,442,387       6,994,390 
                        
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)  $197,647   $1,097,899   $22,442,387      $23,737,933 

 

a)Represents the closing of the private placement offering of $5,000,000 simultaneously with the closing and as a condition of the Merger.

b) Represents the elimination of Piezo Motion Corporation and Subsidiary common stock, additional paid in capital, and accumulated deficit

c) Represents the estimate of goodwill resulting from the preliminary purchase price of $9,655,982 and the net assets and liabilities of Piezo Motion Corporation and Subsidiary assumed as of March 31, 2021. The estimate of goodwill is subject to materially change.

 

See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information

 

10

 

 

Brain Scientific, Inc.

Pro Forma Condensed Combined Consolidated Statements of Operations and Comprehensive Loss

March 31, 2021

(Unaudited)

 

   Historical   Pro Forma 
   Brain Scientific, Inc.   Piezo Motion Corporation and Subsidiary   Transaction Accounting Adjustments   Notes  Pro Forma Combined 
                    
REVENUE  $117,229   $1,475   $-      $118,704 
                        
COST OF GOODS SOLD   90,946    575    -       91,521 
                        
GROSS PROFIT   26,283    900    -       27,183 
                        
SELLING, GENERAL, AND ADMINISTRATIVE                       
Research and development   100,844    53,328    -       154,172 
Professional fees   132,292    -    -       132,292 
Sales and marketing   77,254    12,924    -       90,178 
Occupancy   4,649    -    -       4,649 
General and administrative   511,653    354,668    -       866,321 
Personnel expenses   -    287,537            287,537 
TOTAL SELLING, GENERAL AND ADMINISTRATIVE   826,692    708,457    -       1,247,612 
                        
LOSS FROM OPERATIONS   (800,409)   (707,557)   -       (1,220,429)
                        
OTHER INCOME (EXPENSE):                       
Interest expense   (393,848)   (58,785)   -       (452,633)
Loss on debt extinguishment   (91,735)   -    -       (91,735)
Change in fair value of derivative liabilities   (1,911,129)   -    -       (1,911,129)
Gain on forgiveness of paycheck protection loan   -    112,338            112,338 
Foreign currency transaction loss   (86)   -    -       (86)
TOTAL OTHER INCOME (EXPENSE)   (2,396,798)   53,553    -       (2,343,245)
                        
LOSS BEFORE INCOME TAXES   (3,197,207)   (654,004)   -       (3,563,674)
                        
PROVISION FOR INCOME TAXES   (622)   -    -       (622)
                        
NET LOSS   (3,197,829)   (654,004)   -       (3,564,296)
                        
OTHER COMPREHENSIVE INCOME (LOSS)                       
Foreign currency translation adjustment   122    -    -       122 
TOTAL COMPREHENSIVE LOSS  $(3,197,707)  $(654,004)  $-      $(3,564,174)
                        
NET LOSS PER COMMON SHARE                       
Basic and diluted  $(0.16)  $(0.07)          $(0.08)
                        
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                       
Basic and diluted   19,661,229    10,058,259    25,722,664   (a)   45,383,893 

 

(a) Represents the issuance of Brain Scientific, Inc. common shares upon consummation of the Merger. At the effective time of the Merger, 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) as of immediately prior to the effective time Merger. The current outstanding convertible notes did not impact the fully diluted shares. The Merger Agreement provides that the convertible notes, if exchanged for the securities issued in the private placement, will not be included in the fully diluted basis calculation. Management assumes that all such convertible notes would be exchanged, and such assumption is reflected in these unaudited pro forma condensed combined financial statements.

 

See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information

 

11

 

 

Brain Scientific, Inc.

Pro Forma Condensed Combined Consolidated Statements of Operations and Comprehensive Loss

31-Dec-20

(Unaudited)

 

   Historical   Pro Forma 
   Brain Scientific, Inc.   Piezo Motion Corporation and Subsidiary   Transaction Accounting Adjustments   Notes  Pro Forma Combined 
                    
REVENUE  $544,275   $93,664   $-      $637,939 
                        
COST OF GOODS SOLD   409,302    43,762    -       453,064 
                        
GROSS PROFIT   134,973    49,902    -       184,875 
                        
SELLING, GENERAL, AND ADMINISTRATIVE                       
Research and development   275,926    210,706    -       486,632 
Professional fees   478,461    -    -       478,461 
Sales and marketing   244,774    -    -       244,774 
Occupancy   38,870    -    -       38,870 
General and administrative   930,138    1,581,425    -       2,511,563 
Personnel expenses   -    1,027,259            1,027,259 
TOTAL SELLING, GENERAL AND ADMINISTRATIVE   1,968,169    2,819,390    -       3,760,300 
                        
LOSS FROM OPERATIONS   (1,833,196)   (2,769,488)   -       (3,575,425)
                        
OTHER INCOME (EXPENSE):                       
Interest expense   (3,526,325)   (29,474)   -       (3,555,799)
Other income   8,260    -              
Loss on disposal of assets   -    (4,067)             
Loss on debt extinguishment   (294,301)   -    -       (294,301)
Change in fair value of derivative liabilities   1,360,754    -    -       1,360,754 
Gain on forgiveness of paycheck protection loan   -    -            - 
Foreign currency transaction loss   23    -    -       23 
TOTAL OTHER INCOME (EXPENSE)   (2,451,589)   (33,541)   -       (2,489,323)
                        
LOSS BEFORE INCOME TAXES   (4,284,785)   (2,803,029)   -       (6,064,748)
                        
PROVISION FOR INCOME TAXES   -    -    -       - 
                        
NET LOSS   (4,284,785)   (2,803,029)   -       (6,064,748)
                        
OTHER COMPREHENSIVE INCOME (LOSS)                       
Foreign currency translation adjustment   (4,446)   -    -       (4,446)
TOTAL COMPREHENSIVE LOSS  $(4,289,231)  $(2,803,029)  $-      $(6,069,194)
                        
NET LOSS PER COMMON SHARE                       
Basic and diluted  $(0.22)  $(0.31)          $(0.13)
                        
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                       
Basic and diluted   19,439,141    

9,018,629

    25,722,664   (a)   45,161,805 

 

(a) Represents the issuance of Brain Scientific, Inc. common shares upon consummation of the Merger. At the effective time of the Merger, 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) as of immediately prior to the effective time of the Merger. The current outstanding convertible notes did not impact the fully diluted shares. The Merger Agreement provides that the convertible notes, if exchanged for the securities issued in the private placement, will not be included in the fully diluted basis calculation. Management assumes that all such convertible notes would be exchanged, and such assumption is reflected in these unaudited pro forma condensed combined financial statements.

 

See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information

 

12

 

 

Notes to Unaudited Pro Forma Condensed Combined Financial Information

 

Note 1 - Description of Transaction

 

On June 11, 2021, the Company entered into the Merger Agreement with Piezo and 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.

 

At the Effective Time of the Merger, 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 immediately prior to the Effective Time. No fractional shares of Company common stock will be issued in the Merger. 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 Merger Agreement provides that, at or prior to the Effective Time, the Company’s Board will take the following action, to be effective upon the Effective Time: (i) increase the size of the Company’s Board of Directors from 2 to 5 members, (ii) elect to the Board Hassan Kotob; and (iii) appoint as the officers of the Company Hassan Kotob and Bonnie-Jeanne Gerety, or, in either case with regard to clauses (ii) and (iii), such other persons designated by Piezo. The Merger Agreement also provides that the current officers of the Company shall resign from their positions with the Company effective upon the Effective Time; provided, however, that Boris Goldstein, currently the Company’s Chairman, Executive Vice President and Secretary, shall be appointed to serve for a period of one year as a consultant of the Company or MemoryMD in the role of Chief Scientific Officer, effective upon the Effective Time, upon terms as set forth in the Merger Agreement In addition, Dr. Goldstein shall receive a special bonus as a result of the closing of the Merger and, further, is eligible to receive a special bonus in the event the Company uplists to a senior stock exchange. The members of the Company’s current Board shall continue to serve as directors of the Company following the Effective Time.

 

Note 2 - Basis of Pro Forma Presentation

 

The unaudited pro forma condensed combined balance sheet gives effect to the Merger as if it occurred on March 31, 2021. The unaudited pro forma condensed combined statements of operations and comprehensive loss for the three months ended March 31, 2021 gives effect to the Merger as if it had occurred on January 1, 2021. The unaudited pro forma condensed combined statements of operations and comprehensive loss for the year ended December 31, 2020 gives effect to the Merger as if it had occurred on January 1, 2020.

 

Note 3 – Transaction Accounting Adjustments

 

a)Represents the closing of the private placement offering of $5,000,000 simultaneously with the closing and as a condition of the Merger.
b)Represents the elimination of Piezo Motion Corporation and Subsidiary common stock, additional paid in capital, and accumulated deficit.

c) Represents the estimate of goodwill resulting from the preliminary purchase price of $9,655,982 and the net assets and liabilities of Piezo Motion Corporation and Subsidiary assumed as of March 31, 2021. The estimate of goodwill is subject to materially change. The current outstanding convertible notes did not impact the fully diluted shares.

d) Represents the issuance of Brain Scientific, Inc. common shares upon consummation of the Merger. At the effective time of the Merger, 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). The current outstanding convertible notes did not impact the fully diluted shares. The Merger Agreement provides that the convertible notes, if exchanged for the securities issued in the private placement, will not be included in the fully diluted basis calculation. Management assumes that all such convertible notes would be exchanged, and such assumption is reflected in these unaudited pro forma condensed combined financial statements.

 

13

 

 

MARKET PRICE AND DIVIDEND INFORMATION

 

There has been no trading market for our common stock since inception. There can be no assurance that a trading market will ever develop or, if such a market does develop, that it will continue. The Company’s stock began trading on March 18, 2020 and is currently quoted on the OTCQB Market under the ticker symbol BRSF. As of August 2, 2021, the Notice Record Date, we had 20,473,799 shares of common stock outstanding and approximately 70 registered stockholders. The last reported sales price of our common stock on August 2, 2021, the last full trading day prior to the date of this Information Statement, was $0.36 per share.

 

The following table sets forth for the periods indicated the high and low sale prices per share of our common stock as reported on OTCQB Market. These prices represent quotations between dealers without adjustment for retail mark-up, markdown or commission and may not represent actual transactions.

 

Quarterly Period Ended   High     Low  
             
March 31, 2021   $ 1.95     $ 0.84  
June 30, 2021   $ 1.50     $ 0.36  

September 30, 2021 (through August 2, 2021)

  $ 0.49     $

0.36

 
                 
March 31, 2020   $ 3.00     $ 0.02  
June 30, 2020   $ 3.01     $ 0.10  
September 30, 2020   $ 2.20     $ 0.75  
December 31, 2020   $ 1.76     $ 0.87  
                 
March 31, 2019   $ n/a     $ n/a  
June 30, 2019   $ n/a     $ n/a  
September 30, 2019   $ n/a     $ n/a  
December 31, 2019   $ n/a     $ n/a  

 

We consider our common stock to be thinly traded and, accordingly, reported sales prices or quotations may not be a true market- based valuation of our common stock.

 

14

 

 

RISK FACTORS

 

The combined company will face an unpredictable market environment that involves significant risks, many of which will be beyond its control. These factors should be considered in conjunction with the other information included by the Company and Piezo in this Information Statement. If any of the risks described below or referred to in this Information Statement actually materialize, the business, financial condition, results of operations, or prospects of the Company, Piezo, and/or the combined company, or the stock price of the combined company, could be materially and adversely affected.

 

Risks Relating to the Merger

 

The issuance of shares of Company common stock to Piezo shareholders in connection with the Merger will substantially dilute the voting power of current Company stockholders, and as a result the Company stockholders will exercise less influence over the management of the combined company following the completion of the Merger.

 

Pursuant to the terms of the Merger Agreement, it is anticipated that the Company will issue shares of Company common stock to Piezo shareholders with respect to the Merger representing approximately 50% of the issued and outstanding shares of common stock of the combined company calculated on a fully diluted basis as of immediately prior to the Effective Time of the Merger. After such issuance, the shares of Company common stock held by stockholders prior to the completion of the Merger will represent approximately 50% of the issued and outstanding shares of common stock of the combined company calculated on a fully diluted basis. Accordingly, the issuance of shares of Company common stock to Piezo shareholders in connection with the Merger will significantly reduce the relative voting power of each share of Company common stock held by current Company stockholders. Consequently, Company stockholders will be able to exercise substantially less influence over the management and policies of the combined company than they currently exercise over the management and policies of the Company.

 

Company stockholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger.

 

If the combined company is unable to realize the full strategic and financial benefits anticipated from the Merger, Company stockholders will have experienced substantial dilution of their ownership interests without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the Merger.

 

Piezo is not a publicly traded company, making it difficult to determine the fair market value of Piezo.

 

The outstanding capital stock of Piezo is privately held and is not traded on any public market, which makes it difficult to determine the fair market value of Piezo. There can be no assurances that the Merger consideration to be issued to Piezo shareholders will not exceed the actual value of Piezo.

 

The conditions under the Merger Agreement to the Company’s and Piezo’s consummation of the Merger may not be satisfied at all or in the anticipated timeframe.

 

The completion of the Merger is subject to various customary conditions, including, among other things: (a) the approval of the respective stockholders and boards of directors of the Company, Merger Sub, and Piezo; (b) subject to certain materiality exceptions, the accuracy of the representations and warranties made by each of the Company and Piezo and the compliance by each of the Company and Piezo with their respective obligations under the Merger Agreement; (c) approval of the transactions contemplated by the Merger Agreement by any third-parties and governmental entities as may be required by law; (d) the execution and delivery of an assignment and assumption agreement between the Company and MemoryMD, pursuant to which the Company shall assign to MemoryMD, and MemoryMD shall assume from the Company, all of the Company’s operating assets and liabilities, subject to certain exceptions (the “Transfer”); (e) the completion of all necessary legal due diligence by each of the Company and Piezo; (f) the first closing of the Private Placement Offering; and (g) the number of shares of Piezo common stock held by Piezo stockholders who did not vote to adopt the Merger Agreement shall not exceed 10% of the number of outstanding shares of Piezo common stock as of the Effective Time. These conditions are described in more detail under the section “The Merger Agreement” beginning on page 29 of this Information Statement.

 

The announcement and pendency of the Merger or failure to consummate the Merger could have an adverse effect on the Company’s or Piezo’s financial results, future business and operations, as well as the market price of Company common stock.

 

The announcement and pendency of the Merger, or the companies’ failure to consummate the Merger, could disrupt the Company’s or Piezo’s businesses in the following ways, among others:

 

third parties may seek to terminate and/or renegotiate their relationships with the Company or Piezo as a result of the Merger, whether pursuant to the terms of their existing agreements or otherwise; and

 

the attention of the Company’s and Piezo’s management may be directed toward the completion of the Merger and related matters and may be diverted from other opportunities that might otherwise be beneficial to the Company and Piezo.

 

Should they occur, any of these matters could adversely affect the Company’s or Piezo’s financial condition, results of operations, or business prospects.

 

15

 

 

The completion of the Merger is subject to a number of conditions, and there can be no assurance that the conditions to the completion of the Merger will be satisfied. If the Merger is not completed, the Company and/or Piezo, as applicable, will be subject to several risks, including:

 

the fact that most of the fees and expenses in connection with to the Merger, such as legal, accounting and transaction agent fees, must be paid even if the Merger is not completed;

 

the Company’s Board would need to reevaluate the Company’s strategic alternatives, many of which may be less favorable to stakeholders, such as liquidation of the company;

 

neither the Company nor Piezo would realize any of the anticipated benefits of having completed the Merger;

 

the price of the Company’s stock may decline and remain volatile; and

 

the Company or Piezo could be subject to litigation related to any failure to consummate the Merger or any related action that could be brought to enforce the Company’s or Piezo’s obligations under the Merger Agreement.

 

In addition, if the Merger Agreement is terminated and the Company’s Board determines to seek another business combination, there can be no assurance that it will be able to find a transaction that is superior or equal in value to the Merger.

 

The Company is subject to the additional risk that if the Merger Agreement is terminated, the Company will no longer have access to the interim financing provided in connection with the execution of the Merger Agreement, in which case the Company would need to raise capital or obtain alternative financing to strengthen its cash position. If the Company is unable to raise sufficient additional capital or obtain alternative financing to strengthen its cash position, the Company may not be able to service its existing indebtedness and may be required to initiate bankruptcy proceedings.

 

The Company and Piezo have incurred and expect to continue to incur substantial transaction-related costs in connection with the Merger.

 

The Company and Piezo have incurred, and expect to continue to incur, a number of non-recurring transaction-related costs associated with completing the Merger and combining the two companies. These fees and costs have been, and will continue to be, substantial. Non-recurring transaction costs include, but are not limited to, fees paid to legal, financial and accounting advisors, severance and benefit costs, filing fees and printing costs. Additional unanticipated costs may be incurred in the combined company’s business, which may be higher than expected and could have a material adverse effect on the combined company’s financial condition and operating results.

 

If the Company fails to continue to meet all applicable OTCQB Market requirements and the OTCQB Market determines to cease quotation of the Company’s common stock, it would impair the Company’s ability to complete the Merger.

 

As a condition to completion the Merger, the Company must take whatever steps are necessary to cause the shares of Company common stock to remain eligible for quotation on the OTC Markets. In order to maintain that quotation, the Company and the combined company must satisfy minimum financial and other requirements.

 

The Exchange Ratio will not be adjusted in the event of any change in either the Company’s stock price or Piezo’s share price.

 

In the Merger, each outstanding share of Piezo common stock (with certain exceptions), by virtue of the Merger and without any action on the part of the parties to the Merger Agreement or the holders of shares of the Company’s common stock, will be converted into the right to receive validly issued, fully paid and nonassessable shares of Company common stock pursuant to the Exchange Ratio. This Exchange Ratio will not be adjusted for changes in the market price of either the Company’s common stock or Piezo stock. However, 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.

 

Share price changes may result from a variety of factors (many of which are beyond our or Piezo’s control), including the following:

 

changes in the Company’s and Piezo’s respective businesses, operations and prospects, or the market assessments thereof;

 

market assessments of the likelihood that the Merger will be completed; and

 

general market and economic conditions and other factors generally affecting the price of Company common stock or Piezo’s capital stock.

 

The price of Company common stock at the Effective Time of the Merger may vary from the price on the date the Merger Agreement was executed and the Voting Record Date. As a result, the market value of the Merger consideration will also vary.

 

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Because the Merger will result in an ownership change under Section 382 of the Internal Revenue Code (the “Code”) for the Company, Company’s pre-Merger net operating loss carryforwards and certain other tax attributes will be subject to limitations.

 

If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Code, the corporation’s net operating loss carryforwards and certain other tax attributes arising prior to the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain stockholders that exceeds fifty percentage points over a rolling three-year period. Similar rules may apply under state tax laws. The Merger will result in an ownership change of the Company and, accordingly, the Company’s use of net operating loss carryforwards and certain other tax attributes will be subject to an annual limitation after the Merger. Consequently, the Company will likely be unable to utilize a material portion of its net operating loss carryforwards and other tax attributes to reduce its U.S. federal or state income tax liability.

 

Some of the directors and executive officers of the Company and Piezo have interests in the Merger that are different from, or in addition to, those of the other Company and Piezo shareholders.

 

Certain of the directors and executive officers of the Company and Piezo have arrangements that provide them with interests in the Merger that are different from, or in addition to, those of the stockholders of the Company and shareholders of Piezo.

 

Similarly, certain of Piezo’s current executive officers and directors are expected to own shares of common stock of the combined company and/or options to purchase shares of common stock of the combined company following the completion of the Merger. See “Security Ownership Of Certain Beneficial Owners And Management Of Combined Company” beginning on page 62.

 

The directors and executive officers of the Company and Piezo also have certain rights to indemnification and to directors’ and officers’ liability insurance that will be provided by the company in connection with the Merger.

 

The Company’s Board were aware of these potential interests and considered them in making their respective recommendations to approve the Merger.

 

Risks Relating to the Combined Company

 

Even if the Merger is consummated, the Company and Piezo may fail to realize the anticipated benefits of the Merger.

 

The success of the Merger will depend on, among other things, the combined company’s ability to achieve its business objectives, including the successful development of its product candidates. If the combined company is not able to achieve these objectives, the anticipated benefits of the Merger may not be realized fully, may take longer to realize than expected, or may not be realized at all.

 

The Company and Piezo have operated and, until the completion of the Merger, will continue to operate independently. Even if the Merger is completed, it is possible that the integration process could result in the disruption of each company’s ongoing business, an adverse impact on the value of the Company’s assets, or inconsistencies in standards, controls, procedures or policies that could adversely affect the combined company’s ability to comply with reporting obligations as a public company, to satisfy the Company’s obligations to third parties or to achieve the anticipated benefits of the Merger. Any delays in the integration process or inability to realize the full extent of the anticipated benefits of the Merger could have an adverse effect on the business prospects and results of operations of the combined company. Such an adverse effect may impact the value of the shares of the combined company’s common stock after the completion of the Merger.

 

Potential difficulties that may be encountered in the integration process include the following:

 

using the combined company’s cash and other assets efficiently to develop the business of the combined company;

 

appropriately managing the liabilities of the combined company;

 

potential unknown or currently unquantifiable liabilities associated with the Merger and the operations of the combined company; and

 

performance shortfalls as a result of the diversion of management’s attention caused by completing the Merger.

 

The combined company will incur losses for the foreseeable future and might never achieve profitability.

 

The combined company may never become profitable, even if the combined company is able to complete development for one or more product candidates and eventually commercialize such product candidates. The combined company will need to successfully complete significant research, development, testing and regulatory compliance activities that, together with projected general and administrative expenses, is expected to result in substantial operating losses for at least the next several years. Even if the combined company does achieve profitability, it may not be able to sustain or increase profitability on a quarterly or annual basis.

 

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The combined company’s management will be required to devote substantial time to comply with public company regulations.

 

As a public company, the combined company will incur significant legal, accounting and other expenses. The rules implemented by the SEC and the OTCQB Market, impose various requirements on public companies, including those related to corporate governance practices. The combined company’s management and other personnel will need to devote a substantial amount of time to these requirements. Certain members of Piezo’s management, which will substantially continue as the management of the combined company, do not have experience in addressing these requirements.

 

Sarbanes-Oxley requires, among other things, that the combined company maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, the combined company must perform system and process evaluation and testing of its internal controls over financial reporting to allow management and the combined company’s independent registered public accounting firm to report on the effectiveness of its internal controls over financial reporting, as required by Section 404. The combined company’s compliance with Section 404 will require that it incur substantial accounting and related expenses and expend significant management efforts. The combined company may need to hire additional accounting and financial staff to satisfy the ongoing requirements of Section 404. Moreover, if the combined company is not able to comply with the requirements of Section 404, or if the combined company or its independent registered public accounting firm identifies deficiencies in its internal controls over financial reporting that are deemed to be material weaknesses, the market price of the combined company’s stock could decline and the combined company could be subject to sanctions or investigations by the OTCQB Market, the SEC, or other regulatory authorities.

 

Either the Company, Piezo or both may become involved in securities class action litigation that could divert management’s attention and harm the combined company’s business, and insurance coverage may not be sufficient to cover all costs and damages.

 

In the past, securities class action or shareholder derivative litigation often follows certain significant business transactions, such as the announcement of a merger. The combined company may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect the combined company’s business.

 

The market price of the combined company’s common stock after the Merger may be affected by factors different from those currently affecting the shares of Company common stock.

 

Upon completion of the Merger, holders of Company common stock and Piezo capital stock will become holders of the combined company’s common stock. The Company’s business differs significantly from the business of Piezo and, accordingly, the results of operations of the combined company and the market price of the combined company’s common stock following the completion of the Merger may be significantly affected by factors different from those currently affecting the Company’s independent results of operations.

 

The existing shareholders of Piezo will control the combined company for the foreseeable future, including the outcome of matters requiring shareholder approval and such control may prevent existing stockholders of the Company from influencing significant corporate decisions and may result in conflicts of interest that could cause the combined company’s stock price to decline.

 

Upon completion of the Merger, the existing shareholders of Piezo, including certain shareholders holding 5% or more of the total ownership interest in Piezo, and its executive officers and directors, will collectively own approximately 50% of the combined company’s outstanding shares of common stock on a fully diluted basis. As a result, after the consummation of the Merger, such entities and individuals will have the ability, acting together, to control the election of the combined company’s directors and the outcome of corporate actions requiring shareholder approval, such as: (i) a merger or a sale of the combined company; (ii) a sale of all or substantially all of the combined company’s assets; and (iii) amendments to the combined company’s articles of incorporation and bylaws. This concentration of voting power and control could have a significant effect in delaying, deferring or preventing an action that might otherwise be beneficial to the combined company’s other shareholders and be disadvantageous to Piezo shareholders with interests different from those entities and individuals. Certain of these individuals will also have significant control over the combined company’s business, policies and affairs as officers or directors of the combined company. These stockholders may also exert influence in delaying or preventing a change in control of the combined company, even if such change in control would benefit the other stockholders of the combined company. In addition, the significant concentration of stock ownership may adversely affect the market value of the combined company’s common stock due to investors’ perception that conflicts of interest may exist or arise.

 

The combined company does not expect to pay cash dividends on its common stock.

 

It is anticipated that the combined company will retain its earnings, if any, for future growth and therefore the combined company does not anticipate paying cash dividends on its common stock in the future.

 

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The combined company will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies.

 

The combined company will incur significant legal, accounting and other expenses that Piezo did not incur as a private company, including costs associated with public company reporting requirements. The combined company will also incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act and rules and regulations promulgated by the SEC and the OTCQB Market. These rules and regulations are expected to increase the combined company’s legal and financial compliance costs and to make some activities more time-consuming and costly. For example, not all members of the combined company’s management team have previously managed and operated a public company. The executive officers and other personnel of the combined company will need to devote substantial time to gaining expertise regarding operations as a public company and compliance with applicable laws and regulations. These rules and regulations may also make it difficult and expensive for the combined company to obtain directors’ and officers’ liability insurance. As a result, it may be more difficult for the combined company to attract and retain qualified individuals to serve on the combined company’s board of directors or as executive officers of the combined company, which may adversely affect investor confidence in the combined company and could cause the combined company’s business or stock price to suffer.

 

There can be no assurance of the combined company obtaining the effectiveness of a resale registration statement or any other liquidity event.

 

No assurance can be given that the combined company will be able to obtain the effectiveness of a resale registration statement or other liquidity event will be consummated or that, if consummated, it would result in increased value of the shares of Common Stock.

 

Upon dissolution of the combined company, you may not recoup all or any portion of your investment.

 

In the event of a liquidation, dissolution or winding-up of the combined company, whether voluntary or involuntary, the proceeds and/or assets of the combined company remaining after giving effect to such transaction, and the payment of all of our debts and liabilities, will be distributed to the stockholders of common stock on a pro rata basis, subject to any holders of our securities that have preferential rights over our common stockholders. There can be no assurance that we will have available assets to pay to the holders of common stock, or any amounts, upon such a liquidation, dissolution or winding-up of our Company. In this event, you could lose some or all of your investment.

 

The combined company may have unforeseen liabilities and any such liabilities could harm its business, prospects, financial condition and results of operations.

 

As part of the negotiation of the Merger Agreement, each party conducted due diligence on the other customary and appropriate for a transaction similar to the Merger. However, the due diligence process may not have revealed all material liabilities of the companies which may be asserted in the future against the combined company relating to its activities before the consummation of the Merger. There can be no assurance that the combined company will not have additional liabilities upon the closing of the Merger that either party was unaware of. Any such liabilities that survive the Merger could harm the combined company’s business, prospects, financial condition and results of operations.

 

Risks Relating to Piezo’s Business

 

Piezo is a developmental stage company; has a history of significant operating losses and it expects to continue to incur losses and may never achieve or maintain profitability.

 

As a development-stage entity, Piezo does not currently have sufficient revenues to generate cash flows to cover its operating expenses. Since its inception, Piezo has incurred operating losses in each year due to costs incurred in connection with research and development activities and general and administrative expenses associated with its operations. For the years ended December 31, 2020, and 2019, Piezo incurred net losses of approximately $2,803,029 and $1,857,633, respectively and for the 3 months ended March 31, 2021, and 2020, Piezo incurred net losses of approximately $654,004 and $352,049, respectively. At March 31, 2021, Piezo had an accumulated deficit of approximately $13,832,241. As a result, Piezo needs to raise additional capital in the future, which may or may not be available to it at all or only on unfavorable terms.

 

Piezo expects to incur losses for the foreseeable future until 2024. If Piezo’s product fails to gain market acceptance, it will not be able to generate meaningful revenues and shareholders could lose their entire investment.

 

Piezo as a stand-alone company might not be able to continue as a going concern which would likely cause its stockholders to lose most or all of their investment.

 

Piezo’s audited financial statements for the year ended December 31, 2020, were prepared under the assumption that it would continue as a going concern. However, its independent registered public accounting firm included a “going concern” explanatory paragraph in its report on its financial statements for the year ended December 31, 2020, indicating that Piezo has incurred net losses and negative cash flow from operations since inception. No assurances can be given that Piezo’s plans to generate significant revenues will be successful. In light of the foregoing, there is substantial doubt about Piezo’s ability to continue as a going concern.

 

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The full effects of COVID-19 and other potential future public health crises, epidemics, pandemics or similar events are uncertain and could have a material and adverse effect on Piezo’s business, financial condition, operating results and cash flows.

 

The global outbreak of the coronavirus disease 2019, or COVID-19, was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020. This has negatively affected the world economy, disrupted global supply chains, significantly restricted travel and transportation, resulted in mandated closures and orders to “shelter-in-place” and created significant disruption of the financial markets. The extent of the impact on Piezo’s operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by U.S. and foreign government agencies to prevent disease spread, all of which are uncertain, out of Piezo’s control and cannot be predicted.

 

Piezo has been complying with county and state orders. However, a facility closure, work slowdowns or temporary stoppage by Piezo or one of its manufacturers or suppliers could occur, which could have a longer-term impact and could delay its product development, marketing and sales efforts and its ability to conduct business. 

 

If Piezo’s workforce is unable to work effectively, including because of illness, quarantines, absenteeism, government actions, facility closures, travel restrictions or other restrictions in connection with the COVID-19 pandemic, its operations will be negatively impacted. It may be unable to continue the development of its product and marketing and sales efforts, and its costs may increase as a result of COVID-19. The impacts could worsen if there is an extended duration of any COVID-19 outbreak or a resurgence of COVID-19 infection in affected regions after they have begun to experience improvement. Piezo relies on other companies to provide certain components and to perform certain services. An extended period of supply chain disruption caused by the response to COVID-19 could impact Piezo’s ability to produce its proposed product quantities, and, if it is not able to implement alternatives or other mitigations, product deliveries would be adversely impacted and negatively impact Piezo’s business, financial condition, operating results and cash flows. The continued spread of COVID-19 has also led to disruption and volatility in the global capital markets. We will need to raise additional capital to support Piezo’s operations; however, we may be unable to access the capital markets, and additional capital may only be available to us for Piezo on terms that could be significantly detrimental to our stockholders and to Piezo’s business. 

 

Piezo will need substantial additional funding to continue to operate its business and such funding may not be available or, if it is available, such financing is likely to substantially dilute its existing shareholders.

 

The continued development and further commercialization including marketing and sales efforts of Piezo’s product entails significant costs and expenses. While Piezo believes that it has generally completed the engineering and mechanical aspects of its products, it still must modify, refine and finalize certain of its products and continue its marketing and sales efforts. To enable it to accomplish this and other related items and continue to operate its business, it will need to raise substantial additional capital and/or enter into strategic partnerships or joint ventures.

 

Until Piezo can generate a sufficient amount of revenue to finance its cash requirements, which it may never achieve, it expects to finance its cash needs through public or private equity offerings and debt financings or through the establishment of possible strategic alliances. The Company cannot be certain that following the Merger additional funding will be available to it to fund the Piezo business on acceptable terms, or at all. If the Company is unable to secure the required financing when needed, it may have to delay, reduce the scope of, or eliminate its product development and sales and marketing efforts. In addition, any additional equity funding following the Merger, will dilute the ownership held by existing equity holders. The amount of this dilution may be substantially increased if the trading price of the Company’s common stock is lower at the time of any financing. Regardless, the economic dilution to the Company’s then shareholders will be significant. Any debt financing obtained in the future could involve substantial restrictions on activities and creditors could seek a pledge of some or all of the Company’s assets, including those acquired from Piezo. If Piezo fails to obtain funding as needed, it may be forced to cease or scale back operations, and its results, financial condition and our then stock price would be adversely affected.

 

Technological breakthroughs in electric motors could render Piezo’s Products obsolete.

 

The electric motor market is subject to rapid technological change and product innovation. Piezo’s electric motors are based on its proprietary technology, but a number of companies are pursuing new technologies. Any technological breakthroughs could render Piezo’s product obsolete, would have a material adverse effect on Piezo’s and our business, financial condition and results of operations and could result in our shareholders losing their entire investment.

 

Any failure to attract and retain skilled directors, executives, employees and consultants could impair our product development and commercialization activities.

 

Piezo’s business depends on the skills, performance, and dedication of its current directors, executive officers and key engineering and technical advisors. Piezo may need to recruit additional directors, executive management employees, and advisers, particularly engineering, scientific and technical personnel, which will require additional financial resources. In addition, there is currently intense competition for skilled directors, executives and employees with relevant engineering, scientific and technical expertise, and this competition is likely to continue. If Piezo is unable to attract and retain persons with sufficient engineering, scientific, technical and managerial experience, it may be forced to limit or delay its product development activities or may experience difficulties in successfully conducting its business, which would adversely affect its and our operations and financial condition.

 

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 Piezo’s growth could suffer if the markets into which it sells its products and services decline.

 

The growth of Piezo’s business depends in part on the growth of the markets which it serves. Any decline or lower than expected growth in its served markets could diminish demand for Piezo’s products and services, which would adversely affect its and ultimately the Company’s financial results. Certain of Piezo’s businesses operate in industries that may experience periodic, cyclical downturns. Demand for Piezo’s products and services will also be sensitive to changes in its current and future customer order patterns, which may be affected by announced price changes, changes in incentive programs, new product introductions and customer inventory levels. Any of these factors could adversely affect Piezo’s and ultimately the Company’s growth and results of operations in any given period.

 

Piezo’s competitors may develop products that are more effective and less expensive.

 

Piezo is engaged in the development and marketing of piezoelectric motors, which is intensely competitive. There are a number of current competitors and Piezo expects future products that Piezo will compete against. These include electric motors of PI (Physik Instrumente) L.P., Nanomotion Inc and PiezoMotor Uppsala AB. Piezo’s competitors may:

 

develop products that are less expensive or more effective than Piezo’s;

 

commercialize competing products before Piezo can launch its products;

 

hold or obtain proprietary rights that could prevent Piezo from commercializing its products; or

 

introduce competing products that render Piezo’s product obsolete.

 

If Piezo’s competitors’ market electric motors that are less expensive or more effective than Piezo’s products, or that gain or maintain greater market acceptance, Piezo may not be able to compete effectively.

 

Piezo may not be able to successfully scale-up manufacturing of its products in sufficient quality and quantity.

 

In order to conduct larger-scale commercialization of its electric motors, Piezo will need to manufacture its products in substantially larger quantities. It may not be able to successfully increase the manufacturing capacity for its product in a timely or cost-effective manner, or at all. In addition, quality issues may arise during scale-up activities. If Piezo is unable to successfully scale up the manufacture of its product in sufficient quality and quantity, the further development of its products and expected sales will be delayed, which could significantly harm its and our business.

 

Piezo may be subject to potential product liability and other claims that could materially impact its business and financial condition.

 

The development and sale of Piezo’s products exposes it to the risk of significant damages from product liability and other claims. Piezo cannot predict all the possible harms or adverse effects that may result. Piezo maintains a modest amount of product liability insurance to provide some protection from claims. Nonetheless, Piezo may not have sufficient resources to pay for any liabilities resulting from a personal injury or other claim, even if it is partially covered by insurance. In addition to the possibility of direct claims, Piezo may be required to indemnify third parties against damages and other liabilities arising out of its products and business activities, which would increase its liability exposure.

 

Piezo’s ability to compete could be jeopardized if it is unable to protect its intellectual property rights. These types of claims could seriously harm Piezo’s business or require it to incur significant costs.

 

Piezo believes its success and ability to compete depend in part upon protecting its proprietary technology. Piezo relies on a combination of patent, trade secret, copyright and trademark laws, nondisclosure and other contractual agreements and technical measures to protect its proprietary rights. Piezo owns and has numerous patents pending in the United States and various foreign countries covering certain aspects of technology related to its piezo motors. Patents related to its source technologies and piezoelectric techniques will expire at various times through 2031.

 

Piezo’s pending patent applications and any future applications might not be approved. Its patents may not provide it with a competitive advantage and may be successfully challenged by third parties. In addition, third parties’ patents might have an adverse effect on Piezo’s ability to do business. Due to cost constraints, Piezo does not seek international patent protection for all inventions that are covered by United States patents and patent applications. As a result, Piezo does not have foreign patent protection for some of its inventions. Additionally, laws of some foreign countries in which its products are or may be developed, manufactured or sold, including various countries in Asia, may not protect Piezo’s products or intellectual property rights to the same extent as do the laws of the United States Therefore, the likelihood of piracy of Piezo’s technology and products is greater in these countries. Further, third parties might independently develop similar products, duplicate Piezo’s products, or design around patents that are granted to Piezo.

 

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Other companies or persons may file or have filed patent applications that are similar or identical to those of Piezo. As a result, Piezo may have to participate in appropriate proceedings in the courts or the patent offices to determine the priority of inventions. These proceedings may determine that these third-party patent applications have priority over Piezo’s patent applications. Loss of priority in these interference proceedings could result in substantial cost to Piezo and loss of rights.

 

Piezo also relies on the following to protect its confidential information and other intellectual property:

 

trade secret protection;

 

employee nondisclosure agreements;

 

third-party nondisclosure agreements; and

 

other intellectual property protection methods.

 

However, Piezo may not be successful in protecting its confidential information or intellectual property, particularly its trade secrets, because third parties may:

 

develop substantially the same proprietary information or techniques independently;

 

gain access to Piezo’s trade secrets from unrelated third parties and/or without obligation of confidentiality; or

 

disclose Piezo’s technology following expiration of their confidentiality obligation.

 

If Piezo is sued for infringing on third-party intellectual property rights, it will be costly and time-consuming, and an unfavorable outcome would have a significant adverse effect on its business.

 

Piezo’s ability to commercialize its product on a large-scale basis depends on its ability to use, manufacture and sell its product without infringing the patents or other proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist in Piezo’s industry. There may be existing patents, unknown to it, on which Piezo’s activities could infringe.

 

If a third-party claim that Piezo’s actions infringe on its patents or other proprietary rights, Piezo could face a number of issues that could seriously harm its competitive position, including, but not limited to:

 

infringement and other intellectual property claim that, even if meritless, can be costly and time-consuming, delay the regulatory approval process and divert management’s attention from Piezo’s core business operations;

 

substantial damages for infringement, including consequential damages for lost profits or market share, if a court determines that Piezo’s products or technologies infringe on a third party’s patent or other proprietary rights;

 

a court prohibiting Piezo from selling or licensing its products or technologies unless the holder licenses the patent or other proprietary rights to Piezo, which it is not required to do; and

 

even if a license is available from a holder, Piezo may have to pay substantial royalties or grant cross-licenses to its patents or other proprietary rights.

 

If any of these events occur, it could significantly harm Piezo’s and ultimately the Company’s operations and financial condition and negatively affect the Company’s then stock price.

 

Piezo may undertake infringement or other legal proceedings against third parties, causing it to spend substantial resources on litigation and exposing its own intellectual property portfolio to challenge.

 

Piezo may determine that third parties are infringing on its patents or other proprietary rights. To prevent infringement or unauthorized use, Piezo may need to file infringement and/or misappropriation suits, which are very expensive and time-consuming, could result in meritorious counterclaims against it and would distract management’s attention. Also, in an infringement or misappropriation proceeding, a court may decide that one or more of Piezo’s patents is invalid, unenforceable, or both, in which case third parties may be able to use our technology without paying license fees or royalties. Even if the validity of Piezo’s patents is upheld, a court may refuse to stop the other party from using the technology at issue on the grounds that the other party’s activities are not covered by Piezo’s patents.

 

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Piezo relies on suppliers to provide equipment, components and services, which creates certain risks and uncertainties that may adversely affect its business.

 

Piezo’s business requires that it buys equipment, components and services from third parties. Its reliance on suppliers involves certain risks, including poor quality or an insecure supply chain, which could adversely affect the reliability and reputation of Piezo’s products; changes in the cost of these purchases due to inflation, exchange rates, tariffs, or other factors; shortages of components, commodities or other materials, which could adversely affect its manufacturing efficiencies and its ability to make timely delivery. Any of these uncertainties could adversely affect Piezo’s profitability and ability to compete.

 

Certain materials and components used in Piezo’s products are required and qualified to be sourced from a single or a limited number of suppliers.

 

Because of any number of domestic or global factors, certain materials and components used by Piezo in its products could become in short supply resulting in limited availability and/or increased costs. Although Piezo believes that alternative suppliers are available to supply materials and components to replace those currently used, doing so may require that Piezo redesign work and would require having those new sources qualified within its systems prior to making use of those new alternatives. Any interruption in the supply from any supplier that serves as a sole source could delay product shipments and have a material adverse effect on its business, financial condition, and results of operations. Piezo’s profits may decline if the price of raw materials rises, and it cannot recover the increases from its then customers.

 

Piezo use various raw materials, such as piezoceramic, steel and plastics, in its manufacturing operations.

 

The raw materials used by Piezo to manufacture its products may become subject to volatility. As a result, it may be necessary for Piezo to increase its product sales price for its electric motor which could have a negative impact on its unit volume, revenue and potential operating income. Piezo is also subject to risks associated with U.S. and foreign legislation and regulations relating to imports, including quotas, duties, tariffs or taxes, and other charges or restrictions on imports, which could adversely affect its operations and its ability to import raw materials and components at current or increased levels. Piezo cannot predict whether additional U.S. and foreign customs quotas, duties, tariffs, taxes or other charges or restrictions, requirements as to where raw materials must be purchased, or other restrictions on its imports will be imposed upon the importation of our products in the future or adversely modified, or what effect such actions would have on our costs of operations.

 

Foreign currency exchange rates may adversely affect Piezo’s financial results.

 

Sales and purchases in currencies other than the U.S. dollar expose Piezo to fluctuations in foreign currencies relative to the U.S. dollar and may adversely affect our financial results. Increased strength of the U.S. dollar increases the effective price of its products sold in U.S. dollars into other countries, which may require Piezo to lower its prices or adversely affect sales to the extent Piezo does not increase local currency prices. Decreased strength of the U.S. dollar could adversely affect the cost of materials, products and services Piezo purchases from non-U.S. denominated locations.

 

Piezo’s international operations expose it to legal, political and regulatory risks, which could have a material effect on its business.

 

Piezo’s research and development operations are located in Kiev, Ukraine. Instability in the Crimean region of the country could result in conflict with Russia which could expand, exposing our operations to risks. Moreover, Piezo is required to comply with various import laws and export control and economic sanctions laws, which may affect its transactions with certain customers, business partners and other persons and dealings between our employees and subsidiaries. In certain circumstances, export control and economic sanctions regulations or embargos may prohibit the export of certain products, services and technologies. In other circumstances, Piezo may be required to obtain an export license before exporting the controlled item. Compliance with the various import laws that apply to its businesses can restrict its access to, and increase the cost of obtaining, certain products and at times can interrupt its supply of imported inventory. In addition to government regulations regarding sale and export, we are subject to other regulations regarding its products. For example, the SEC has adopted disclosure rules for companies that use conflict minerals in their products, with substantial supply chain verification requirements in the event that the materials come from, or could have come from, the Democratic Republic of the Congo or adjoining countries. These rules and verification requirements impose additional costs on Piezo and on its suppliers and may limit the sources or increase the cost of materials used in its products. Further, if it is unable to certify that its products are conflict free, Piezo may face challenges with its customers that could place it at a competitive disadvantage, and our reputation may be harmed.

 

Piezo is subject to a variety of legal and regulatory proceedings in the course of its business that could adversely affect our financial results. For example, the raw piezoceramic material used throughout our products is presently included as an exemption to the European Union’s Directive 2011/65/EU dealing with hazardous substance use in industrial, commercial, and consumer applications. One exemption (exemption 7-C) concerning the use of lead (Pb) in piezoelectric ceramics presently exists allowing lead (Pb) to be used in the manufacture of PZT (lead-zirconate-titanate) type piezoelectric ceramic products, which is the type of material Piezo uses in its products. European Union laws with respect to the exemption could change in the future making it difficult to sell its products containing such materials within the European Union, which would impact our revenues.

 

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Piezo’s products are complex and may contain undetected errors, which could harm its reputation and future product sales.

 

Any failure to provide high quality and reliable products, whether caused by Piezo’s own failure or failures of its suppliers, could damage its reputation and reduce demand for its products. Piezo’s products may in the future contain undetected errors or defects. Some errors in our products may only be discovered after a product has been shipped to customers. Any errors or defects discovered in its products after commercial release could result in loss of revenue, loss of customers, and increased service and warranty costs, any of which could adversely affect Piezo’s business.

 

The nature of some of Piezo’s products may also subject it to export control regulation by the U.S. Department of State and the Department of Commerce. Violations of these regulations can result in monetary penalties and denial of export privileges.

 

Sales to customers in some areas outside the United States could be subject to government export regulations or restrictions that prohibit Piezo from selling to customers in some countries or that require it to obtain licenses or approvals to export such products internationally. Delays or denial of the grant of any required license or approval, or changes to the regulations, could make it difficult or impossible to make sales to foreign customers in some countries and could adversely affect Piezo’s revenue. In addition, Piezo could be subject to fines and penalties for violation of these export regulations if found in violation. Such violation could result in penalties, including prohibiting Piezo from exporting its products to one or more countries, and could materially and adversely affect its business.

 

Compliance with directives that restrict the use of certain materials may increase Piezo’s costs and limit its revenue opportunities.

 

Piezo’s products and packaging must meet all safety, electrical, labeling, marking, or other requirements of the countries into which it ships products or its resellers will sell its products. Piezo has to assess each product and determine whether it complies with the requirements of local regulations or whether they are exempt from meeting the requirements of the regulations. If Piezo determines that a product is not exempt and does not comply with adopted regulations, it will have to make changes to the product or its documentation if it wants to sell that product into the region once the regulations become effective. Making such changes may be costly to perform and may have a negative impact on Piezo’s results of operations. In addition, there can be no assurance that the national enforcement bodies of the regions adopting such regulations will agree with Piezo’s assessment that certain of its products and documentation comply with or are exempt from the regulations. If products are determined not to be compliant or exempt, Piezo will not be able to ship them in the region that adopts such regulations until such time that they are compliant, and this may have a negative impact on Piezo’s revenue and results of operations.

 

Piezo’s international expansion efforts subjects it to additional risks and costs.

 

Piezo intends to expand its international activities. International operations are subject to a number of difficulties and special costs, including:

 

compliance with multiple, conflicting and changing governmental laws and regulations;

 

laws and business practices favoring local competitors;

 

foreign exchange and currency risks;

 

difficulty in collecting accounts receivable or longer payment cycles;

 

import and export restrictions and tariffs;

 

difficulties staffing and managing foreign operations;

 

difficulties and expense in enforcing intellectual property rights;

 

business risks, including fluctuations in demand for our products and the cost and effort to conduct international operations and travel abroad to promote international distribution and overall global economic conditions;

 

multiple conflicting tax laws and regulations; and

 

political and economic instability.

 

Piezo’s international operations could also increase its exposure to international laws and regulations. If Piezo cannot comply with foreign laws and regulations, which are often complex and subject to variation and unexpected changes, it could incur unexpected costs and potential litigation. For example, the governments of foreign countries might attempt to regulate Piezo’s products and services or levy sales or other taxes relating to its activities. In addition, foreign countries may impose tariffs, duties, price controls, or other restrictions on foreign currencies or trade barriers, any of which could make it more difficult for Piezo to conduct its business.

 

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THE MERGER

 

Background of the Merger

 

This section and the section entitled “The Merger Agreement” beginning on page 29 describe the material aspects of the Merger, including the Merger Agreement. While the Company believes that this description covers the material terms of the Merger and the Merger Agreement, it may not contain all of the information that is important to you. You should read carefully this entire Information Statement for a more complete understanding of the Merger and the Merger Agreement, including the Merger Agreement itself, which is attached as Appendix A.

 

Background of the Merger

 

In the fourth quarter of 2020, Nickolay Kukekov, a director of the Company, was introduced to Piezo by Jeb Besser of Manchester Capital. Thereafter, Messrs. Kukekov and Besser had multiple conversations regarding a potential merger of the Company and Piezo in conjunction with a significant equity financing and subsequent Nasdaq uplisting.

 

In January 2021, Dr. Kukekov traveled to Miami, Florida to meet in person with Hassan Kotob, the CEO of Piezo, to discuss a potential transaction between the Company and Piezo. At the January 2021 meeting, Messrs. Kukekov and Kotob agreed to schedule a second meeting with the Company’s and Piezo’s management teams to further discuss a potential transaction.

 

In February 2021, Piezo began conducting due diligence of the Company and provided the Company with a draft of a non-binding term sheet for a proposed merger and financing transaction (the “Term Sheet”). On February 8, 2021, the Company and Piezo executed the Term Sheet.

 

On February 23, 2021, members of the Company’s and Piezo’s management teams met in Sarasota, Florida to discuss, among other things, the Company’s and Piezo’s market overview, products, research and development, and sales and marketing. Members of the Company’s and Piezo’s management teams also discussed outstanding due diligence items and terms of the proposed merger, as well as reviewed financial information. On February 24, 2021, members of the Company’s and Piezo’s management teams had another meeting to further discuss the terms of a potential merger.

 

On or about March 12, 2021, the Company and Piezo entered into an amendment to the Term Sheet (the “Amended Term Sheet”). Negotiation of definitive merger documents and more active due diligence of both companies began upon execution of the Amended Term Sheet. The drafting of the Merger Agreement began with a kick-off call on or about April 20, 2021 and culminated in the execution of the definitive deal documents on June 11, 2021.

 

On May 13, 2021, Lucosky Brookman LLP (“Lucosky”), outside corporate counsel to Piezo, distributed the initial draft of the proposed merger agreement to representatives from the Company and its advisors and legal counsel, Ruskin Moscou Faltischek PC (“Ruskin”). The Company and Piezo, together with their respective advisors (namely, Lucosky and Ruskin), became the working group responsible for negotiating and drafting the definitive merger documents (the “Working Group”). The Company also engaged DS Enterprise, Inc. (“DSE”) to perform an enterprise/equity analysis and valuation summary report of Piezo as of December 31, 2020 (the “DSE Report”).

 

On May 20, 2021, Ruskin provided Lucosky with a mark-up of the proposed merger agreement.

 

On May 29, 2021, Lucosky provided Ruskin with a revised draft of the proposed merger agreement.

 

On May 30, 2021, Ruskin provided the revised draft of the proposed merger agreement to the Company and discussed with the Company additional revisions to be made to the proposed merger agreement.

 

On June 4, 2021, Ruskin provided the Working Group with a further revised draft of the proposed merger agreement.

 

On June 8, 2021, Lucosky provided the Working Group with a further revised draft of the proposed merger agreement.

 

On June 9, 2021, the Working Group held an all-hands call to discuss and finalize the terms of the proposed merger agreement, Following the all-hands call, on June 10, 2021, Lucosky provided the Working Group with a further revised draft of the proposed merger agreement. The Working Group continued to negotiate the final terms of the Merger and circulated several revised drafts of the proposed merger agreement on June 10, 2021.

 

As of June 11, 2021, the Company’s Board approved the Merger and entering into the definitive Merger Agreement. In the afternoon of June 11, 2021, the Merger Agreement was signed by Boris Goldstein on behalf of the Company and Merger Sub.  On June 16, 2021, the Company and Piezo issued a joint press release publicly announcing the signing of the definitive Merger Agreement.

  

Reasons for the Merger

 

Following the Merger, the combined company is expected to have a suite of stand-alone products that are able to work together in a cycle of data gathering, intelligent predictions, and precise actions. The Company’s neurology products are being designed to create massive amounts of data which, in turn, can be analyzed by artificial intelligence programs to aid doctors and researchers to recommend correct precision treatments. In the future, these are expected to be driven by Piezo Motion’s technology. 

 

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The Company’s Board considered the following factors in reaching its conclusion to approve the Merger and to seek the approval of the Company’s stockholders of the issuance of shares of the Company’s common stock in the Merger, all of which the Board viewed as supporting its decision to approve the business combination with Piezo:

 

The Merger, upon its closing, is expected to expand the overall market reach of both the Company and Piezo and the ability of both companies to deliver innovative technologies to high growth markets.

 

The Company’s Board considered the following factors in reaching its conclusion to approve the Merger and to recommend that the Company’s stockholders approve the issuance of shares of the Company’s common stock in the Merger, all of which the Board viewed as supporting its decision to approve the business combination with Piezo:

 

The Board and management team of the Company had undertaken a process of reviewing and analyzing alternatives to the Merger to identify the opportunity that would, in the Board’s opinion, create the most value for the Company’s stockholders.

 

Piezo comes with a seasoned and recognized management team, including Hassan Kotob, who has a history of successful exits in the healthcare/technology field.

 

Piezo has a strong financial backer with large healthcare institutional investors that can potentially provide additional capital to the combined company.

 

Piezo’s technology and its applications in healthcare represent a multi-billion dollar sector of the U.S. economy. The Board saw the Merger as an opportunity to enter this market and become a leader in the space. Piezo technologies also may have applications for the future programs that the Company may want to acquire and/or develop.

 

The commitment from an investor to provide financing in the Private Placement Offering was considered by the Company’s Board to likely be sufficient for the immediate term for advancing the combined company’s business plans. The Board also considered the possibility that the combined company would be able to take advantage of the potential benefits resulting from the combination of the Company’s public company structure with Piezo’s business to raise additional funds in the future, if necessary.

 

The Board concluded that the Merger provided the only reasonably viable path forward for satisfying a significant percentage of the Company’s outstanding trade payables and other liabilities, while concurrently providing its stockholders with a continuing interest and a more certain path to an uplist to a national securities exchange.

 

The Board considered the DSE Report.

 

In the course of its deliberations, the Company’s Board also considered a variety of risks and other countervailing factors related to entering into the Merger, including:

 

The substantial expenses to be incurred in connection with the Merger.

 

The possible volatility, at least in the short term, of the trading price of the Company’s common stock resulting from the Merger announcement.

 

The risk that the Merger might not be consummated in a timely manner or at all, the potential adverse effect of the public announcement of the Merger and the potential adverse effect of the delay or failure to complete the Merger on the reputation of the Company.

 

The risk to the business of the Company, operations and financial results in the event that the Merger is not consummated, including the diminution of the Company’s cash and its likely inability to raise additional capital through the public or private sale of equity securities.

 

The strategic direction of the combined company following the completion of the Merger and possible diminished role of the MemoryMD subsidiary business on a going forward basis, which will be determined by the Board of Directors of the post-combination company.

 

Various other risks associated with the combined organization and the Merger, including those described in the section entitled “Risk Factors” included elsewhere in this Information Statement.

 

The foregoing information and factors considered by the Company’s Board are not intended to be exhaustive but are believed to include all of the material factors considered by the Board. In view of the wide variety of factors considered in connection with its evaluation of the Merger and the complexity of these matters, the Board did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, individual members of the Board may have given different weight to different factors. The Company’s Board conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, the Company’s management team and the advisors of the Company, and considered the factors overall to be favorable to, and to support, its determination.

 

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Interests of the Company’s Directors and Executive Officers in the Merger

 

General

 

Company stockholders should be aware that certain members of the Board and executive officers of the Company have interests in the Merger that may be different from, or in addition to, the interests of the Company stockholders. These interests relate to or arise from, among other things:

 

Upon completion of the Merger, Dr. Goldstein will receive cash fees with a total value of approximately $300,000. In addition, Dr. Goldstein shall receive a special bonus as a result of the closing of the Merger and, further, is eligible to receive a special bonus in the event the Company uplists to a senior stock exchange, as described below under “—Golden Parachute Compensation;”

 

 

Certain indemnification obligations of the Company following the Merger, as described under “The Merger Agreement—Indemnification”.

 

The Board of Directors of the Company was aware of these potential conflicts of interest and considered them, among other matters, in reaching their respective decisions to approve the Merger Agreement and to recommend, as applicable, that the Company stockholders approve the Actions as described in this Information Statement. 

 

Golden Parachute Compensation

 

Overview

 

This section sets forth the information required by Item 402(t) of Regulation S-K regarding the compensation for each of the Company’s named executive officers that is based on or otherwise relates to the Merger. This compensation is referred to as “golden parachute” compensation by the applicable SEC disclosure rules, and in this section the Company uses such term to describe the Merger-related compensation payable to the Company’s named executive officers.

 

Merger Bonus

 

Upon completion of the Merger, Dr. Goldstein will receive cash fees with a total value of approximately $300,000 in order to (i) extinguish $147,000 in accrued salary owed to Dr. Goldstein and (2) as a bonus for the closing of the Merger. Additionally, Mr. Goldstein shall be entitled to receive from the Company a cash payment of $200,000 upon the earlier of the Company raising an aggregate of $10,000,000 in capital after the Effective Time (but including the Private Placement Offering) or 60 days from the Effective Time. Further, the Company will pay Dr. Goldstein an additional $250,000 bonus upon the Company listing its securities on a senior exchange such as NASDAQ or New York Stock Exchange.

 

Aggregate Amounts of Potential Compensation

 

The table below summarizes potential golden parachute compensation that each named executive officer could be entitled to receive from the Company if the Merger is completed, as discussed above. It is currently expected that, other than Dr. Goldstein, who shall be appointed to serve as a consultant of the Company or MemoryMD with the title of Chief Scientific Officer, for a one year term and shall have an annual compensation of $250,000, none of the named executive officers of the Company will continue to be employed by the combined company following the closing of the Merger and, accordingly, will be entitled to receive the severance and benefits described above and below. Please note that the amounts indicated below are estimates based on multiple assumptions that may or may not actually occur, including assumptions described herein. Accordingly, the actual amounts, if any, to be received by such named executive officer may differ in material respects from the amounts set forth below.

 

For purposes of calculating such potential golden parachute compensation, the Company has assumed that the Merger had occurred on March 31, 2021 and have further assumed that the named executive officers will incur a termination of employment on such date that would entitle them to the benefits set forth in the table below.

 

   Golden Parachute Compensation 
Name  Cash   Equity   COBRA
Benefits
   Total 
Dr. Boris Goldstein  $750,000   $-   $-   $750,000 
Mark Corrao  $        -   $-   $-   $- 

 

Indemnification and Insurance

 

For a description of the indemnification rights afforded to the Company’s directors and officers under the Merger Agreement, see “The Merger Agreement—Indemnification of Directors and Officers.”

 

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Limitations of Liability and Indemnification of the Company and Piezo Officers and Directors

 

Pursuant to the Merger Agreement, upon the completion of the Merger, the parties agreed that the directors and executive officers of the Company will have the right to continued indemnification to the same extent that the Company is currently permitted to indemnify such persons against certain losses pertaining to matters existing or occurring prior to the Effective Time.

 

The Merger Agreement also provides that the Company shall obtain for the benefit of all of the persons serving as directors and officers of the Company immediately prior to the Closing, a directors’ and officers’ liability insurance policy that provides coverage for actions and claims relating to this Merger, the Merger Agreement, and the transactions contemplated by the Merger Agreement, and arising or occurring prior to or after the Effective Time.

 

Fractional Shares

 

No fractional shares of Company common stock will be issued to Piezo shareholders in connection with the Merger. Instead, fractional shares that would have otherwise been issued to such Piezo Stockholders shall be rounded up to the next full share, see the section entitled “The Merger Agreement—Merger Consideration” beginning on page 29.

 

Effective Time of the Merger

 

The Merger Agreement requires the parties to complete the Merger after all of the conditions to the completion of the Merger contained in the Merger Agreement are satisfied or waived, including, among other things: (a) the approval of the respective stockholders and boards of directors of the Company, Merger Sub, and Piezo; (b) subject to certain materiality exceptions, the accuracy of the representations and warranties made by each of the Company and Piezo and the compliance by each of the Company and Piezo with their respective obligations under the Merger Agreement; (c) approval of the transactions contemplated by the Merger Agreement by any third-parties and governmental entities as may be required by law; (d) the execution and delivery of an assignment and assumption agreement between the Company and MemoryMD, pursuant to which the Company shall assign to MemoryMD, and MemoryMD shall assume from the Company, all of the Company’s operating assets and liabilities, subject to certain exceptions; (e) the completion of all necessary legal due diligence by each of the Company and Piezo; (f) the first closing of the Private Placement Offering; and (g) the number of shares of Piezo common stock held by Piezo stockholders who did not vote to adopt the Merger Agreement shall not exceed 10% of the number of outstanding shares of Piezo common stock as of the Effective Time.

 

Regulatory Approvals

 

As of the date of this Information Statement, neither the Company nor Piezo is required to make filings or to obtain approvals or clearances from any antitrust regulatory authorities in the United States or other countries to complete the Merger. In the United States, the Company must comply with applicable federal and state securities laws and the rules and regulations of the OTCQB Market and FINRA in connection with the issuance of shares of the Company common stock and the resulting change in control of the Company and the filing of this Information Statement with the SEC.

 

Tax Treatment of the Merger

 

Each of the Company and Piezo intends the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, which is referred to as the Code. Because the Company’s stockholders will continue to own and hold their existing shares of Company common stock following the Merger, the Merger generally will not result in U.S. federal income tax consequences to current Company stockholders.

 

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THE MERGER AGREEMENT

 

The following is a summary of the material provisions of the Merger Agreement but does not purport to describe all of the terms of the Merger Agreement. The following summary is qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which is attached as Appendix A to this Information Statement and is incorporated by reference into this Information Statement. This summary may not contain all of the information about the Merger Agreement that is important to you. You should refer to the full text of the Merger Agreement for details of the transaction and the terms and conditions of the Merger Agreement.

 

Additionally, the representations, warranties and covenants described in this section and contained in the Merger Agreement have been made only for the purpose of the Merger Agreement and, as such, are intended solely for the benefit of the Company, Merger Sub and Piezo. In many cases, the representations, warranties and covenants are subject to limitations agreed upon by the parties and are qualified by certain disclosures exchanged by the parties in connection with the execution of the Merger Agreement. Furthermore, many of the representations and warranties in the Merger Agreement are the result of a negotiated allocation of contractual risk among the parties and, taken in isolation, do not necessarily reflect facts about the Company, Piezo, their respective subsidiaries and affiliates or any other party. Likewise, any reference to materiality contained in the representations and warranties may not correspond to concepts of materiality applicable to investors or stockholders. Finally, information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement and these changes may not be fully reflected in the Company’s public disclosures. As a result of the foregoing, investors are encouraged not to rely on the representations, warranties and covenants contained in the Merger Agreement, or on any descriptions thereof, as accurate characterizations of the state of facts or condition of the Company or any other party. Investors and stockholders are likewise cautioned that they are not third-party beneficiaries under the Merger Agreement and do not have any direct rights or remedies pursuant to the Merger Agreement.

 

Terms of the Merger

 

The Merger Agreement provides that, subject to the terms and conditions of the Merger Agreement at the Effective Time of the Merger, Merger Sub, a wholly owned-subsidiary of the Company, will merge with and into Piezo. Upon completion of the Merger, Piezo will continue as a wholly owned-subsidiary of the Company (the “Surviving Corporation”).

 

Completion of the Merger

 

The closing of the Merger will take place no later than the third business day after the satisfaction or waiver of the conditions to the completion of the Merger contained in the Merger Agreement, other than the conditions which by their terms can be satisfied only as of the closing of the Merger, or on such other day as the Company, Piezo and Merger Sub may mutually agree. For a more complete discussion of the conditions to the completion of the Merger, see the section entitled “—Conditions to the Completion of the Merger” beginning on page 34.

 

At the closing, the parties will file a Certificate of Merger with the Secretary of State of the State of Delaware.

 

Certificate of Incorporation; Bylaws; Directors and Officers

 

Upon completion of the Merger, the certificate of incorporation and bylaws of Piezo in effect immediately prior to the Effective Time shall be the certificate of incorporation of the Surviving Corporation until duly amended or repealed.

 

The directors and officers of Piezo will be the directors and officers of the Surviving Corporation immediately following the completion of the Merger and each of them will hold office until his or her successor is duly elected or appointed and qualified.

 

Merger Consideration; Exchange Ratio

 

At 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 (such shares of Company common stock, the “Merger Shares”) 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 immediately prior to 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 is calculated based on 100% of the issued and outstanding shares of Company common stock on a “fully diluted basis”. Pursuant to the Merger Agreement, “Fully Diluted Basis” means all shares issuable upon conversion or exercise of any outstanding convertible, exercisable and exchangeable securities, including all convertible debt and all warrants (the “Securities”) of the Company, including any shares issuable in connection with any anti-dilution adjustments contained in any such outstanding convertible, exercisable and exchangeable Securities of the Company as of the Effective Time; provided, however, any debt that the Company determines is converted into the Private Placement Offering, shall be excluded for purposes of calculating the Fully Diluted Basis. 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. Accordingly, any changes in the number of shares of outstanding capital stock of either the Company or Piezo, as a result of option grants, option expirations, or issuance of new share capital, prior to the Effective Time of the Merger would result in a corresponding change to the number of shares of Company common stock issuable to the Piezo stockholders.

 

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For illustrative purposes only, based on the number of shares of Company common stock outstanding, calculated on a fully diluted basis, as of June 11, 2021, the date of the Merger Agreement, approximately 25,000,000 shares of Company common stock would be issuable to the Piezo stockholders, assuming existing convertible debtholders of the Company convert such debt into the Private Placement Offering securities at closing. Based on the number of shares of Company common stock outstanding, calculated on a fully diluted basis, as of August 2, 2021, the last practicable date before the printing of this Information Statement, approximately 25,000,000 shares of Company common stock would be issuable to the Piezo stockholders, assuming existing convertible debtholders of the Company convert such debt into the Private Placement Offering securities at closing.

  

No adjustments to the Exchange Ratio will be made based upon changes in the price of the Company common stock or the value of Piezo equity prior to the completion of the Merger. Changes in stock price or value may result from a variety of factors, including, among others, general market and economic conditions, changes in the Company’s or Piezo’s respective businesses, operations, and prospects, the market assessment of the likelihood that the Merger will be completed as anticipated or at all, and regulatory considerations. Many of these factors are beyond the Company’s and Piezo’s control.

 

As a result of any such changes in the price of the Company common stock, the aggregate market value of the shares of Company common stock that the Piezo shareholders will be entitled to receive at the Effective Time of the Merger could vary significantly from the value of such shares on the date of this Information Statement, the Voting Record Date, or the date on which the Piezo shareholders actually receive their shares of Company common stock.

 

Conversion of Piezo Securities

 

The Merger Agreement provides that the Company shall deliver certificates for the Merger Shares to each Piezo stockholder entitled thereto who shall have presented a certificate, or book entry statement as applicable, that immediately prior to the Effective Time represented Piezo stock to be converted into Merger Shares (the “Piezo Stock Certificates”) to the Company’s transfer agent. If any Piezo Stock Certificates shall have been lost, stolen or destroyed, the Company’s transfer agent may, in its sole discretion and as a condition to the issuance of any certificates representing Merger Shares, require the owner of such lost, stolen or destroyed Piezo Stock Certificate to provide an appropriate affidavit with respect to such Piezo Stock Certificate and post or deliver such bond or indemnity as may be required by the Company’s transfer agent (at the sole cost of such holder of lost, stolen or destroyed Piezo Stock Certificate). Notwithstanding the foregoing, all Company common stock representing the Merger Shares shall be issued solely in book entry form.

 

From and after the completion of the Merger, unless it is properly surrendered or transferred, each Piezo Stock Certificate will represent only the right to receive an applicable portion of the Merger Shares.

 

Representations and Warranties

 

The Merger Agreement contains customary representations and warranties made by Piezo to the Company made as of the date of the Merger Agreement and as of the Effective Time, and generally reciprocal representations and warranties made by the Company and Merger Sub to Piezo. Specifically, the representations and warranties of each of the Company and Piezo in the Merger Agreement (many of which are qualified by concepts of knowledge, materiality and/or dollar thresholds and are further modified and limited by confidential disclosure schedules exchanged by the Company and Piezo as may or may not be specifically indicated in the text of the Merger Agreement) relate to the following subject matters, among other things:

 

organization, good standing and qualification to do business as currently conducted;

 

corporate power and authority to enter into the Merger Agreement and to complete the transactions contemplated by the Merger Agreement;

 

valid authorization to enter into and execution of the Merger Agreement;

 

the required consents and approvals of governmental entities and third parties in connection with the transactions contemplated by the Merger Agreement;

 

the declaration of advisability of the Merger Agreement and the Merger by each party’s board of directors, the approval of the Merger Agreement and the Merger by each party’s board of directors and the recommendation made by each party’s board of directors to its respective stockholders;

 

capitalization, including valid authorization and issuance of outstanding capital stock;

 

compliance with certain laws;

 

financial statements;

 

title to property;

 

the absence of undisclosed liabilities;

 

the conduct of each party’s business, and the absence of certain changes or events since March 30, 2021;

 

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litigation, investigations, proceedings and the absence of orders or judgments from governmental entities;

 

insurance policies and claims against such policies;

  

matters relating to material contracts, including the absence of certain defaults under or breaches or violations of material contracts and that the contracts identified as material contracts are valid, binding and enforceable obligations;

 

employment and labor matters;

 

intellectual property matters;

 

tax matters;

 

regulatory matters;

 

environmental matters;

 

the absence of undisclosed brokers’ fees;

 

the inapplicability of anti-takeover statutes to the Merger and the other transactions contemplated by the Merger Agreement;

 

permits;

 

certain business relationships with affiliates;

 

interested party transactions; and

 

international trade and anti-corruption laws.

 

Material Adverse Effect

 

Several of the representations, warranties, covenants and closing conditions contained in the Merger Agreement refer to the concept of “Company Material Adverse Effect” or “Parent Material Adverse Effect”.

 

Company Material Adverse Effect

 

For purposes of the Merger Agreement, a “Company Material Adverse Effect” means a material adverse effect on the assets, business, financial condition, or results of operations of Piezo and Piezo’s subsidiaries, taken as a whole; provided, that, in no event shall any effects (whether alone or in combination) resulting from or arising in connection with any of the following be deemed to constitute, nor shall any of the following be taken into account in determining whether there has occurred, a Company Material Adverse Effect: (a) conditions generally affecting the industries in which Piezo or Piezo’s subsidiaries participate or the U.S. or global economy or capital markets as a whole; (b) any failure by Piezo to meet internal projections or forecasts or revenue or earnings predictions; (c) the execution, delivery, announcement or performance of the obligations under this Agreement or the announcement, pendency or anticipated consummation of the Merger; (d) any pandemic (including COVID-19), natural disaster or any acts of terrorism, sabotage, military action or war or any escalation or worsening thereof; (e) any changes (after the date of the Merger Agreement) in generally accepted accounting principles (“GAAP”), other applicable accounting rules or applicable Law, or changes or developments in political, regulatory or legislative conditions, or (f) the taking of any action required by the Merger Agreement.

 

Parent Material Adverse Effect

 

For purposes of the Merger Agreement, a “Parent Material Adverse Effect” means a material adverse effect on the assets, business, financial condition, or results of operations of the Company and its subsidiaries, taken as a whole, provided that in no event shall any effects (whether alone or in combination) resulting from or arising in connection with any of the following be deemed to constitute, nor shall any of the following be taken into account in determining whether there has occurred, a Parent Material Adverse Effect: (a) conditions generally affecting the industries in which the Company or its subsidiaries participate or the U.S. or global economy or capital markets as a whole; (b) any failure by the Company to meet internal projections or forecasts or revenue or earnings predictions; (c) the execution, delivery, announcement or performance of the obligations under the Merger Agreement or the announcement, pendency or anticipated consummation of the Merger; (d) any pandemic (including COVID-19), natural disaster or any acts of terrorism, sabotage, military action or war or any escalation or worsening thereof; (e) any changes (after the date of this Agreement) in GAAP, other applicable accounting rules or applicable Law, or changes or developments in political, regulatory or legislative conditions, or (f) the taking of any action required by the Merger Agreement.

 

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Certain Covenants of the Parties

 

Affirmative Covenants

 

Each of the Company and Piezo has undertaken certain covenants in the Merger Agreement relating to the conduct of their respective businesses between the date of the Merger Agreement and the Effective Time. In general, except as contemplated or required by the Merger Agreement, without the prior written consent of the other party, each of the Company and Piezo has agreed to, and each of the Company and Piezo has agreed to cause its subsidiaries to:

 

conduct its respective operations in the ordinary course of business and in material compliance with all applicable laws;

 

use reasonable best efforts to preserve intact its respective current business organization, keep its respective physical assets in good working condition, keep available the services of its respective current officers and employees and preserve its respective relationships with customers, suppliers and others having business dealings with the Company or Piezo, as applicable, to the end that its respective goodwill and ongoing business shall not be impaired in any material respect;

 

use its reasonable best efforts to take all actions and to do all things necessary, proper or advisable to consummate the transactions contemplated by the Merger Agreement;

 

use its reasonable best efforts to obtain, at its expense, all waivers, permits, consents, approvals or other authorizations from governmental entities, and to effect all registrations, filings and notices with or to governmental entities, as may be required for such party to consummate the transactions contemplated by the Merger Agreement;

 

as to Piezo, use its reasonable best efforts to obtain, at its expense, all such waivers, consents or approvals from third parties, and to give all such notices to third parties;

 

prepare a Current Report on Form 8-K relating to the Merger Agreement and the other transaction documents and the transactions contemplated thereby (the “8-K”), and to use their reasonable best efforts to cause the Company to file the 8-K with the SEC within four (4) business days of the execution of the Merger Agreement and to otherwise comply with all requirements of applicable federal and state securities laws;

 

permit representatives of the Company or Piezo, as applicable, to have reasonable access (at all reasonable times, and in a manner so as not to interfere with the normal business operations of the Company or Piezo, as applicable, and their respective subsidiaries) to all premises, properties, financial and accounting records, contracts, other records and documents, and personnel, of or pertaining to the Company or Piezo, as applicable, and their respective subsidiaries;

 

treat and hold as confidential any confidential information, (ii) not use any of confidential information except in connection with the Merger Agreement, and (iii) if the Merger Agreement is terminated for any reason whatsoever, return all tangible embodiments (and all copies) thereof which are in its possession;

 

as to the Company, take whatever steps are necessary to cause the shares of Company Common Stock to remain eligible for quotation on the OTC Markets;

 

as to the Company, take whatever steps are necessary to enable it to effect the Transfer pursuant to the terms of the Assignment and Assumption Agreement immediately prior to the Effective Time;

 

as to the Company, as or prior to the Effective Time, (i) increase the size of the Company’s Board of Directors from 2 to 5 members, (ii) elect to the Board of Directors of the Company Hassan Kotob; and (iii) appoint as the officers of the Company Hassan Kotob and Bonnie-Jeanne Gerety, or, in either case with regard to clauses (ii) and (iii), such other persons designated by Piezo;

 

as to the Company, simultaneous with the Closing, enter into an Assignment and Assumption Agreement in a form reasonably acceptable to Piezo, whereby the Company will assign any and all rights, title and interest to all assets and liabilities, to the extent assignable, which pertain to the operations of the Company to the Company’s wholly owned subsidiary MemoryMD;

 

as to the Company, within five days of the Effective Time, issue that certain number of stock options or warrants equaling 20% of the issued and outstanding shares of Company Common Stock to certain affiliates and non-affiliates of the Company.

 

Negative Covenants

 

Prior to the completion of the Merger or other earlier termination of the Merger Agreement, each of the Company and Piezo have agreed, with respect to itself and its subsidiaries, not to (unless consented to in writing by the other party), among other things (subject to, in some cases, exceptions or qualifications specified in the Merger Agreement or set forth in the confidential disclosure schedules exchanged by the Company and Piezo):

 

in the case of Piezo, not issue or sell, or redeem or repurchase, any stock or other securities of Piezo or any warrants, options or other rights to acquire any such stock or other securities (except pursuant to the conversion or exercise of outstanding convertible securities outstanding on the date of the Merger Agreement), or amend any of the terms of (including without limitation the vesting of) any such convertible securities or options or warrants;

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in the case of the Company, not issue or sell, or redeem or repurchase, any stock or other securities of the Company, or any rights, warrants or options to acquire any such stock or other securities, except as contemplated by, and in connection with, the Merger, the Transfer and the Private Placement Offering, except (i) as may be required pursuant to any existing convertible indebtedness or other convertible security of the Company or (ii) pursuant to the Company’s existing offering of securities pursuant Regulation A+;

 

not split, combine or reclassify any shares of its capital stock; declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock;

 

not create, incur or assume any indebtedness for borrowed money (including obligations in respect of capital leases) except in the ordinary course of business or in connection with the transactions contemplated by the Merger Agreement; assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person or entity; or make any loans, advances or capital contributions to, or investments in, any other person or entity;

 

in the case of the Company, not enter into, adopt or amend any Company benefit plan or any employment or severance agreement or arrangement or increase in any manner the compensation or fringe benefits of, or materially modify the employment terms of, its respective directors, officers or employees, generally or individually;

 

not acquire, sell, lease, license or dispose of any assets or property (including without limitation any shares or other equity interests in or securities of any subsidiary or any corporation, partnership, association or other business organization or division thereof), other than purchases and sales of assets in the ordinary course of business;

 

not mortgage or pledge any of its property or assets (including without limitation any shares or other equity interests in or securities of any subsidiary or any corporation, partnership, association or other business organization or division thereof), or subject any such property or assets to any security interest;

 

not discharge or satisfy any security interest or pay any obligation or liability other than in the ordinary course of business;

 

not amend its charter, by-laws or other organizational documents;

 

not change in any material respect its accounting methods, principles or practices, except insofar as may be required by a generally applicable change in GAAP;

 

not enter into, amend, terminate, take or omit to take any action that would constitute a violation of or default under, or waive any rights under, any material contract or agreement;

 

not institute or settle any legal proceeding;

 

not take any action or fail to take any action permitted by the Merger Agreement with the knowledge that such action or failure to take action would result in (i) any of the representations and warranties set forth in the Merger Agreement becoming untrue in any material respect or (ii) any of the conditions to the Merger set forth in Article V of the Merger Agreement not being satisfied;

 

as to the Company, not take any action to alter or impair any exculpatory or indemnification provisions now existing in the certificate of incorporation or bylaws of Piezo for the benefit of any individual who served as a director or officer of Piezo at any time prior to the Effective Time, except for any changes which may be required to conform with changes in applicable law and any changes which do not affect the application of such provisions to acts or omissions of such individuals prior to the Effective Time.

 

Board Recommendations

 

Under the Merger Agreement, (i) Piezo’s board of directors has agreed to recommend that Piezo shareholders vote in favor of the adoption of the Merger Agreement and the other transaction documents contemplated thereby and the approval of the Merger and (ii) the Company’s Board has agreed to recommend that Company’s stockholders vote in favor of the adoption of the Merger Agreement and the other transaction documents contemplated thereby and the approval of the Merger.

 

Information Provided to Stockholders

 

Pursuant to the Merger Agreement, each of the Company and Piezo has agreed to prepare information to be sent to each of their respective stockholders in connection with receiving their approval of the Merger, the Merger Agreement and related transactions. Each of the Company and Piezo are required to use reasonable best efforts to cause information provided to such party’s stockholders to comply with applicable federal and state securities laws requirements. Each of the Company and Piezo has agreed to provide promptly to the other such information concerning its business and financial statements and affairs as, in the reasonable judgment of the providing party or its counsel, may be required or appropriate for inclusion in the information sent, or in any amendments or supplements thereto, and to cause its counsel and auditors to cooperate with the other’s counsel and auditors in the preparation of the information to be sent to the stockholders of each party. The information sent by the Company and Piezo to their respective stockholders shall contain the recommendation of the Board of Directors of the Company and Piezo, as applicable, that the stockholders approve the Merger and the Merger Agreement and the related transactions. 

 

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Indemnification of Directors and Officers

 

The Merger Agreement provides that the Company shall not, and shall cause the Surviving Corporation not to, after the Effective Time, take any action to alter or impair any exculpatory or indemnification provisions now existing in the certificate of incorporation or bylaws of Piezo for the benefit of any individual who served as a director or officer of Piezo at any time prior to the Effective Time, except for any changes which may be required to conform with changes in applicable law and any changes which do not affect the application of such provisions to acts or omissions of such individuals prior to the Effective Time. 

 

Conditions to the Completion of the Merger

 

The obligations of each of the Company and Piezo to complete the Merger and the other transactions contemplated by the Merger Agreement are subject to the satisfaction or waiver in writing of the following conditions:

 

Piezo shall have obtained the written consents of (i) all of the members of its Board of Directors, (ii) a majority of the issued and outstanding shares of Piezo common stock to approve the execution, delivery and performance by Piezo of the Merger Agreement and the other transaction documents contemplated thereby to which Piezo is a party, in form and substance reasonably satisfactory to the Company;

 

The Company and Memory MD shall have executed and delivered the Assignment and Assumption Agreement, and all other documents anticipated by such agreements, and the Transfer shall be effective immediately prior to the Effective Time;

 

The parties shall have mutually agreed to the 50% Calculation (as defined in the Merger Agreement);

 

The Company and Piezo shall have completed all necessary legal due diligence to their reasonable satisfaction; and

 

The closing of the Private Placement Offering shall have occurred, or shall occur simultaneously with the Closing, on the terms and conditions set forth in the Securities Purchase Agreement.

 

The obligations of the Company and Merger Sub to complete the Merger and the other transactions contemplated by the Merger Agreement are subject to the satisfaction or waiver in writing of the following conditions:

 

The number of Piezo dissenting shares shall not exceed 10% of the number of outstanding shares of Piezo stock as of the Effective Time;

 

Piezo and its subsidiaries shall have obtained all other waivers, permits, consents, approvals or other authorizations, and effected all of the registrations, filings and notices, which are required on the part of Piezo, except such waivers, permits, consents, approvals or other authorizations the failure of which to obtain or effect does not, individually or in the aggregate, have a Company Material Adverse Effect or a material adverse effect on the ability of the parties to consummate the transactions contemplated by the Merger Agreement;

 

The representations and warranties of Piezo set forth in the Merger Agreement shall be true and correct as of the date of the Merger Agreement and shall be true and correct as of the Effective Time;

 

Piezo shall have performed or complied with its agreements and covenants required to be performed or complied with under the Merger Agreement as of or prior to the Effective Time, except for such non-performance or non-compliance as does not have a Company Material Adverse Effect or a material adverse effect on the ability of the parties to consummate the transactions contemplated by the Merger Agreement;

 

No legal proceeding shall be pending wherein an unfavorable judgment, order, decree, stipulation or injunction would (i) prevent consummation of any of the transactions contemplated by the Merger Agreement or (ii) cause any of the transactions contemplated by the Merger Agreement to be rescinded following consummation, and no such judgment, order, decree, stipulation or injunction shall be in effect;

 

Piezo shall have delivered to the Company a copy of each written consent received from a Piezo stockholder consenting to the Merger together with a certification from each such Piezo stockholder that such person is either an “accredited investor” or not a “U.S. Person” as such terms are defined in Regulation D and Regulation S, respectively, under the Securities Act;

 

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Piezo shall have delivered to the Company a certificate (the “Company Certificate”) to the effect that each of the conditions to closing is satisfied in all respects;

 

Piezo shall have delivered to the Company a certificate, validly executed by the Secretary of Piezo, certifying as to (i) true, correct and complete copies of the certificate of incorporation and bylaws of Piezo; (ii) the valid adoption of resolutions of the board of directors and stockholders of Piezo; (iii) a good standing certificate from the Secretary of State of the State of Delaware dated within five (5) business days prior to the Closing Date; and (iv) incumbency and signatures of the officers of Piezo executing this Agreement or any other agreement contemplated by this Agreement;

 

Piezo shall have delivered to the Company Piezo’s disclosure schedules; and

 

Piezo shall have delivered to the Company customary investor questionnaires, in form acceptable to the Company, completed by each of Piezo’s stockholders, which are necessary for the Company to determine whether each of Piezo’s stockholders are “accredited investors”.

 

The obligations of Piezo to complete the Merger and the other transactions contemplated by the Merger Agreement are subject to the satisfaction or waiver in writing of the following conditions:

 

The Company shall have obtained the written consents of (i) all of the members of its Board of Directors, (ii) all of the members of the Board of Directors of Merger Sub, (iii) the sole stockholder of Merger Sub, and (iii) holders of more than 50% of the Company Common Stock outstanding immediately prior to the Effective Time, in each case to the execution, delivery and performance by the each such entity of the Merger Agreement and/or the other transaction documents contemplated thereby to which each such entity a party, in form and substance reasonably satisfactory to Piezo;

 

The Company shall have obtained all of the other waivers, permits, consents, approvals or other authorizations, and effected all of the registrations, filings and notices, which are required on the part of the Company, except for waivers, permits, consents, approvals or other authorizations the failure of which to obtain or effect does not, individually or in the aggregate, have a Parent Material Adverse Effect or a material adverse effect on the ability of the parties to consummate the transactions contemplated by the Merger Agreement;

 

The representations and warranties of the Company set forth in the Merger Agreement shall be true and correct as of the date of the Merger Agreement and shall be true and correct as of the Effective Time as though made as of the Effective Time;

 

Each of the Company and Merger Sub shall have performed or complied with its agreements and covenants required to be performed or complied with under the Merger Agreement as of or prior to the Effective Time, except for such non-performance or non-compliance as does not have a Parent Material Adverse Effect or a material adverse effect on the ability of the Parties to consummate the transactions contemplated by the Merger Agreement and the other transaction documents contemplated thereby;

 

No legal proceeding shall be pending wherein an unfavorable judgment, order, decree, stipulation or injunction would (i) prevent consummation of any of the transactions contemplated by the Merger Agreement and the other transaction documents or (ii) cause any of the transactions contemplated by the Merger Agreement and the other transaction documents to be rescinded following consummation, and no such judgment, order, decree, stipulation or injunction shall be in effect;

 

The Company shall have delivered to Piezo a certificate to the effect that each of the closing conditions is satisfied in all respects;

 

Each of the Company and Merger Sub shall have delivered to Piezo a certificate, validly executed by Secretary of the Company, certifying as to (i) true, correct and complete copies of its respective articles or certificate of incorporation, as applicable, and bylaws; (ii) the valid adoption of resolutions of the board of directors and stockholders of the Company or Merger Sub, as applicable; (iii) a good standing certificate from the Secretary of State of each of the State of Nevada and the State of Delaware, as applicable, dated within five (5) business days prior to the Closing Date; and (iv) incumbency and signatures of the officers of the Company or Merger Sub, as applicable, executing the Merger Agreement or any other agreement contemplated by the Merger Agreement;

 

Piezo shall have received an official stockholder list from the Company’s transfer agent and registrar showing that as of immediately prior to the Effective Time there are such number of shares of Company Common Stock issued and outstanding to confirm the 50% Calculation;

 

The Company shall have disclosed to Piezo all debt of the Company and its subsidiaries retained by Piezo;

 

The Company shall have delivered the D&O Insurance binder to Piezo at Closing; and

 

The Company shall have delivered to Piezo the Company’s disclosure schedules.

 

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Termination of the Merger Agreement

 

The Merger Agreement provides that, at any time prior to the completion of the Merger, the Merger Agreement may be terminated as follows:

 

The Merger Agreement may be terminated at any time by mutual consent of the Company and Piezo.

 

The Merger Agreement may be terminated, by either the Company or Piezo, if the closing shall not have occurred by September 30, 2021; provided, that the right to terminate the Merger Agreement pursuant to this clause shall not be available to any party whose breach of any provision of the Merger Agreement results in the failure of the Closing to have occurred by such time.

 

The Merger Agreement may be terminated by either the Company or Piezo if there shall be any statute, rule or regulation issued by a “Governmental Entity” of competent jurisdiction that renders consummation of the transactions contemplated by the Merger Agreement and the other “Transaction Documents” (the “Contemplated Transactions”) illegal or otherwise prohibited, or a court of competent jurisdiction or any Governmental Entity of competent jurisdiction shall have issued an order, decree or ruling, or has taken any other action restraining, enjoining or otherwise prohibiting the consummation of such transactions and such order, decree, ruling or other action shall have become final and non-appealable.

 

The Merger Agreement may be terminated prior to the Effective Time: (a) by the Company and Merger Sub if (i) any of the conditions set forth in Section 5.2 of the Merger Agreement have not been fulfilled in all material respects by the Closing Date or otherwise waived by the Company, (ii) Piezo shall have breached or failed to observe or perform in any material respect any of its covenants or obligations under the Merger Agreement if such breach is not cured within ten days of written notice of such breach from the Company (to the extent such breach is curable) or (iii) as otherwise set forth in the Merger Agreement; provided that the Company and Merger Sub may not exercise the right in this clause if either of them are then in breach of any provision of the Merger Agreement; or (b) by Piezo if (i) any of the conditions set forth in Section 5.3 of the Merger Agreement have not been fulfilled in all material respects by the Closing Date or otherwise waived by Piezo; (ii) the Company or Merger Sub shall have breached or failed to observe or perform in any material respect any of its covenants or obligations under the Merger Agreement if such breach is not cured within ten days of written notice of such breach from Piezo (to the extent such breach is curable) or (iii) as otherwise set forth in the Merger Agreement; provided that Piezo may not exercise the right in this clause if it is then in breach of any provision of the Merger Agreement.

 

In the event of termination of the Merger Agreement as set forth above, it shall become void and there shall be no liability on the part of any party to the Merger Agreement to any other party, after the date of such termination, provided that such party is a Non-Defaulting Party (as defined below). The foregoing shall not relieve any party to the Merger Agreement from liability for damages actually incurred as a result of such party’s breach of any term or provision of the Merger Agreement.

 

In the event that any party to the Merger Agreement shall fail or refuse to consummate the Contemplated Transactions or if any default under or breach of any representation, warranty, covenant or condition of the Merger Agreement on the part of any party (the “Defaulting Party”) shall have occurred that results in the failure to consummate the Contemplated Transactions, then in addition to the other remedies provided in the Merger Agreement, the non-defaulting party shall be entitled to seek and obtain money damages from the Defaulting Party, or may seek to obtain an order of specific performance thereof against the Defaulting Party from a court of competent jurisdiction, provided that the non-Defaulting Party seeking such protection must file its request with such court within forty-five days after it becomes aware of the Defaulting Party’s failure, refusal, default or breach. In addition, the non-Defaulting Party shall be entitled to obtain from the Defaulting Party court costs and reasonable attorneys’ fees incurred in connection with or in pursuit of enforcing the rights and remedies provided hereunder.

 

Fees and Expenses

 

The Merger Agreement provides that the costs and expenses of the Company and Piezo (including legal fees and expenses of the Company and Piezo) incurred in connection with the Merger Agreement and the other transactions documents and the transactions contemplated thereby shall be paid by the party incurring such costs and expenses; provided, that in the event that the Merger and Private Placement Offering are consummated, such costs and expenses shall be payable at Closing from the proceeds of the Private Placement Offering.

 

Governing Law

 

The Merger Agreement is governed by the laws of the State of New York.

 

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AGREEMENTS RELATED TO THE MERGER

 

Company Private Placement

 

Pursuant to the Merger Agreement, the Company is obligated to have a first closing of its Private Placement Offering of at least $5.0 million in units, including any interim bridge financing raised by either Company or Piezo that is convertible into the Private Placement Offering, consisting of a 10% convertible promissory note which matures eighteen months after the initial closing (the “Notes”) and common stock purchase warrants upon the terms and subject to the conditions of a separate securities purchase agreement.

 

As of the date of this Information Statement, the Company has not sold any securities in the Private Placement Offering. However, as of the date of this Information Statement, Piezo has raised an aggregate of $1,500,000 in a bridge financing that will be converted into the Private Placement Offering simultaneously with the closing of the Merger.

 

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MANAGEMENT FOLLOWING THE MERGER

 

Executive Officers and Directors

 

Termination of Current Executive Officers of the Company

 

Effective immediately upon the Effective Time of the Merger, pursuant to the terms of the Merger Agreement, Boris Goldstein will be required to resign from his positions as Chairman of the Board, Secretary and Executive Vice President of the Company and Mark Corrao will be required to resign as Chief Financial Officer of the Company. Effective immediately upon the Effective Time of the Merger, pursuant to the terms of the Merger Agreement, Hassan Kotob (currently the CEO of Piezo) shall be appointed to serve as CEO of the Company, Bonnie-Jeanne Gerety (currently the CFO of Piezo) shall be appointed to serve as CFO of the Company, and Dr. Goldstein shall be appointed to serve as a consultant of the Company or MemoryMD in the role of Chief Scientific Officer for a one year term and shall have an annual compensation of $250,000.

 

Executive Officers and Directors of the Combined Company Following the Merger

 

The following table lists the names and ages as of August 2, 2021 and positions of the individuals who are expected to serve as executive officers and directors of the combined company upon completion of the Merger:

 

Name  Age  Position(s)
Executive Officers      
       
Hassan Kotob  58  Chief Executive Officer and Director
Bonnie-Jeanne Gerety  59  Chief Financial Officer
Boris Goldstein  57  Director and Chief Scientific Officer
       
Non-Employee Directors      
       
Nickolay Kukekov  47  Director

 

Executive Officers

 

Hassan Kotob, Chairman and CEO, combines over 35 years of experience in software and manufacturing senior management. He had been involved in four companies in the computer hardware, medical records, publishing, and software industries holding positions including Executive Chairman, President, and CEO, and board member. From 2020 Hassan Kotob was the Chairman and CEO for Piezo Motion Corp., a precision motion company. From 2016 to 2018, he was Chairman and CEO and from 2011 to 2016 he was Executive Chairman and from 1997 to 2011 he was President and CEO for North Plains Systems Corp, Inc., a company involved in enterprise marketing software. From 1996 to 1997, he was President of CText, Inc., a software company that focused on publishers. From 1991 to 1997, he was President and CEO of Medasys Inc. a hardware and software company focused on electronic capture and transfer of radiology images. Mr. Kotob is also currently a director of Piezo Motion Corp. He has an undergraduate degree and an MBA from Eastern Michigan University.

 

Bonnie-Jeanne Gerety, Chief Financial Officer, brings over 35 years of financial and consulting experience within the technology industry. She joined Piezo Motion in early 2020 as the Chief Financial Officer. Prior to that, she was the Chief Financial Officer of North Plains, LLC from 2014 through 2019. Her previous experience was as a Managing Director at Protivti, responsible for the Atlanta and Raleigh offices from 2004 to 2014. Prior to Protiviti, she was a Managing Director at BearingPoint from 2002 to 2004 and a Partner in the consulting division of Arthur Andersen, LLP specializing in technology, media and communications industries from 1986 to 2002. Her undergraduate degree is from Georgetown University, School of Foreign Service and MBA from University of South Florida. She is a CPA in the state of Georgia.

 

Boris (Baruch) Goldstein, Director and Chief Scientific Officer of MemoryMD. Dr. Goldstein is the founder and has been Chairman of the Board of MemoryMD since its inception in 2015 and has been the executive Chairman of the Board of the Company since September 2018 and Executive Vice President since January 2019. Simultaneously with the closing of the Merger, Dr. Goldstein shall resign from his positions with the Company and shall be appointed to serve as a consultant of the Company or MemoryMD in the role of Chief Scientific Officer. Dr. Goldstein is a serial entrepreneur, having founded or co-founded over 20 private companies over the past 30 years. Dr. Goldstein is the founder in November 2016 and the president of High Technology Capital Fund and High Technology Capital Management LLC, and is a partner in High Accelerator, which helps build and support next generation technologies. Dr. Goldstein received his B.A., MBA and Ph.D. in Applied Mathematics from Latvian Technical University. The Company believes that Dr. Goldstein is qualified to serve as a director of the Company due to his extensive experience as a founder and operator of numerous start-up and other companies, and due his role as a founder of MemoryMD.

 

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Non-Employee Directors

 

Nickolay V. Kukekov, Director. Dr. Kukekov has been a member of MemoryMD’s Board of Directors since September 2017, and a member of the Board of the Company since September 2018. Dr. Kukekov currently serves as president and CEO of Kalgene Pharmaceuticals, which is developing an anti-amyloid therapy to slow the progression of Alzheimer’s disease, and prior to that was the managing director of HRA Capital (formerly Highline Research Advisors), a division of Corinthian Partners L.L.C. Prior to forming Highline Research Advisors in 2012, Dr. Kukekov was the Managing Director of Healthcare Investment Banking at Summer Street Research from October 2010 to August 2012. In September 2009, Dr. Kukekov was a co-founder of the Healthcare Investment Banking group at Gilford Securities. From December 2007 to July 2009, Dr. Kukekov served as the managing director of Paramount BioCapital, where he ran the advisory, M&A and capital raising services for in-house private and public portfolio companies. Dr. Kukekov holds a Bachelor of Science degree in Molecular, Cellular and Developmental Biology from the University of Colorado at Boulder and a Ph.D. in Neuroscience from Columbia University, College of Physicians and Surgeons in New York. The Company believes that Dr. Kukekov is qualified to serve as a member of the Board of Directors due to his extensive experience in healthcare and medical device investment banking.

 

Board of Directors of the Combined Company Following the Merger

 

The combined company’s board of directors is expected to initially consist of at least three members with two vacancies, consisting of Boris Goldstein, Nickolay Kukekov, each of whom currently serve as directors of the Company, and Hassan Kotob.

 

There are no family relationships among any of the current Piezo directors and executive officers, and there are no family relationships among any of the proposed combined company directors and officers. There are no arrangements or understandings with another person under which the directors and executive officers of the combined company was or is to be selected as a director or executive officer. Additionally, no director or executive officer of the combined company is involved in legal proceedings which require disclosure under Item 401 of Regulation S-K.

 

Director Independence

 

The Company uses the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship, which, in the opinion of the Company’s Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:

 

The director is, or at any time during the past three years was, an employee of the company;

 

The director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service);

 

A family member of the director is, or at any time during the past three years was, an executive officer of the company;

 

The director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions);

 

The director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the company served on the compensation committee of such other entity; or

 

The director or a family member of the director is a current partner of the company’s outside auditor, or at any time during the past three years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit.

 

Under such definitions, none of our proposed directors upon completion of the Merger can be considered an independent director.

 

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BRAIN SCIENTIFIC BUSINESS

 

The Company is a neurology-focused medical device and software company seeking to provide a centralized platform for data acquisition and analysis of electroencephalography (“EEG”) data that combines innovative medical device technologies with cloud-based telehealth services. The Company in this stage is primarily focused on selling easy-to-use, affordable EEG devices to improve neurological care. The next step is expected to be to establish diagnostic protocols through the use of its Products to identify pathological risk factors involving the brain, and driving novel insights into cognitive health that support early treatment of neurological disorders.

 

We believe our approach is unique in utilizing medical, consumer and hybrid technologies to create the value chain to ultimate health:

 

linking analysis to business/health outcomes through benefits mapping;

 

investing in advanced analytics, starting with the assumption that advanced information will result in predictive analytics for the integral body;

 

validating the organization’s maturity against multiple complementary models;

 

ensuring there is sufficient trust in the data and analysis to change pre-existing beliefs; and

 

balancing analytic insight with the ability of an organization to make and optimally utilize the information (coupling man + machine learning) while prioritizing incremental improvements over integral body transformation. 

 

The Company is initially targeting brain data acquisition via the EEG medical market because it offers high revenue potential due to the established healthy base of customer users with a broad demographic profile. Our technology solution combines a miniature, wireless, clinical device capable of recording electroencephalograms (EEG) that is fast, portable, and easy-to-use with the capability to integrate an interpretive cloud-based platform allowing for rapid and remote interpretation. The NeuroEEG™ Hardware Platform for data collection and NeuroCap™ Software-like Consumables for data collection is expected to enjoy healthy margins and a business-to-business (B2B) direct market opportunity with hospitals, neurologist, general practitioners as well as the various tele health and tele neurology companies.

 

This brain monitoring system is designed for use in physicians’ offices, sports fields, wellness centers and anywhere else that benefits from rapid EEG testing.

 

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BRAIN SCIENTIFIC’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of financial condition and results of operations of Brain Scientific Inc. should be read together with our financial statements and the related notes included elsewhere in this Information Statement or incorporated by reference herein. Some of the information contained in this discussion and analysis or set forth elsewhere in this Information Statement, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this Information Statement for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

 

Forward Looking Statements

 

The following discussion should be read in conjunction with our financial statements and related notes included elsewhere in this Information Statement. Certain information contained in this MD&A includes “forward-looking statements.” Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition and results of operations, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our existing and proposed business, including many assumptions regarding future events. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors, including those risks described in detail in the section entitled “Risk Factors” of this Information Statement.

 

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “will,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology.

 

In light of these risks and uncertainties, and especially given the nature of our existing and proposed business, there can be no assurance that the forward-looking statements contained in this section and elsewhere in this Information Statement will in fact occur. Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

 

Overview

 

We are a neurodiagnostic and predictive technology platform company seeking to provide a centralized platform for data acquisition and analysis of EEG data that combines innovative medical device technologies with cloud-based telehealth services. Both our NeuroCap, a pre-gelled disposable EEG headset, and NeuroEEG, a 16 channel, portable, cloud-enabled data acquisition platform for EEG activity, received FDA clearance to market in 2018.

 

The Company is not currently offering any data analysis services. The Company is primarily focused on establishing diagnostic protocols to identify pathological risk factors involving the brain, and driving novel insights into cognitive health that support early treatment of neurological disorders.

 

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In 2019, we commenced acting as a distributor of third-party medical devices in Russia (including those purchased from a company affiliated with one of our officers and directors), which resulted in primarily all of our revenue for 2019. Sales in Russia is also the majority of all revenue in 2020 (except for $7,498 that was from sales from the U.S. operating subsidiary). While we intend to continue the sale of third party medical devices, we do not intend for it to be our primary source of revenue in the long-term and expect to curtail or cease this line of operations as, if and when we commence generating material, recurring revenues from our products, of which we can give no assurance. We also can give no assurance that any revenue we generate from so acting as a distributor of third-party medical devices will continue, will continue to be material or will be sufficient to enable us to continue our operations. We have no supply or distribution agreements in place with respect to such business. In the event that we see an opportunity to sell such products, we procure them and then re-sell them.

 

We have very limited resources. To date, our primary activities have been limited to, and our limited resources have been dedicated to, performing business and financial planning, raising capital, recruiting personnel, negotiating with business partners and the licensors of our intellectual property and conducting development activities, although we have acted as a distributor of third-party medical devices in Russia (including those purchased from a company affiliated with one of our officers and directors) which has generated revenue for us. Our first products, the NeuroCap and NeuroEEG, are ready for commercialization and sale and we have commenced some non-recurring, initial sales. Our other products are still being tested or are still under development.

 

We have incurred losses since inception and had an accumulated deficit of $7,956,862 as of December 31, 2020, primarily as a result of expenses incurred in connection with our research and development programs and from general and administrative expenses associated with our operations. We expect to continue to incur significant expenses and increasing operating and net losses for the foreseeable future.

 

Historically, our primary source of cash has been proceeds from the sale of convertible promissory notes. For the fiscal years ended December 31, 2020 and 2019, we issued convertible promissory notes for aggregate gross proceeds of $897,700 and $630,000, respectively, to fund our operations. In addition, during the fiscal years ended December 31, 2020 and December 31, 2019, we borrowed an aggregate of $0 and $273,084, respectively, from related parties.

 

We need to obtain substantial additional funding in connection with our continuing operations through public or private equity or debt financings or other sources, which may include collaborations with third parties. However, we may be unable to raise additional funds when needed on favorable terms or at all. Our failure to raise such capital as and when needed would have a negative impact on our financial condition and our ability to develop and commercialize our products and future products and our ability to pursue our business strategy. See “–Liquidity and Capital Resources” below.

 

Financial Overview

 

Revenue

 

To date, we have generated approximately $1,100,000 of revenue, of which approximately $544,000 was generated in 2020 primarily through our acting as a distributor of third-party medical devices in Russia (including those purchased from a company affiliated with one of our officers and directors) while we continue to commercialize our Products. While we intend to continue generating revenues through the sale of third party medical devices, we do not intend for it to be our primary source of revenue in the long-term. We do not expect to generate recurring, material revenue from our Products unless or until we successfully commercialize our Products. If we fail to successfully commercialize our developed Products or fail to complete the development of any other product candidate we may pursue in the future, in a timely manner, or fail to obtain regulatory approval, we may not be able to solely rely on generating substantial and material revenue from the distribution of third-party medical devices.

 

General and Administrative

 

General and administrative expenses consist primarily of personnel-related costs for personnel in functions not directly associated with research and development activities. Other significant costs include legal fees relating to corporate matters, intellectual property costs, professional fees for consultants assisting with regulatory, clinical, product development and financial matters, and product costs. We anticipate that our general and administrative expenses will significantly increase in the future to support our continued research and development activities, commercialization of our Products, if approved, and the increased costs of operating as a public company. These increases will include increased costs related to the hiring of additional personnel and fees for legal and professional services, as well as other public company related costs.

 

Research and Development

 

Research and development expenses consist of expenses incurred in performing research and development activities in developing our Products. Research and development expenses include compensation and benefits for research and development employees, overhead expenses, cost of laboratory supplies, clinical trial and related clinical manufacturing expenses, costs related to regulatory operations, fees paid to consultants, and other outside expenses. Research and development costs are expensed as incurred and costs incurred by third parties are expensed as the contracted work is performed.

 

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We expect our research and development expenses to significantly increase over the next several years as we develop our Products and conduct preclinical testing and clinical trials and will depend on the duration, costs and timing to complete our preclinical programs and clinical trials.

 

Interest Expense

 

Interest expense primarily consists of amortized note issuance costs and interest costs related to the convertible notes we issued in 2020 and 2019. The convertible notes bear interest at fixed rate ranging from 8%-12% per annum.

  

Results of Operations

 

Comparison of the Years Ended December 31, 2020 and 2019

 

The following table sets forth the results of operations of the Company for the years Ended December 31, 2020 and December 31, 2019.

 

   Years Ended December 31,   Period to
Period
 
   2020   2019   Change 
Revenues  $544,275   $489,202   $55,073 
Cost of goods sold   409,302    387,194    22,108 
Research and development   275,926    103,616    172,310 
Professional fees   478,461    255,332    223,129 
Sales and marketing   244,774    95,165    149,609 
General and administrative   930,138    532,312    397,826 
Interest expense   (3,526,325)   (32,922)   (3,493,403)
Loss on debt extinguishment   (294,301)   -    (294,301)
Gain on change in fair value of derivatives   1,360,754    -    1,360,754 
Other income   8,260    2,108    6,152 

 

Revenues

 

Revenue for the fiscal year ended December 31, 2020 was $544,275 compared to $489,202 for the fiscal year ended December 31, 2019. In the fiscal years ended December 31, 2020 and 2019, we generated primarily all of our revenue through acting as a distributor of third-party medical devices in Russia (including those purchased from a company affiliated with one of our offices and directors), and we did not have any sales of our Products. The increase in revenues in the current year resulted from increased sales of third-party medical devices in Russia.

 

Cost of goods sold

 

Cost of goods sold were $409,302 for the fiscal year ended December 31, 2020, compared to $387,194 for the fiscal year ended December 31, 2019. The increase was primarily due to an increase in sales of third-party medical devices in Russia.

 

Research and development expenses

 

Research and development expenses were $275,926 for the fiscal year ended December 31, 2020, compared to $103,616 for the fiscal year ended December 31, 2019. The increase was primarily due to an increase in product development activities.

 

Professional fees

 

Professional fees were $478,461 for the fiscal year ended December 31, 2020, compared to $255,332 for the fiscal year ended December 31, 2019. In the fiscal year ended December 31, 2020, professional fees were primarily related to approximately $238,000 in legal expenses and approximately $178,000 in accounting expenses. In the fiscal year ended December 31, 2019, professional fees were primarily related to approximately $96,000 in legal expenses and approximately $108,000 in accounting expenses. The increase in professional fees in the current year was due primarily to increased fund-raising activities and agreements.

 

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Sales and marketing expenses

 

Sales and marketing expenses were $244,774 for the fiscal year ended December 31, 2020, compared to $95,165 for the fiscal year ended December 31, 2019. The increase was primarily due to a focus on increasing sales of the Company’s products, and the Company expects that marketing expenses will continue to increase through 2021.

 

General and administrative expenses

 

General and administrative expenses were $930,138 for the fiscal year ended December 31, 2020, compared to $532,312 for the fiscal year ended December 31, 2019. In the fiscal year ended December 31, 2020, general and administrative expenses were primarily related to approximately $379,000 in payroll related expenses, approximately $76,000 of stock-based compensation, approximately $66,000 in travel costs, approximately $192,000 in consulting fees and approximately $54,000 in insurance expense. In the fiscal year ended December 31, 2019, general and administrative expenses were primarily related to approximately $274,000 in payroll related expenses, approximately $13,000 of stock-based compensation, approximately $48,000 in travel costs, approximately $45,000 in consulting fees and approximately $66,000 in insurance expense. The increase in spending in the fiscal year ended December 31, 2020 was primarily attributable to an increase in payroll related expenses and consulting costs.

 

Interest expense

 

Interest expense, for the fiscal year ended December 31, 2020 was $3,526,325, the majority of which related to the Company’s convertible and non-convertible promissory notes. Interest expense, for the fiscal year ended December 31, 2019 was $32,922, the majority of which related to the Company’s convertible promissory notes. The increase was due to the issuance of several convertible and non-convertible notes during the year ended December 31, 2020 and debt issuance costs related to those notes.

 

Other income

 

Other income for the fiscal year ended December 31, 2020 was $8,260 compared to $2,108 in the fiscal year ended December 31, 2019. Other income in the fiscal year ended December 31, 2020 related primarily to a grant received from the Small Business Association. The company recorded $2,108 in other income related to the write of off a payable in the year ended December 31, 2019.

 

Liquidity and Capital Resources

 

While we have generated revenue in 2020, we anticipate that we will continue to incur losses for the foreseeable future. Furthermore, substantially all of such revenue was generated through acting as a distributor of third-party medical devices in Russia, and we did not have any sales of our Products. We anticipate that our expenses will increase substantially as we develop our Products and pursue pre-clinical testing and clinical trials, seek any further regulatory approvals, contract to manufacture any products, establish our own sales, marketing and distribution infrastructure to commercialize our Products, hire additional staff, add operational, financial and management systems and operate as a public company.

 

Historically, our primary source of cash has been proceeds from the sale of convertible promissory notes and related party loans.

 

During the fiscal year ended December 31, 2020 we issued $1,072,180 of convertible promissory notes including $64,680 of amendments to a previous note and an additional $320,000 of non-convertible promissory notes. Net cash proceeds from those notes totaled $1,182,700. Several of the aforementioned notes were issued with attached warrants.

 

We have also from time to time issued shares of our common stock to individuals and entities as payment for services rendered to us in lieu of cash.

 

We have no current source of revenue to sustain our present activities other than as acting as a distributor of medical devices in Russia (including those purchased from a company affiliated with one of our offices and directors), which is not our primary business goal, and we do not expect to generate material revenue, from our Products until, and unless, the FDA or other regulatory authorities approve our Products under development and we successfully commercialize our Products. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through our distributorship revenue, a combination of equity (preferred stock or common stock) and debt financings as well as collaborations, strategic alliances and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third-party partners, we may have to relinquish valuable rights to our technologies, future revenue streams or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or through collaborations, strategic alliances or licensing arrangements when needed, we may be required to delay, limit, reduce or terminate our Product development, future commercialization efforts, or grant rights to develop and market our cortical strip, grid electrode and depth electrode technology that we would otherwise prefer to develop and market ourselves.

 

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Our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the years ended December 31, 2020 and 2019, noting the existence of substantial doubt about our ability to continue as a going concern. This uncertainty arose from management’s review of our results of operations and financial condition and its conclusion that, based on our operating plans, we did not have sufficient existing working capital to sustain operations for a period of twelve months from the date of the issuance of these financial statements.

 

We believe our existing cash and cash equivalents, without raising additional funds or generating revenues, will be sufficient to fund our operating expenses only to approximately May 2021.

 

During 2019, we raised $630,000 from issuances of convertible promissory notes. During 2020 we raised a total of $1,182,700 from issuances of convertible and non-convertible promissory notes. We recently launched a Regulation A+ offering pursuant to which the Company is offering up to a maximum of 1,111,111 units, with each unit consisting of five shares of common stock, par value $0.001, and a warrant to purchase one share of common stock, par value $0.001, at an offering price of $9.00 per unit or $1.80 per share of common stock, for a maximum aggregate offering of $10,000,000, the success of which cannot by assured by the Company. We may obtain additional financing in the future through the issuance of our common stock, through other equity or debt financings or through collaborations or partnerships with other companies. We may not be able to raise additional capital on terms acceptable to us, or at all, and any failure to raise capital as and when needed could compromise our ability to execute on our business plan.

 

The development of our Products is subject to numerous uncertainties, and we have based these estimates on assumptions that may prove to be substantially different than we currently anticipate and could use our cash resources sooner than we expect. Additionally, the process of developing medical devices is costly, and the timing of progress in pre-clinical tests and clinical trials is uncertain. Our ability to successfully transition to profitability will be dependent upon achieving a level of Product sales adequate to support our cost structure. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.

 

Net cash used in operating activities

 

Net cash used in operating activities was $1,173,409 for the year ended December 31, 2020 compared to $854,726 for the year ended December 31, 2019. This fluctuation is primarily due to an increase in net loss of $3,280,920, an increase in change in fair value of derivatives of $1,360,754 in fiscal 2020 partially offset by increases in amortization of debt discount and non-cash interest expense of $3,312,733 and accounts payable and accounts payable related party of approximately $556,863 in the year ended December 31, 2020.

 

Net cash used in investing activities

 

There was no cash used in investing activities for the year ended December 31, 2020.

 

Net cash used in investing activities was $1,005 for the year ended December 31, 2019 and consisted of the purchase of property and equipment.

 

Net cash provided by financing activities

 

Net cash provided by financing activities was $1,189,367 for the year ended December 31, 2020, which consisted of the sale of the Company’s convertible promissory notes for aggregate gross proceeds of $897,700 proceeds from non-convertible notes in the amount of $285,000, and the proceeds of $6,667 from a Small Business Association loan.

 

Net cash provided by financing activities was $953,238 for the year ended December 31, 2019, which primarily consisted of the sale of the Company’s convertible promissory notes for aggregate gross proceeds of $630,000 and proceeds from related party loans in the amount of $273,084.

 

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Critical Accounting Policies and Significant Judgments and Estimates

 

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of revenue and expenses during the reporting periods. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances at the time such estimates are made. Actual results may differ materially from our estimates and judgments under different assumptions or conditions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in our financial statements prospectively from the date of the change in estimate.

 

While our significant accounting policies are more fully described in the notes to our financial statements appearing elsewhere in this Report, we believe the following are the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments.

 

Use of Estimates: The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying consolidated financial statements include the estimates of useful lives for depreciation and assumptions used in the valuation of options and warrants.

 

Fair Value of Financial Instruments: Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

 

Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

 

Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

 

Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. 

 

Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and borrowings. The fair value of current financial assets and current financial liabilities approximates their carrying value because of the short-term maturity of these financial instruments.

 

Income Taxes. The Company accounts for income taxes under the asset and liability method, as required by the accounting standard for income taxes, ASC 740. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

Stock Based Compensation. The Company accounts for the grant of restricted stock awards in accordance with ASC 718, “Compensation-Stock Compensation.” ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of equity based compensation. The expense is recognized over the period during which the employee is required to provide service in exchange for the compensation. Any remaining unrecognized balance will be recognized ratably over the life of the vesting period and is a reduction of stockholders’ equity.

 

The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 505-50 “Equity-Based Payments to Non-Employees.”

 

Recent Accounting Pronouncements

 

In August 2018, the FASB issued ASU No. 2018-13, “Changes to Disclosure Requirements for Fair Value Measurements,” which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements and is effective for the Company beginning on January 1, 2020. This standard did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

 

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PIEZO BUSINESS

 

Piezo Motion Corp is a manufacturer of proprietary piezoelectric motors, electronic drivers and software motion control solutions. Piezo’s motors are of the standing wave-type of ultrasonic motors in which motion within the motor is created by making tiny changes to the shape of an internal piezoceramic material by applying a variable electrical excitation. Its differentiated and patented principle of excitation uses two orthogonal modes of vibration with relative phase difference, the resultant motion of the motor is a superposition of the two modes of vibration causing the piezoceramic to oscillate in a way which can be harnessed to create precise smooth continuous rotary and linear motion. This technique greatly simplifies drive circuit design and only requires very small voltages, thereby reducing electronic drive complexity and cost. Piezo’s innovative technique combined with rigorous design philosophy which utilizes a combination of piezoceramics and modern engineered thermoplastics has enabled the company to produce motion products at a competitive cost. This has enabled Piezo to provide precision motor industry with unique and innovative motion solutions that it believes fills a void currently in the market of precision, performance, price and reliability. Piezo has developed twelve motor platforms and an ultra-precise micro dosing pump, that leverages its core piezo-technology, that are all commercially available. The company is also currently developing additional motion products around its patented intellectual property.

 

Piezo believes its piezoelectric motors are unique because they combine the key performance benefits of a classical piezo motor, but at a price point of traditional precision DC motors. Unlike the classic direct current (DC) or stepper motors, the versatile piezo rotary and linear motion motors contain very few parts enabling economical manufacturing volume yielding a stable and reliable final result. Piezo technology is inherently non-magnetic which enables motor designs for specialized applications where traditional DC motors cannot be used. Piezo motors are also immune from electromagnetic (EM) and radio frequency (RF) interference and generate no emissions which can aid original equipment manufacturer (OEM) product compliance and reduce or eliminate shielding costs.

 

Piezo believes its piezo motor technology is much more precise than traditional DC solutions. Piezo’s rotary motor makes over 600,000 steps to complete a full revolution, and this drives a smoother and more precise motion. Piezo manufacture compact motors with our smallest being the length and width of a human thumbnail.

 

Piezo Motion targets industries such as:

 

Medical Technology (MedTech);

 

Pharmaceuticals;

 

Aerospace (including drones);

 

Industrial Automation;

 

Autonomous Vehicles; and

 

Laser and Photonics.

 

Piezo Motion 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. The company is committed to the development of innovative piezoelectric polymer actuators and control electronics that enhance their functionality in a multitude of applications. Piezo works with startups, OEMs, research institutions, and industrial companies from around the world to provide motion control solutions that enhance their products and applications.

 

History

 

Piezo Motion Corp. (formerly DTI Motion Corp) is a Delaware corporation that was formed on January 27, 2020 to raise capital and negotiate the acquisition of Discovery Technology International, Inc., Discovery Technology International, Inc., which was a small privately owned company based in Sarasota, Florida, and specialized in the design and manufacturer of innovative, standing wave-type piezoelectric technology for rotary and linear motion products. These products which include rotary and linear motors and actuators were based on a core proprietary and patented standing wave-type technology. The key scientific and engineering elements of the motors came from years of experience in research and development in how to control piezoceramic materials, preserve energy transfer and mitigate energy loss in piezo motors.

 

Unlike the classic direct current (DC) or stepper motors which rely on electromagnetism for motion, piezoelectric motors use the piezoelectric effect to create motion. The piezoelectric rotary and linear motion motors contain very few parts enabling economical manufacturing. Piezoelectric motors are also immune from electromagnetic (EM) and radio frequency (RF) interference and generate no emissions which can aid original equipment manufacturer (OEM) product compliance and reduce or eliminate shielding costs.

 

Piezo’s acquisition of Discovery Technology International, Inc. took place on May 20, 2020, and included a subsidiary company “Lileya LLC” located in Kiev (Ukraine) where Piezo undertakes its research and development activities.

 

With the acquisition, Piezo released a full product line of precision energy-efficient piezo motors that now makes the technology affordable for a wide range of motion control applications across an expanding number of industries. Its motion control solutions find applications around the world in laboratory instruments, biomedicine, optics, semiconductor, and nanotechnology industries as well as industrial electronic and automotive systems.

 

Piezo’s principal executive office is located at 6700 Professional Parkway, Sarasota, Florida 34240, and its telephone number is (941) 907-4444. Its website address is www.piezomotion.com. Information contained on its website is not a part of this filing and the inclusion of its website address in this filing is an inactive textual reference only.

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Piezo MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information necessary to understand Piezo’s audited consolidated financial statements for the period ended December 31, 2020 and its unaudited consolidated financial statements for the period ended March 31, 2021 and highlight certain other information which, in the opinion of its management, will enhance a reader’s understanding of Piezo’s financial condition, changes in financial condition and results of operations. In particular, the discussion is intended to provide an analysis of significant trends and material changes in its financial position and the operating results of its business during the fiscal year ended December 31, 2020 as compared to the fiscal year ended December 31, 2019 as well as for the fiscal quarter ended March 31, 2021 in comparison to March 31, 2020. This discussion should be read in conjunction with Piezo’s consolidated financial statements for the two-year period ended December 31, 2020 and for the quarter ended March 31, 2021 and related notes included elsewhere in this Information Statement. These historical financial statements may not be indicative of Piezo’s future performance. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains numerous forward-looking statements all of which are based on Piezo’s current expectations and could be affected by the uncertainties and risks described throughout this filing, particularly in “Risk Factors” above.

 

Overview

 

Piezo is the manufacturer of piezo motor technology focused on the research and development of affordable piezoelectric motors. The Company also manufactures and distributes ultra-precise fluid control products based on their proprietary motors. The key scientific and engineering elements of Piezo motors come from years of research in how to control piezo materials, preserve energy transfer and mitigate energy loss in piezo motors. The Company holds numerous patents covering the design and electronic control of its motors. 

 

Piezo motors find applications around the world in laboratory instruments, biomedicine, optics, semiconductor, and nanotechnology industries as well as industrial electronic and automotive systems with an expanding portfolio of products that combine performance with cost effectiveness.

 

On April 8, 2020, Piezo Motion Corp. f/k/a DTI Motion Corp. along with Discovery Technology International, Inc. (a Delaware Corporation, “DTI”) and DTIM, Inc. a newly formed, wholly-owned subsidiary of Piezo (the “Merger-Sub” (“DTIM”)) entered into a merger agreement effective May 20, 2020. As a part of the agreement, the Merger-Sub merged into DTI with DTI surviving as a wholly-owned subsidiary of DTIM and all outstanding shares of DTI’s common stock (“DTI Common Stock”), Series A Preferred Stock (“DTI Series A Preferred Stock”) Series B Preferred Stock (“DTI Series B Preferred Stock”) and Series C Preferred Stock (“DTI Series C Preferred Stock” and, together with the DTI Common Stock, collectively, the “DTI Capital Stock”), automatically converted into shares of Piezo (“Piezo Motion Common Stock”).

 

Financing Transactions

 

Between March 20, 2020 and April 8, 2020, Piezo Motion raised $305,000 through issuance of 790,607 shares of common stock.

 

A convertible private placement offering was made starting in July, 2020. The notes are convertible into shares of Piezo at 120% of the valuation provided at any equity offering of $1,000,000 or greater. The maturity date on the notes is August 12, 2021. In July and August, 2020, Piezo raised $650,000 in these notes.

 

Between January and March 2021, an additional $1,319,982 was raised, and in June 2021, an additional $1,500,000 was raised. All investors are “accredited investors” and all are shareholders or are affiliated with shareholders of Piezo.

 

All of the convertible debt holders have agreed to exchange their current Piezo convertible debt for the BRSF private placement at the closing of the merger.

 

Going Concern

 

Piezo has experienced negative cash flows from operations since its inception. As of December 31, 2020, it did not have adequate working capital resources to satisfy its current liabilities and as a result Piezo has substantial doubt about its ability to continue as a going concern. Based on Piezo’s current projections, including equity financing subsequent to December 31, 2020, Piezo believes it will have the cash resources that will enable it to continue to fund normal operations into the foreseeable future. 

 

The audit report issued by Piezo’s independent registered public accounting firm on its audited consolidated financial statements for the fiscal year ended December 31, 2020 contains an explanatory paragraph regarding its ability to continue as a going concern. The audit report issued by Piezo’s independent registered public accounting firm for its financial statements for the fiscal year ended December 31, 2020 states that Piezo’s auditing firm has substantial doubt in Piezo’s ability to continue as a going concern due to the risk that it may not have sufficient cash and liquid assets to cover its operating and capital requirements for the next twelve-month period; and, if sufficient cash cannot be obtained, Piezo would have to substantially alter, or possibly even discontinue, operations. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The conditions described above could adversely affect Piezo’s ability to obtain additional financing on favorable terms, if at all, and may cause investors to have reservations about Piezo’s long-term prospects, and may adversely affect its relationships with customers. There can be no assurance that Piezo’s auditing firm will not issue the same opinion in the future. If Piezo cannot successfully continue as a going concern, its stockholders may lose their entire investment in the company.

 

Revenues

 

Revenues for the three months ended March 31, 2021 were $1,475 as compared with $18,481 for the comparable prior year period, a change of ($17,006) or (92%). The lack of revenue is due to Piezo focusing on the final validation and commercialization of its Blue Series of products.

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Comparison of the Year Ended December 31, 2020 and the Year Ended December 31, 2019

 

DTI Motion Corp. and Subsidiary
Consolidated Statements of Operations

 

   For the years ended
December 31,
   2020  % Change
YOY
  2019
          
          
Revenue  $93,664    994%  $8,558 
                
Cost of sales   43,762    304%   10,827 
                
Gross profit   49,902    -2299%   (2,269)
                
General and administrative corporate expenses:               
Personnel expenses   1,027,259    83%   562,383 
General and administrative expenses   1,208,538    129%   528,357 
Stock-based compensation   355,534    -31%   518,663 
Research and development   210,706    -7%   226,846 
Depreciation expense   17,353    3%   16,860 
Total general and administrative corporate expenses   2,819,390    52%   1,853,109 
                
Loss from operations   (2,769,488)   49%   (1,855,378)
                
Other income (expense):               
Other income   0    -100%   1,231 
Loss on disposal of assets   (4,067)   

   0 
Interest expense   (29,474)   745%   (3,486)
Total other income (expense)   (33,541)   

1387

%   (2,255)
                
Net loss  $(2,803,029)   51%  $(1,857,633)
                
Basic and diluted earnings per share on net loss  $(0.31)   29%  $(0.24)
                
Weighted average shares outstanding - basic and diluted   9,018,629    17%   7,678,535 

 

49

 

 

Comparison of the Quarter Ended March 31, 2021 and March 31, 2020

 

Piezo Motion Corp. (f/n/a DTI Motion Corp.) and Subsidiary
Consolidated Statements of Operations

 

   For the three months ended March 31, 
   2021   2020 
Revenue  $1,475   $18,481 
Cost of sales   575    10,588 
Gross profit   900    7,893 
General and administrative corporate expenses:          
General and administrative expenses   349,335    190,085 
Personnel expenses   287,537    116,698 
Research and development   53,328    51,317 
Sales and marketing expenses   12,924    - 
Depreciation expense   5,333    1,221 
Total general and administrative corporate expenses   708,457    359,321 
Loss from operations   (707,557)   (351,428)
           
Other income (expense):          
Gain on forgiveness of paycheck protection loan   112,338    - 
Interest expense   (58,785)   (621)
Total other income (expense)   53,553    (621)
Net loss  $(654,004)  $(352,049)
Basic and diluted earnings per share on net loss  $(0.07)  $(0.05)
Weighted average shares outstanding - basic and diluted   10,058,259    7,678,535 

 

In the first quarter of 2021, the Company ramped up its marketing and sales. These efforts were focused on developing an e-commerce site and beginning the development of a distribution network. Initial sales of the standard product line of motors, (the “Blue Series”) were for evaluation kits for customers who sought out Piezo Motion in order to validate the potential for the product in their future production. Based upon our knowledge of the product development cycle for the end products in which the motors would be used, we believe it may be six to eighteen months prior to any significant purchase orders. The 2020 revenue included the paid engineering and licensing efforts associated with these projects. They are all long term in nature and may result in future product and engineering revenues.

 

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Operating Expenses

 

   For the years ended
December 31,
   2020     2019   
             
General and administrative corporate expenses:            
Personnel expenses   1,027,259    36%   562,383    30%
General and administrative expenses   1,208,538    43%   528,357    29%
Stock-based compensation   355,534    13%   518,663    28%
Research and development   210,706    7%   226,846    12%
Depreciation expense   17,353    1%   16,860    1%
Total general and administrative corporate expenses   2,819,390    100%   1,853,109    100%

 

   For the three months ended
March 31,
   2021  2020
       
General and administrative corporate expenses:      
General and administrative expenses  $349,335   $190,085 
Personnel expenses   287,537    116,698 
Research and development   53,328    51,317 
Sales and marketing expenses   12,924    - 
Depreciation expense   5,333    1,221 
Total general and administrative corporate expenses  $708,457   $359,321 

 

Operating expenses for the year ended December 31, 2020 were approximately $2.8 million, an increase of approximately $1.0 million from the comparable prior year/period. The increases can be attributed to the hiring of a new executive team, including the chief executive officer, the chief financial officer and the EVP of Revenue. The personnel costs associated with these three individuals accounted for the majority of the personnel costs increase. Overall general and administrative expenses increased due to legal and transactional costs associated with the merger and capital raises.

 

For the three months ended March 31, 2021, the general, administrative and selling costs increased due to moving offices in January, 2021 in order to have space for a production line, engineering and back-office personnel and to the develop our online presence and start the development of a marketing program and sales outreach.

 

Other Income and Expenses

 

With the issuance of convertible debt with an interest rate of 10% per annum, Piezo has incurred interest expense for the year ended December 31, 2020 of $29,474 and for the three months ended March 31, 2021 of $58,785.

 

DTI applied for and was granted a Paycheck Protection Program (“PPP”) loan under the terms of the CARES Act in the amount of $106,477 and an Economic Industry Disaster Loan (“EIDL”) of $5,000. The interest rate on the PPP loan was fixed at 1% with a term of 24 months. DTI applied for and was granted loan forgiveness. As a result, DTI recorded a gain on forgiveness of PPP loan in the amount of $112,338 in the first quarter of 2021.

 
   For the years ended
   December 31,
   2020     2019   
             
Other income (expense):            
Other income   -         1,231    -55%
Loss on disposal of assets   (4,067)   12%   -      
Interest expense   (29,474)   88%   (3,486)   155%
Total other income (expense)   (33,541)   100%   (2,255)   100%

 

   For the three months ended
   March 31,
   2021  2020
       
Other income (expense):      
Gain on forgiveness of Payroll Protection Loan   112,338    0 
Interest expense   (58,785)   (621)
Total other income (expense)   53,553    (621)

 

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Working Capital

 

   As of
March 31,
2021
  As of
December
31, 2020
       
Total current assets   778,652    133,389 
Total current liabilities   3,612,578    2,121,242 
Working capital deficit   (2,833,926)   (1,987,853)

 

The working capital deficit has increased significantly through 2020 and continued to increase for the first quarter of 2021. The primary reason for the increase is due to the convertible debt financing, which is all considered short term debt. The holders of these notes have all agreed to exchange their notes for the BRSF private placement offering. The significant increase in current liabilities from year end December 31, 2020 to March 31, 2021 was caused by accrued payroll costs.

 

At present, Piezo is still pre-revenue and is reliant on debt and equity financing for operations.

 

Liquidity and Capital Resources

 

Since March of 2020, Piezo has funded operations through the issuance of equity and convertible debt. As of August 2, 2021, it had cash on hand of approximately $840,000. It has approximately $10,600 in monthly lease and other mandatory payments, not including payroll, employee benefits and ordinary expenses which are due monthly.

 

   For the years ended
   December 31,
   2020  2019
       
Cash Flows from Operating Activities      
Net Loss  $(2,083,029)  $(1,857,633)
Net cash used by operating activities   (931,664)   (1,294,413)
Net cash used by investing activities   (30,371)   (10,269)
Net cash provided by financing activities   861,477    1,439,993 
Increase in cash and cash equivalents  $(100,558)  $135,311 

 

    For the three months ended
    March 31,
    2021   2020
         
Cash Flows from Operating Activities        
Net Loss   $ (654,004 )   $ (352,049 )
Net cash used by operating activities     (672,962 )     (269,230 )
Net cash used by investing activities     (20,122 )     0  
Net cash provided by financing activities     1,319,982       100,000  
Increase in cash and cash equivalents   $ 626,898     $ (169,230)  

 

On a long-term basis, Piezo’s liquidity is dependent on continuation and expansion of operations and receipt of revenues.

 

Demand for the products and services will be dependent on, among other things, market acceptance of our products and services, the technology market in general, and general economic conditions, which are cyclical in nature. Much of Piezo’s activities will be the receipt of revenues from the sales of its products, its business operations may be adversely affected by its competitors and prolonged recession periods.

 

Critical Accounting Policies and Estimates

 

Piezo’s significant accounting policies are summarized in Note 1 to its audited financial statements for the year ended December 31, 2020. Certain of its accounting policies require the application of significant judgment by management, and such judgments are reflected in the amounts reported in Piezo’s condensed consolidated financial statements. In applying these policies, management uses judgment to determine the appropriate assumptions to be used in the determination of estimates. Those estimates are based on Piezo’s historical experience, terms of existing contracts, observance of market trends, information provided by strategic partners and information available from other outside sources, as appropriate. Actual results may differ significantly from the estimates contained in Piezo’s condensed consolidated financial statements.

 

Piezo has identified the accounting policies below as critical to its business operations and the understanding of its results of operations.

 

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Basis of Presentation and Consolidation 

 

Piezo has one wholly-owned subsidiary: DTI. The consolidated financial statements, which include the accounts of Piezo and DTI, are prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). All significant intercompany balances and transactions have been eliminated. The consolidated financial statements, which include the accounts of Piezo and DTI, and related disclosures, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The Financial Statements have been prepared using the accrual basis of accounting in accordance with GAAP and presented in US dollars. The fiscal year end is December 31.

 

Use of Estimates

 

Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from these estimates and assumptions.

 

Cash and Cash Equivalents

 

Piezo considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Piezo maintains deposits primarily in one financial institution, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation (“FDIC”). Piezo has not experienced any losses related to amounts in excess of FDIC limits.

 

Fair Value of Financial Instruments

 

Piezo measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

 

The following are the hierarchical levels of inputs to measure fair value:

 

Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.

 

Level 2 – Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

Level 3 – Unobservable inputs reflecting Piezo’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market.

 

The carrying amounts of Piezo’s financial assets and liabilities, such as cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and interest, and certain notes payable, approximate their fair values because of the short maturity of these instruments. Piezo accounts for its equity instruments (such as warrants and stock-based compensation) at fair value.

 

Property, Plant and Equipment

 

Property, plant and equipment are carried at cost. Depreciation is provided on the straight-line method over the assets estimated service lives. Expenditures for maintenance and repairs are charged to expense in the period in which they are incurred, and betterments are capitalized. The cost of assets sold or abandoned and the related accumulated depreciation are eliminated from the accounts and any gains or losses are reflected in the accompanying statements of operations of the respective period. The estimated useful lives range from 3 to 7 years.

 

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Revenue Recognition

 

Piezo recognizes revenue in accordance with Accounting Standards Update (“ASU”) 2014-09, “Revenue from contracts with customers,” (Topic 606). Revenue is recognized when a customer obtains control of promised goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods. Piezo applies the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. Piezo’s main revenue stream is from product sales. The performance obligation associated with a typical product sale will be satisfied upon shipment to the customer, and the revenue will be recognized at that time.

 

Piezo only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of FASB ASC 606 at contract inception, Piezo reviews the contract to determine which performance obligations Piezo must deliver and which of these performance obligations are distinct. Piezo recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, Piezo’s performance obligations are transferred to customers at a point in time, typically upon delivery.

 

Income Taxes

 

Piezo follows Section 740-10-30 of the FASB ASC, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date. Through March 31, 2021, Piezo has an accumulated deficit. Due to uncertainty of realization for these losses, a full valuation allowance is expected. Accordingly, no provision has been made for federal income taxes in the accompanying financial statements.

 

Stock based compensation

 

Piezo records stock-based compensation in accordance with the provisions of FASB ASC Topic 718, “Accounting for Stock Compensation,” which establishes accounting standards for transactions in which an entity exchanges its equity instruments for goods or services. In accordance with guidance provided under ASC Topic 718, Piezo recognizes an expense for the fair value of its stock awards at the time of grant and the fair value of its outstanding stock options as they vest, whether held by employees or others. As of March 31, 2021 and December 31, 2020 there were 0 options outstanding, respectively.

 

Recently Adopted Accounting Pronouncements

 

On June 20, 2018, the FASB issued ASU 2018-07, Compensation—Stock “Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07” is intended to reduce cost and complexity and to improve financial reporting for share-based payments to nonemployees (for example, service providers, external legal counsel, suppliers, etc.). Under the new standard, companies will no longer be required to value non-employee awards differently from employee awards. Meaning that companies will value all equity classified awards at their grant-date under ASC 718 and forgo revaluing the award after this date. Piezo adopted ASU 2018-07 on January 1, 2019. The adoption of this standard did not have a material impact on the financial statements.

 

FASB, ASU 2016-02 “Leases (Topic 842)”- In February 2016, the FASB issued ASU 2016-02, which will require lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Piezo has adopted this guidance effective January 1, 2019.

 

Piezo has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and Piezo does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

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RELATED PARTY TRANSACTIONS OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMBINED COMPANY

 

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.

 

Piezo reimbursed $39,600 of rent paid by Hassan Kotob, Piezo’s CEO, for an office rented by a company he controls. The rent is paid to a third-party rental agency. Piezo is not a party to the lease; however, the space has been used extensively for Piezo business since April 2020.

 

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ACTION #4

AMENDMENT TO OUR AMENDED AND RESTATED ARTICLES OF INCORPORATION

 

General

 

As approved by the Board unanimously and by the Consenting Stockholders, the Company’s Board is authorized to amend the Company’s Amended and Restated Articles of Incorporation, as amended to date (the “Charter”), to opt out of the “Acquisition of Controlling Interest” provisions contained in Sections 78.378 through 78.3793 of the NRS (the “Opt Out”). The relative rights and limitations of the shares of Common Stock and preferred stock will remain unchanged under this amendment. In addition, the Board reserves the right, notwithstanding stockholder approval and without further action by the stockholders, to elect not to proceed with the Opt Out if, at any time prior to filing the certificate of amendment, the Board, in its sole discretion, determines that it is no longer in the Company’s best interests and the best interests of the Company’s stockholders to proceed with the Opt Out.

 

A sample form of the certificate of amendment relating to this Action Number 4, which we would complete and file with the Secretary of State of the State of Nevada to carry out the Opt Out, is attached to this Information Statement as Appendix B (the “Amendment”).

 

Consent Required

 

Approval of the Opt Out required the consent of the holders of a majority of the outstanding shares of Common Stock entitled to vote. As of the Voting Record Date, the Consenting Stockholders owned an aggregate of 12,899,437 shares of Common Stock, representing approximately 63% of the votes that could be cast by the holders of our outstanding Common Stock as of the Voting Record Date. The Consenting Stockholders have given their written consent to the Opt Out and accordingly, the requisite vote approval of the Opt Out was obtained.

 

Reasons for the Opt Out

 

Management of the Company believes that Nevada’s “anti-takeover” statutes could make us less attractive or deter business opportunity candidates.  Therefore, we believe that opting out of Sections 78.378 through 78.3793 of the NRS as permitted by Nevada law is in the best interests of the Company and its stockholders.

 

Nevada’s “Acquisition of Controlling Interest” statutes (NRS Sections 78.378–78.3793) apply only to Nevada Corporations with at least 200 stockholders of record, including at least 100 stockholders of record who are Nevada residents. We do not believe we have 200 stockholders of record or 100 stockholders of record who are residents of Nevada, although there can be no assurance that in the future the “Acquisition of Controlling Interest” statutes would apply to us. The “Acquisition of Controlling Interest” statutes provide that persons who acquire a “controlling interest”, as defined in NRS Section 78.3785, in a company may only be given full voting rights in their shares if such rights are conferred by the disinterested stockholders of the company at an annual or special meeting. Any disinterested stockholder that does not vote in favor of granting such voting rights is entitled to demand that the company pay fair value for their shares, if the acquiring person has acquired at least a majority of all of the voting power of the company. As such, persons acquiring a controlling interest might not be able to vote their shares. 

 

Procedure for Effecting the Opt Out

 

If the Board elects to effect the Opt Out, we will add a new Article TENTH of our Charter with substantially the following paragraph:

 

“TENTH: The Corporation elects not to be governed by the provisions of NRS §78.378 to NRS §78.3793 generally known as the “Control Share Acquisition Statute” under the Nevada Business Corporation Law, which contains a provision governing “Acquisition of Controlling Interest.”

 

If the Board elects to effect this Action Number 4, we would file the Amendment with the Nevada Secretary of State at such time as our Board has determined the appropriate effective time for the Opt Out. Our Board may delay effecting the Opt Out without resoliciting stockholder approval to any time within twelve months after the date stockholder approval was obtained. The Opt Out would become effective on the date the Amendment is filed with the Nevada Secretary of State.

 

Discretionary Authority of the Board of Directors to Abandon the Opt Out

 

Our Board reserves the right to abandon the Amendment without further action by our stockholders at any time before the effectiveness of the filing with the Nevada Secretary of State of the certificate of amendment to the Company’s Charter, notwithstanding the approval of the Opt Out by the Consenting Stockholders.

 

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ACTION #5

 

AMENDMENT TO OUR 2018 EQUITY INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR GRANT UNDER THE PLAN FROM 3,500,000 TO 8,000,000

 

Our 2018 Equity Incentive Plan (the “2018 Plan”) was amended by our board of directors on July 15, 2021 to increase the number of shares of common stock authorized under the plan from 3,500,000 to 8,000,000, subject to the approval of our stockholders and the consummation of the Merger. As of the Voting Record Date, the Consenting Stockholders adopted resolutions by majority written consent approving the Plan Amendment. We believe that we have been successful in the past in attracting and retaining qualified employees, officers and directors in part because of our ability to offer such persons options to purchase common stock and other equity awards and the increase is necessary for us to continue to attract and retain qualified employees, officers and directors.

 

As of the Voting Record Date, approximately 1,700,000 shares were available for future grants under the 2018 Plan. Other than in connection with the Option Issuance in accordance with the terms of the Merger Agreement, no determinations have been made regarding the persons to whom grants will be made in the future under our 2018 Plan or the terms of such grants.

 

Introduction

 

Our Board adopted and our stockholders approved the 2018 Plan in August 2018. The purpose of the 2018 Plan is to provide financial incentives for selected directors, employees, advisers, and consultants of the Company and/or its subsidiaries, thereby promoting the long-term growth and financial success of the Company. The Board believes that the 2018 Plan will serve a critical role in attracting and retaining high caliber employees, consultants and directors essential to our success and in motivating these individuals to strive to meet our goals.

 

Shares Available Under the Plan

 

Under the 2018 Plan, we may grant equity based incentive awards, including options, restricted stock, and other stock-based awards, to any directors, employees, advisers, and consultants that provide services to us or any of our subsidiaries on terms and conditions that are from time to time determined by us. An aggregate of up to 8,000,000 of our common stock are reserved for issuance under the 2018 Plan, subject to consummation of the Merger. As of March 31, 2021, the Company has granted and has 1,941,779 options outstanding, including an aggregate of 1,800,000 outstanding stock option awards held by the named executive officers of the Company, as well as 333,972 shares of restricted common stock issued under the 2018 Plan to certain consultants and employees.

 

Summary of the 2018 Plan, as Amended

 

The 2018 Plan permits the issuance of equity-based awards, including incentive stock options, or ISOs, nonqualified stock options, restricted stock and restricted stock units, or RSUs (the “Awards”).

 

The 2018 Plan is administered by the Board, or a committee composed of two or more members of the Board (the “Committee”) which is authorized to grant Awards.

  

Purpose and Eligible Individuals. The purpose of the 2018 Plan is to retain the services of valued key employees and consultants of the Company and such other persons as the Committee determines and to encourage such persons to acquire a greater proprietary interest in the Company, thereby strengthening their incentive to achieve the objectives of the stockholders of the Company, to serve as an aid and inducement in the hiring of new employees and to provide an equity incentive to consultants and other persons selected by the Committee. Under the 2018 Plan, Awards may be granted to our officers, directors, employees and consultants or the officers, directors, employees and consultants of our subsidiary. Because the grant of Awards under the 2018 Plan will be within the discretion of the Committee, it is not possible to determine the Awards that will be made to executive officers or directors under the 2018 Plan.

 

Shares Subject to the 2018 Plan. The total number of Awards to acquire shares of Common Stock, shares of restricted stock and RSUs shall be 8,000,000. The maximum number of shares that may be subject to ISOs granted under the 2018 Plan shall be 8,000,000, subject to adjustment as provided in the 2018 Plan. The total amount of Common Stock that may be granted under the 2018 Plan to any single person in any calendar year may not exceed in the aggregate 3,500,000 shares. To the extent that an Award lapses or is forfeited, the shares subject to such Award will again become available for grant under the terms of the 2018 Plan.

 

Administration. Although the Board has the authority to administer the 2018 Plan, it has the right to delegate this authority to the Committee. Each member of the Committee, if any, will be a “non-employee director” within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code.

 

Subject to the terms of the 2018 Plan, the Committee’s authority includes the authority to: (1) select or approve Award recipients; (2) determine the terms and conditions of Awards, including the price to be paid by a participant for any Common Stock; and (3) interpret the 2018 Plan and prescribe rules and regulations for its administration.

 

57

 

 

Stock Options. The Committee may grant ISOs or nonqualified stock options, or Options. The Committee determines the number of shares of Common Stock subject to each Option, provided that in no event shall the aggregate fair market value of the shares of Common Stock with respect to which ISOs are exercisable for the first time by a participant during any calendar year shall not exceed $100,000. The Committee determines the exercise price of an Option, its duration and the manner and time of exercise. However, in no event shall an Option be exercisable more than ten years following the grant date thereof. ISOs may be issued only to employees of the Company or of a corporate subsidiary of ours, and the exercise price must be at least equal to the fair market value of the Common Stock as of the date the Option is granted. Further, an ISO must be exercised within ten years of grant. The Committee, in its discretion, may provide the vesting terms of any Option, provided that if no schedule is specified at the time of grant, the Option shall vest as follows: (i) on the six month anniversary of the date of the grant, the Option shall vest and shall become exercisable with respect to 25% of the Common Stock to which it pertains; and (ii) on the seven month and each successive month anniversary to and including the twenty four month anniversary, the Award shall vest and become exercisable with respect to an additional 1/24th of shares of Common Stock to which it pertains. The vesting of one or more outstanding Options may be accelerated by the Committee at such times and in such amounts as it shall determine in its sole discretion. Options may be exercisable for one year following the termination of employment or other service relationship, unless the Committee specifies otherwise, in the event the Option is an ISO, in the event of a termination for “cause” or the expiration date of the Option.

 

The exercise price of an Option may be paid in cash or by certified or cashier’s check, or, at the discretion of the Committee, in shares of Common Stock owned by the participant, or by means of a “cashless exercise” procedure in which a broker transmits to us the exercise price in cash, either as a margin loan or against the participant’s notice of exercise and confirmation by us that we will issue and deliver to the broker stock certificates for that number of shares of Common Stock having an aggregate fair market value equal to the exercise price.

 

Options granted under the 2018 Plan and the rights and privileges conferred by the 2018 Plan may not be transferred, assigned, pledged or hypothecated in any manner (whether by operation of law or otherwise) other than by will or by applicable laws of descent and distribution.

 

Stock Grants. The Committee may issue shares of Common Stock to participants with restrictions, as determined by it in its discretion, as well as restricted stock units, which are contractual commitments to deliver shares of Common Stock pursuant to a vesting schedule. Restrictions may include conditions that require the participant to forfeit the shares in the event that the holder ceases to provide services to us and/or if certain performance goals are not met (see discussion below). The recipient of a stock grant, including a stock grant subject to restrictions, unless otherwise provided for in a restricted stock agreement, has the rights of a stockholder of ours to vote and to receive payment of dividends on our Common Stock. Holders of restricted stock units and Options do not enjoy voting and dividend rights until the Award is settled in actual shares of Common Stock or the option is exercised, as the case may be.

 

Effect of Certain Corporate Transactions. If a recapitalization or similar transaction occurs that does not alter the existing proportionate ownership of the Common Stock, appropriate adjustments shall be made in the exercise price and number of outstanding Options and in the terms of restricted stock and RSUs. In the case of a merger, acquisitive transaction, reorganization, liquidation or other transaction, or Major Transaction, that does alter such proportionate ownership, vested Options generally may be exercised before such transaction and persons owning Common Stock as a result of Awards made under the 2018 Plan will participate on the same basis as other owners of Common Stock. Alternatively, the Board may determine in the case of a Major Transaction that Options, restricted stock and RSUs will continue in effect on a basis similar to that in effect prior to such Major Transaction, including with respect to vesting, except that such rights shall apply with respect to the surviving entity. The Board may, in its discretion, accelerate vesting in whole or in part in connection with a Major Transaction.

 

Performance Goals. If the Committee desires to tie an Award to performance goals, the performance goals selected by the Committee must be based on the achievement of specified levels of one, or any combination, of the following business criteria: return on equity, return on assets, share price, market share, sales, earnings per share, costs, net earnings, net worth, inventories, cash and cash equivalents, gross margin or the Company’s performance relative to its internal business plan. Performance objectives may be in respect of the performance of the Company as a whole (whether on a consolidated or unconsolidated basis), a related corporation, or a subdivision, operating unit, product or product line of either of the foregoing. Performance objectives may be absolute or relative and may be expressed in terms of a progression or a range. An Award that is exercisable (in full or in part) upon the achievement of one or more performance objectives may be exercised only following written notice to the participant and the Company by the Committee that the performance objective has been achieved. After the close of the applicable performance period, which may consist of more than one year, and generally before the close of the next year’s first quarter, the Committee will determine the extent to which the performance goals were satisfied and make a final determination with respect to an Award.

 

Further Amendments to the 2018 Plan. The Board or the Committee may, at any time, modify, amend or terminate the 2018 Plan or modify or amend Awards granted under the 2018 Plan, including, without limitation, such modifications or amendments as are necessary to maintain compliance with applicable laws. However, the Board or the Committee may not, without approval of the Company’s stockholders: (1) increase the total number of shares covered by the 2018 Plan, except by adjustments upon certain changes in capitalization; (2) change the aggregate number of shares of Common Stock that may be issued to any single person; (3) change the class of persons eligible to receive Awards under the 2018 Plan; or (4) make other changes in the 2018 Plan that require stockholder approval under applicable law (including any rules of any applicable stock exchange or stock quotation system of which the Company’s shares of Common Stock are is traded). Except as otherwise provided in the 2018 Plan or an award agreement, no amendment will adversely affect outstanding Awards without the consent of the participant. Any termination of the 2018 Plan will not terminate Awards then outstanding, without the consent of the participant.

 

Term of the 2018 Plan. Unless sooner terminated by the Board, the 2018 Plan will terminate on the day prior to the 10th anniversary of its adoption by the Board. No Award may be granted after such termination or during any suspension of the 2018 Plan.

 

58

 

 

U.S. Tax Treatment. The following description of the federal income tax consequences of Awards is general and does not purport to be complete.

 

Incentive Stock Options.  Generally, a participant incurs no federal income tax liability on either the grant or the exercise of an ISO, although a participant will generally have taxable income for alternative minimum tax purposes at the time of exercise equal to the excess of the fair market value of the shares subject to the Option over the exercise price. Provided that the shares are held for at least one year after the date of exercise of the Option and at least two years after its date of grant, any gain realized on a subsequent sale of the shares will be taxed as long-term capital gain. If the shares are disposed of within a shorter period of time, the participant will recognize ordinary compensation income in an amount equal to the difference between the fair market value of the shares on the date of exercise (or the sale price of the shares sold, if less) over the exercise price. The Company receives no tax deduction on the grant or exercise of an ISO, but the Company is entitled to a tax deduction if the participant recognizes ordinary compensation income on account of a premature disposition of shares acquired on exercise of an ISO, in the same amount and at the same time as the participant recognizes income.

 

NonQualified Stock Options. A participant realizes no taxable income when a nonqualified stock option is granted. Instead, the difference between the fair market value of the shares acquired pursuant to the exercise of the Option and the exercise price paid is taxed as ordinary compensation income when the Option is exercised. The difference is measured and taxed as of the date of exercise, if the shares are not subject to a “substantial risk of forfeiture,” or as of the date or dates on which the risk terminates in other cases. A participant may elect (as described under Stock Awards below) to be taxed on the difference between the exercise price and the fair market value of the shares on the date of exercise, even though some or all of the shares acquired are subject to a substantial risk of forfeiture. Once ordinary compensation income is recognized, gain on the subsequent sale of the shares is taxed as short-term or long-term capital gain, depending on the holding period after exercise. The Company receives no tax deduction on the grant of a nonqualified stock option, but it is entitled to a tax deduction when a participant recognizes ordinary compensation income on or after exercise of the Option, in the same amount as the income recognized by the participant.

 

Stock Awards. A person who receives an award of shares without any restrictions will recognize ordinary compensation income equal to the fair market value of the shares over the amount (if any) paid. If the shares are subject to restrictions, the recipient generally will not recognize ordinary compensation income at the time the award is received but will recognize ordinary compensation income when restrictions constituting a substantial risk of forfeiture lapse, including satisfying any accelerated vesting conditions as a result of “retirement.” The amount of that income will be equal to the excess of the aggregate fair market value, as of the date the restrictions lapse, over the amount (if any) paid for the shares. Alternatively, a person may elect to be taxed, pursuant to Section 83(b) of the Code, on the excess of the fair market value of the shares at the time of grant over the amount (if any) paid for the shares, notwithstanding any restrictions. All such taxable amounts are deductible by the Company at the time and in the amount of the ordinary compensation income recognized by the recipient.

 

Restricted Stock Units. A person who receives RSUs generally will not recognize ordinary compensation income at the time of grant. Rather, the recipient will generally recognize ordinary compensation income equal to the fair market value of the shares or cash received less the price paid, if any, at the time the RSUs settles (generally shortly after vesting, although further deferral may be permitted). When any shares received are subsequently sold, the recipient generally will recognize capital gain or loss equal to the difference between the amount realized upon the sale of the shares and his or her tax basis in the shares (generally, the fair market value of the shares when acquired ). The capital gain or loss will be long-term if the shares were held for more than one (1) year or short-term if held for a shorter period. The Company will be entitled to a tax deduction when the recipient recognizes ordinary compensation income.

 

Dividends. The full amount of dividends or other distributions of property made with respect to share Awards before the lapse of any applicable restrictions will constitute ordinary compensation income, and the Company is entitled to a deduction at the same time and in the same amount as the income is realized by the recipient (unless an election under Section 83(b) of the Code has been made). Cash dividends are generally not available with respect to Options and RSUs until exercised or settled, respectively.

 

59

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BRAIN SCIENTIFIC

 

The following table shows the beneficial ownership of our Common Stock as of August 2, 2021 held by (i) each person known to us to be the beneficial owner of more than five percent (5%) of our common stock; (ii) each director; (iii) each executive officer; and (iv) all directors and executive officers as a group.

 

Beneficial ownership is determined in accordance with the rules of the SEC, and generally includes voting power and/or investment power with respect to the securities held. Shares of common stock subject to options and warrants currently exercisable or which may become exercisable within 60 days of August 2, 2021 are deemed outstanding and beneficially owned by the person holding such options or warrants for purposes of computing the number of shares and percentage beneficially owned by such person, but are not deemed outstanding for purposes of computing the percentage beneficially owned by any other person. Except as indicated in the footnotes to this table, the persons or entities named have sole voting and investment power with respect to all shares of our common stock shown as beneficially owned by them.

 

The following table provides for percentage ownership assuming 20,473,799 shares are issued and outstanding as of August 2, 2021. Unless otherwise indicated, the address of each beneficial holder of our Common Stock is our corporate address.

 

Name of Beneficial Owner  Shares of
Common
Stock
Beneficially
Owned
   % of
Shares of
Common
Stock
Beneficially
Owned
 
Greater Than 5% Stockholders        
High Technology Capital Fund LP(1)   6,749,000    32.96%
Lifestyle Healthcare LLC(2)   1,384,980    6.76%
Andrew Brown(3)(6)   1,840,829    8.99%
Thomas J Caleca(7)   1,583,856    7.69%
           
Named Executive Officers and Directors          
Boris (Baruch) Goldstein(1)(4)   8,824,575    40.34%
Nickolay Kukekov(5)   1,501,759    7.31%
Mark Corrao   -    - 
All Directors and Officers as a Group (3 persons)   10,326,334    46.96%

 

 

(1)Dr. Goldstein is the manager of High Technology Capital Management LLC (“LLC”), the general partner of High Technology Capital Fund LP (“LP”). As the manager of the LLC, Dr. Goldstein has voting and dispositive control over the shares owned by the LP. Dr. Goldstein disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.

 

(2)The address of Lifestyle Healthcare is 4524 Westway Avenue, Dallas, TX 75205. Nickolay Kukekov has voting and dispositive power over the shares. Dr. Kukekov disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein.

 

(3)The address of Mr. Brown is 300 Prospect Avenue, Hackensack, NJ 07601.

 

  (4)

Of such shares, 6,749,000 are held of record by High Technology Capital Fund LP and 337,450 are held of record by Irina Migalina, Dr. Goldstein’s wife. Includes an aggregate of 1,400,000 options that have vested or will vest within 60 days of August 2, 2021. Dr. Goldstein disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.

 

(5)Includes 1,384,980 held by Lifestyle Healthcare LLC and 100,000 shares of our common stock underlying warrants and 16,779 share of common stock underlying options issued to Dr. Kukekov. Dr. Kukekov disclaims beneficial ownership of the shares held by Lifestyle except to the extent of his pecuniary interest therein.

 

  (6)

Includes approximately 131,766 shares of our common stock underlying convertible grid notes that are convertible within 60 days of August 2, 2021.

 

  (7)

Includes approximately 131,766 shares of our common stock underlying convertible grid notes that are convertible within 60 days of August 2, 2021.

 

60

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF PIEZO

 

The following table sets forth certain information concerning the ownership of our common stock as of August 2, 2021, with respect to: (i) each person, or group of affiliated persons, known to us to be the beneficial owner of more than five percent (5%) of our common stock; (ii) each of our directors; (iii) each of our named executive officers; and (iv) all of our current directors and executive officers as a group.

 

Applicable percentage ownership is based on 10,058,259 shares of common stock outstanding as of August 2, 2021. The percentage of beneficial ownership after this offering assumes the sale and issuance of shares of common stock in this offering.

 

We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting or investment power with respect to such securities. In addition, pursuant to such rules, we deemed outstanding shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of August 2, 2021. We did not deem such shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the beneficial owners named in the table below have sole voting and investment power with respect to all shares of our common stock that they beneficially own, subject to applicable community property laws. Unless otherwise indicated, the address of each beneficial holder of our Common Stock is our corporate address.

 

61

 

 

Name of Beneficial Owner  Shares of
Common
Stock
Beneficially
Owned
   % of
Shares of
Common
Stock
Beneficially
Owned
 
Greater Than 5% Stockholders        
James Besser (1)   951,486,    9.46%
Valentin Zhelyaskov   913,146    9.08%
Named Executive Officers and Directors          
Hassan Kotob (2)   2,542,044    25.09%
Mark Broderick (3)   1,621,794    16.12%
Bonnie- Jeanne Gerety   -    - 
All Directors and Officers as a Group (3 persons)   4,145,838    41.21%

 

 

(1)Consists of 330,453 shares held by James Besser and 621,034 shares held by Jeb Partners LP. James Besser is the manager of Manchester Management LLC (“MMLLC”), the general partner of Jeb Partners LP (“JPLP”). As the manager of the MMLLC, James Besser has voting and dispositive control over the shares owned by the JPLP.
(2)All such shares are held by Hassan Kotob Revocable Trust. Hassan Kotob serves as the executor of the trust and has sole dispositive voting power over the shares.
(3)All such shares are held by Mark and Carolyn Broderick. Mark Broderick has sole dispositive voting power of the shares.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF COMBINED COMPANY

 

As a result of the inability of the Company and Piezo to determine the final Exchange Ratio until the Effective Time, the Company has omitted a table showing information concerning the ownership of our common stock assuming the consummation of the Merger with respect to: (i) each person, or group of affiliated persons, known to us to be the beneficial owner of more than five percent (5%) of the Combined Company’s common stock; (ii) each of the directors; (iii) each of the named executive officers; and (iv) all of the then-current directors and executive officers as a group. Assuming no dissenters rights have been triggered, the Company believes that such persons who received Company Common Stock in the Merger will own approximately one-half of the percentage ownership in the Combined Company that such persons owned in Piezo. The Company cannot estimate at this time the post-Merger percentage ownership of such persons who were existing shareholders of the Company, as a result of (a) the number of shares that will be issued between the date of this Information Statement and the Effective Time not being known and (b) the number of shares underlying certain outstanding convertible promissory notes of the Company at the Effective Time not being quantifiable at this time.

 

62

 

 

INTERESTS OF CERTAIN PERSONS IN THE ACTIONS

 

Boris Goldstein, the Chairman of the Board, Executive Vice President and Secretary of the Company, and Nickolay Kukekov, a director of the Company, each have an interest in the Actions as a result of their ownership of shares of our Common Stock, as set forth in the section entitled “Security Ownership of Certain Beneficial Owners and Management” above, and as described elsewhere in this Information Statement. Other than Messrs. Goldstein and Kukekov, we do not believe that our directors and/or officers have interests in the Actions that are different from or greater than those of any of our other stockholders.

 

COSTS AND MAILING

 

The Company will pay all costs associated with the distribution of this Information Statement, including the costs of printing and mailing. The Company has asked or will ask brokers and other custodians, nominees and fiduciaries to forward this Information Statement to the beneficial owners of the Common Stock held of record by such persons and will reimburse such persons for out-of-pocket expenses incurred in forwarding such material.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other information with the SEC. You may obtain such SEC filings from the SEC’s website at http://www.sec.gov. You can also read and copy these materials at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. You can obtain information about the operation of the SEC’s public reference room by calling the SEC at 1-800-SEC-0330.

 

63

 

 

DELIVERY OF DOCUMENTS TO SECURITY HOLDERS SHARING AN ADDRESS

 

We will send only one Information Statement and other corporate mailings to stockholders who share a single address unless we received contrary instructions from any stockholder at that address. This practice, known as “householding,” is designed to reduce our printing and postage costs. However, we will deliver promptly upon written or oral request a separate copy of the Information Statement to a stockholder at a shared address to which a single copy of the Information Statement was delivered. You may make such a written or oral request by (a) sending a written notification stating (i) your name, (ii) your shared address and (iii) the address to which we should direct the additional copy of the Information Statement, to us at Brain Scientific Inc., 125 Wilbur Place, Suite 170, Bohemia, NY 11716; Telephone: (917) 388-1578; Email: bgoldstein@memorymd.com.

 

If multiple stockholders sharing an address have received one copy of this Information Statement or any other corporate mailing and would prefer us to mail each stockholder a separate copy of future mailings, you may send notification to or call our principal executive offices. Additionally, if current stockholders with a shared address received multiple copies of this Information Statement or other corporate mailings and would prefer us to mail one copy of future mailings to stockholders at the shared address, notification of such request may also be made by mail or telephone to our principal executive offices.

 

APPENDICES

 

The following documents are appended to this Information Statement:

 

Appendix A Agreement and Plan of Merger and Reorganization, dated as of June 11, 2021
Appendix B Certificate of Amendment to the Amended and Restated Articles of Incorporation

 

64

 

 

 

 

DTI Motion Corp.

 

AUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED

DECEMBER 31, 2020 AND 2019

 

 

 

F-1

 

 

Consolidated Financial Statements

 

DTI Motion Corp. and Subsidiary

 

    Page
Report of Independent Registered Public Accounting Firm   F-3
     
Consolidated Balance Sheets as of December 31, 2020 and 2019   F-4
     
Consolidated Statements of Operations for the years ended December 31, 2020 and 2019   F-5
     
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2020 and 2019   F-6
     
Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019   F-7
     
Notes to the consolidated financial statements   F-8

 

F-2

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders of

 

DTI Motion Corp.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of DTI Motion (the Company) as of December 31, 2020 and 2019, and the related statements of operations, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes and schedules (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flow for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

Substantial Doubt About the Company’s Ability to Continue as a Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 10, the Company has incurred net losses and negative cash flow from operations since inception. These factors, and the need for additional financing in order for the Company to meet its business plans raises substantial doubt about the Company’s ability to continue as a going concern. Our opinion is not modified with respect to that matter.

 

 

 

We have served as the Company’s auditor since 2018.

 

Tampa, Florida

March 5, 2021  

 

F-3

 

 

DTI Motion Corp. and Subsidiary

Consolidated Balance Sheets

 

   As of
December 31,
2020
   As of
December 31,
2019
 
Assets        
Current assets        
Cash and cash equivalents  $68,943   $169,501 
Inventory   44,904    - 
Advances to officers   7,542    1,983 
Deposits and prepaid expenses   12,000    21,950 
Total current assets   133,389    193,434 
           
Fixed assets          
Property, plant and equipment, net   91,742    77,300 
Total Assets   $225,131   $270,734 
           
Liabilities & Stockholders' Equity          
Current liabilities          
Accounts payable and accrued liabilities  $1,444,476   $236,698 
Accrued interest   26,766    - 
Notes payable   650,000    - 
Total current liabilities   2,121,242    236,698 
           
Long-term liabilities          
Paycheck protection program (PPP) loan   111,477    - 
Total long-term liabilities   111,477    - 
Total Liabilities   2,232,719    236,698 
           
Commitments and contingencies          
           
Stockholders' Equity          
Series A Preferred stock, $0.0001 par value; 0 and 2,766,317 shares issued and outstanding at December 31, 2020 and 2019, respectively   -    277 
           
Series B Preferred stock, $0.0001 par value; 0 and 2,424,625 shares issued and outstanding at December 31, 2020 and 2019, respectively   -    242 
           
Series C Preferred stock, $0.0001 par value; 0 and 5,070,157 shares issued and outstanding at December 31, 2020 and 2019, respectively   -    507 
           
Common stock, $0.0001 par value; 60,000,000 shares authorized; 10,058,259 and 7,678,535 shares issued and outstanding at December 31, 2020 and 2019, respectively   1,006    768 
Additional paid in capital   11,169,643    10,407,450 
Accumulated deficit   (13,178,237)   (10,375,208)
Total Stockholders' Equity   (2,007,588)   34,036 
Total Liabilities and Stockholders' Equity   $225,131   $270,734 

 

See accompanying notes to the financial statements.

 

F-4

 

  

DTI Motion Corp. and Subsidiary

Consolidated Statements of Operations

 

   For the years ended 
   December 31, 
   2020   2019 
         
Revenue  $93,664   $8,558 
           
Cost of sales   43,762    10,827 
           
Gross profit   49,902    (2,269)
           
General and administrative corporate expenses:          
Personnel expenses   1,027,259    562,383 
General and administrative expenses   1,208,538    528,357 
Stock-based compensation   355,534    518,663 
Research and development   210,706    226,846 
Depreciation expense   17,353    16,860 
Total general and administrative corporate expenses   2,819,390    1,853,109 
           
Loss from operations   (2,769,488)   (1,855,378)
           
Other income (expense):          
Other income   -    1,231 
Loss on disposal of assets   (4,067)   - 
Interest expense   (29,474)   (3,486)
Total other income (expense)   (33,541)   (2,255)
           
Net loss  $(2,803,029)  $(1,857,633)
           
Basic and diluted earnings per share on net loss  $(0.31)  $(0.24)
           
Weighted average shares outstanding - basic and diluted   9,018,629    7,678,535 

 

See accompanying notes to the financial statements.

 

F-5

 

 

DTI Motion Corp. and Subsidiary

Consolidated Statement of Changes in Stockholders' Equity (Deficit)

For the Years Ended December 31, 2020 and 2019

 

                   Additional         
   Series A Preferred Stock   Series B Preferred Stock   Series C Preferred Stock   Common Stock   Paid in   Accumulated     
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Total 
Balance December 31, 2018   2,766,317   $277    2,424,265   $242    3,742,903   $374    7,678,535   $768   $8,448,927   $(8,517,575)  $(66,987)
                                                        
Sale of Series C Preferred Stock   -    -    -    -    1,327,254    133    -    -    648,395    -    648,528 
                                                        
Stock-option based compensation   -    -    -    -    -    -    -    -    518,663    -    518,663 
                                                        
Warrants issued in connection with the sale of Series C Preferred Stock   -    -    -    -    -    -    -    -    791,465    -    791,465 
                                                        
Net Loss   -    -    -    -    -    -    -    -         (1,857,633)   (1,857,633)
Balance December 31, 2019   2,766,317    277    2,424,265    242    5,070,157    507    7,678,535    768    10,407,450    (10,375,208)   34,036 
                                                        
Sale of Series C Preferred Stock   -    -    -    -    80,000    8    -    -    53,456    -    53,464 
                                                        
Warrants issued in connection with the sale of Series C Preferred Stock   -    -    -    -    -    -    -    -    46,536    -    46,536 
                                                        
Issuance of common stock for director services   -    -    -    -    -    -    210,000    21    34,084    -    34,105 
                                                        
Recapitalization at reverse merger - May 20, 2020   (2,766,317)   (277)   (2,424,265)   (242)   (5,150,157)   (515)   2,111,465    211    618,673    -    617,850 
                                                        
Issuance of common stock for services   -    -    -    -    -    -    58,259    6    9,444    -    9,450 
                                                        
Net loss   -    -    -    -    -    -    -    -         (2,803,029)   (2,803,029)
Balance December 31, 2020   -   $-    -   $-    -   $-    10,058,259   $1,006   $11,169,643   $(13,178,237)  $(2,007,588)

 

See accompanying notes to the financial statements. 

 

F-6

 

 

DTI Motion Corp. and Subsidiary

Consolidated Statements of Operations

 

   For the years ended 
   December 31, 
   2020   2019 
Cash Flows from Operating Activities        
Net Loss  $(2,803,029)  $(1,857,633)
           
Adjustments to reconcile net loss to net cash used by operating activities:          
Stock compensation   355,534    518,663 
Depreciation   17,353    16,860 
Loss on disposal of assets   4,067    - 
Changes in operating assets & liabilities          
Accounts receivable   -    112,000 
Inventory   (44,904)   - 
Officer advances   (5,559)   (1,983)
Deposits & prepaid expenses   9,950    (12,863)
Accounts payable and accrued liabilities   1,508,158    (69,457)
Accrued interest   26,766    - 
Net cash used by operating activities   (931,664)   (1,294,413)
           
Cash Flows from Investing Activities          
Capital expenditures   (30,371)   (10,269)
Net cash used by investing activities   (30,371)   (10,269)
           
Cash Flows from Financing Activities          
Proceeds from notes payable   650,000    - 
Proceeds from PPP loan   111,477    - 
Proceeds from issuance of Series C Preferred Stock   100,000    - 
Issuance of preferred stock   -    1,439,993 
Net cash provided by financing activities   861,477    1,439,993 
           
Increase in Cash   (100,558)   135,311 
           
Cash at beginning of period   169,501    34,190 
           
Cash (and equivalents) at end of period  $68,943   $169,501 
           
Supplemental Cash Flow Information          
Cash paid for interest  $-   $- 
Cash paid for income taxes  $-   $- 

 

 See accompanying notes to the financial statements. 

 

F-7

 

 

DTI MOTION, INC AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 2020

 

NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS

 

DTI Motion Corp (“Motion or “the Company”) was formed as a Delaware corporation on January 24, 2020. The initial shareholding was set up on March 15, 2020 and a share offering was made at the end of March, 2020. On March 27, 2020, Motion entered into a secured, short-term loan in an amount up to $249,000 to Discovery Technology International, Inc. (“DTI”) for the purpose of funding of operations. The loan maturity was April 27, 2020. DTI was unable to repay the loan and the shareholders authorized a merger between Motion (legal acquirer) and DTI (accounting acquirer) which was completed on May 20, 2020. See Note 3 for further details on the share exchange.

 

DTI was converted from a limited liability partnership to a corporation on January 26, 2011 in the state of Florida. DTI’s office is located in Sarasota, Florida. DTI is a company focused on the ultrasonic standing wave-type piezo motor technology for rotary and linear motion. DTI has experience in the research and development, as well as the manufacturing, of piezo motors for high-tech industries across the globe.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The significant accounting policies of the Company are as follows:

 

Basis of Presentation and Consolidation

 

The Company has one wholly-owned subsidiary: Discovery Technology International, Inc. (“DTI”). The consolidated financial statements, which include the accounts of the Company and its wholly-owned subsidiary, are prepared in conformity with generally accepted accounting principles in the United States of America (U.S. GAAP). All significant intercompany balances and transactions have been eliminated. The consolidated financial statements, which include the accounts of the Company and its wholly-owned subsidiary, and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The Financial Statements have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and presented in US dollars. The year end is December 31.

 

Use of Estimates

Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from these estimates and assumptions.

 

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company maintains deposits primarily in one financial institution, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation ("FDIC"). The Company has not experienced any losses related to amounts in excess of FDIC limits.

 

Fair Value of Financial Instruments

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

 

F-8

 

 

The following are the hierarchical levels of inputs to measure fair value:

 

Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.

 

Level 2 – Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and interest, certain notes payable, approximate their fair values because of the short maturity of these instruments. The Company accounts for its equity instruments (such as warrants and stock-based compensation) at fair value.

 

Property, Plant and Equipment

Property, plant and equipment are carried at cost. Depreciation is provided on the straight-line method over the assets estimated service lives. Expenditures for maintenance and repairs are charged to expense in the period in which they are incurred, and betterments are capitalized. The cost of assets sold or abandoned and the related accumulated depreciation are eliminated from the accounts and any gains or losses are reflected in the accompanying statements of operations of the respective period. The estimated useful lives range from 3 to 7 years.

 

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Update (“ASU”) 2014-09, “Revenue from contracts with customers,” (Topic 606). Revenue is recognized when a customer obtains control of promised goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company’s main revenue stream is from product sales. The performance obligation associated with a typical product sale will be satisfied upon shipment to the customer, and the revenue will be recognized at that time.

 

The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company's performance obligations are transferred to customers at a point in time, typically upon delivery.

 

Income Taxes

The Company follows Section 740-10-30 of the FASB ASC, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date. Through December 31, 2020, the Company has an accumulated deficit. Due to uncertainty of realization for these losses, a full valuation allowance is expected. Accordingly, no provision has been made for federal income taxes in the accompanying financial statements.

 

F-9

 

 

Stock based compensation

The Company records stock-based compensation in accordance with the provisions of FASB ASC Topic 718, “Accounting for Stock Compensation,” which establishes accounting standards for transactions in which an entity exchanges its equity instruments for goods or services. In accordance with guidance provided under ASC Topic 718, the Company recognizes an expense for the fair value of its stock awards at the time of grant and the fair value of its outstanding stock options as they vest, whether held by employees or others. As of December 31, 2020 and 2019 there were 0 and 1,101,762 options outstanding, respectively. For the years ended December 31, 2020 and 2019, the Company recorded $355,534 and $518,663 in stock-based compensation expenses, respectively which is included within general and administrative expenses on the accompanying statements of operations.

 

Recently Adopted Accounting Pronouncements

On June 20, 2018, the Financial Accounting Standards Board, or FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for share-based payments to nonemployees (for example, service providers, external legal counsel, suppliers, etc.). Under the new standard, companies will no longer be required to value non-employee awards differently from employee awards. Meaning that companies will value all equity classified awards at their grant-date under ASC 718 and forgo revaluing the award after this date. The Company adopted ASU 2018-07 on January 1, 2019. The adoption of this standard did not have a material impact on the financial statements.

 

Financial Accounting Standards Board, or FASB, Accounting Standards Update, or ASU 2016-02 “Leases (Topic 842)”- In February 2016, the FASB issued ASU 2016-02, which will require lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company has adopted this guidance effective January 1, 2019. The Company currently has an occupancy lease with a one-year term and has elected to apply the short term lease exception.

 

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

F-10

 

 

NOTE 3 – EXCHANGE AGREEMENT

 

On April 8, 2020, DTI Motion Corp (“DTIM”) along with Discovery Technology International, Inc., a Delaware corporation (“DTI”) and DTIM, Inc., a newly formed, wholly-owned subsidiary of DTIM (the “Merger- Sub”) entered into a merger agreement. The merger was considered effective on May 20, 2020. As part of the agreement the Merger-Sub merged with and into DTI with DTI surviving as a wholly-owned subsidiary of DTIM and all outstanding shares of the Company’s common stock (“DTI Common Stock”), Series A Preferred Stock (“DTI Series A Preferred Stock”), Series B Preferred Stock (“DTI Series B Preferred Stock”) and Series C Preferred Stock (“DTI Series C Preferred Stock”) and together with the DTI Company Common Stock, collectively, the “DTI Capital Stock”), automatically converted into shares of common stock of DTIM (“DTIM Common Stock”). In addition, all outstanding DTI stock options (“DTI Stock Options”) granted under DTI’s equity incentive plan (the “DTI EIP”) and common stock purchase warrants (“DTI Warrants”) were cancelled. Holders of such cancelled DTI Warrants received shares of DTIM Common Stock, all in consideration for and settlement of each holder’s cancellation of its DTI Warrants.

 

The merger has been accounted for as a reverse merger transaction, with DTI as the accounting acquirer and DTIM as the accounting acquiree. The acquisition of a private operating company (“DTI”) by a nonoperating shell company (“DTIM”) is considered in substance, a capital transaction rather than a business combination (or asset acquisition). That is, the transaction is a reverse recapitalization, equivalent to the issuance of shares by the private operating company for the net monetary assets of the shell company accompanied by a recapitalization. There is no goodwill or other intangible assets recognized.

 

NOTE 4 – PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment consisted of the following at December 31, 2020 and 2019:

 

   December 31,   December 31, 
   2020   2019 
         
Computer equipment  $4,164   $7,062 
Machinery and equipment   121,433    92,630 
Computer software   -    6,995 
Leasehold improvements   5,000    - 
Less: Accumulated depreciation   (38,855)   (29,387)
Total, net  $91,742   $77,300 

 

Depreciation expense was $17,353 and $16,860 for the years ended December 31, 2020 and 2019, respectively.

 

NOTE 5 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses as of December 31, 2020 and 2019, consisted of the following:

 

   December 31,   December 31, 
   2020   2019 
         
Accounts payable  $398,155   $46,542 
Accrued payroll   997,410    147,131 
Credit card payable   42,361    37,891 
Accrued director fees   5,133    5,134 
Accrued - other   1,417    - 
Total  $1,444,476   $236,698 

 

F-11

 

 

NOTE 6 – NOTES PAYABLE

 

In July 2020, Motion made an offering of convertible notes not to exceed approximately $2,400,000. In October, the Board authorized increasing the potential investment to not exceed $5,000,000. Unless earlier terminated by the Company, the offering shall terminate on April 30, 2021. These notes are payable by August 21, 2021, interest accruing at 10% per annum. At the completion of a qualifying investment, Motion, at its sole discretion may convert the loans and any accrued interest to common stock with a 120% multiplier on the value of the common stock in the qualifying investment. As of December 31, 2020, the carrying amount of these notes was $650,000 with accrued interest of $26,766.

 

NOTE 7 – PAYCHECK PROTECTION PROGRAM LOAN

 

In May 2020, DTI received a Paycheck Protection Program (PPP) loan under the terms of the CARES Act in the amount of $106,477 and an Economic Industry Disaster Loan (“EIDL”) of $5,000. The interest rate on the PPP loan is 1% fixed with a term of 24 months. DTI may apply for loan forgiveness.

 

NOTE 8 - EQUITY

 

On May 20, 2020 a merger was completed between Motion and DTI. The merger was approved by over 66% of all classes of stock for both Motion and DTI. Terms for the merger were included in a confidential term sheet. All common stock, preferred stock Series A, B and C, and warrants of DTI were converted. All DTI options were cancelled as of the merger date. See Footnote 3. The conversion ratio for the different classes of stock were agreed to by the shareholders in the merger. The conversion ratios were as follows:

 

   Conversion
ratio
 
DTI Pre-merger stockholders (Common Stock)   16.13 
DTI Pre-merger stockholders (Series A)   5.76 
DTI Pre-merger stockholders (Series B)   5.38 
DTI Pre-merger stockholders Series B Exchange Warrants   16.13 
DTI Pre-merger stockholders (Series C)   3.75 
DTI Pre-merger stockholder Series C Exchange Warrants   8.06 
Placement Agent Warrants   1.61 

 

Common stock

 

After the merger and recapitalization on May 20, 2020, there were 10,000,000 shares issued and outstanding.

 

On June 10, 2020, 24,759 shares were issued for commission on the March 2020 investment in Motion. Inclusive of shares issued to preserve anti-dilution of 33,500, the total shares issued were 58,259. The shares were valued at $9,450.

 

As of December 31, 2020 and 2019, there were 10,058,259 and 7,678,535 shares issued and outstanding, respectively.

 

DTI Preferred stock

 

In 2019, there were 15,000,000 shares authorized as preferred stock, of which 2,766,317 are designated as Series A, 3,390,780 are designated as Series B and 5,742,903 designated as Series C. 3,100,000 shares have yet to be designated. At the merger all DTI preferred stock was converted to common stock of Motion.

 

F-12

 

 

Series C Preferred Stock

 

Between March 20, 2019 and December 9, 2019, DTI sold 1,327,254 shares of Series C Preferred Stock for $1,659,068. The Company received $1,439,993 in net proceeds after $219,075 in stock issuance costs. In connection with the sale, the holders received 1,327,254 Class A Warrants and 663,627 Class B Warrants. The amount of $1,659,068 was allocated among the instruments as follows: (i) $867,603 to Series C Preferred Stock, (ii) $561,559 to Class A Warrants, and (iii) $229,906 to Class B Warrants.

 

In connection with the Series C Preferred issuances, the Company issued 712,431 warrants to the Series B Preferred holders to make them whole. These warrants were valued at $349,078 and are recorded on the statement of operations under stock-based compensation. At the merger the Series C preferred stock and warrants were converted to common stock of Motion.

 

On February 20, 2020 DTI issued 80,000 shares of Series C Preferred Stock and 120,000 warrants for $100,000.

 

The Company has selected the Black-Scholes-Merton (“BSM”) valuation technique to fair value the warrants because it believes that this technique is reflective of all the inputs that market participants would likely consider in transactions involving warrants. Significant inputs and results arising from the BSM calculation are as follows:

 

   December 31,
2020
   December 31,
2019
 
Underlying price  $1.25   $1.25 
Contractual strike price  $1.25 - $3.00   $1.25 - $3.00 
Contractual term to maturity   5.00 Years     5.00 Years  
Market volatility:          
Equivalent Volatility   83.36%   66.17% - 130.70%
Interest rate   1.37%   1.37% - 3.04%

 

At the merger, the Series C preferred stock and warrants were converted to common stock of Motion.

 

Equity Incentive Plan

 

On August 19, 2011, the Board of Directors adopted DTI’s “2011 Equity Incentive Plan” (the “Plan”) effective immediately.  The maximum number of options issuable under the Plan is 1,000,000 shares or additional amounts if needed under shareholder approval. The exercise price of the options granted under the plan is determined by the Board at its sole discretion. Options are exercisable over periods not exceeding ten years and vesting and exercisability is determined by the board at grant. The plan involves restricted stock and stock options. Stock options can be incentive stock options and non-qualified options.

 

During the year ended December 31, 2019, DTI granted a total of 105,000 options with an exercise prices of $1.25. The grant date value of these options was $104,550. Of the $104,550 in grant date fair value, $30,882 was recorded as stock-based compensation for the year ended December 31, 2019. Of the 880,000 options granted in 2018, $487,781 was recorded as stock-based compensation for the year ended December 31, 2019. The aggregate compensation expense for the year ended December 31, 2019 was $518,663. As of the merger date of May 20, 2020, all options were cancelled. As a result of the cancellation, the unvested portion of $311,979 was accelerated and the expense was charged in full immediately.

 

F-13

 

 

The Company selected the Black-Scholes-Merton (“BSM”) valuation technique to calculate the grant date fair values for the stock options because it believes that this technique is reflective of all the inputs that market participants would likely consider in transactions involving warrants. The inputs include the strike price, underlying price, term to expiration, volatility, and risk-free interest rate.

 

No options were outstanding as of December 31, 2020. At December 31, 2019 options outstanding were:

 

   Number
of Options
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual Life
Options Outstanding – January 1, 2019   1,060,000   $1.33   8.8 years
Issued   105,000   $1.32   10 years
Exercised   -         
Expired             
Forfeited   (63,238)  $1.91   6.9 years
Options Outstanding – December 31, 2019