UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2020
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: file number: 333-209325
333-209325BRAIN SCIENTIFIC INC.
(Name of registrant as specifiedRegistrant in its charter)
Nevada | 81-0876714 | |
Incorporation or | (I.R.S. Employer Identification No.) |
67-35 St., B520
3904 West 3930 South, Salt Lake City, Utah 84128Brooklyn, New York 11232
(Address of principal executive offices) (Zip Code)
(801)707-9026(917) 388-1578
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate by check mark whether the registrantregistrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)submit).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer | Smaller reporting company ☒ | |
Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the Registrant’sissuer’s classes of common stock, as of the latest practicable date: 19,383,794 shares of Common Stock, $0.001 par value, as of November 9, 2017, was 10,000,000.
BRAIN SCIENTIFIC INC.
Index
| Part I – Financial Information | ||
| Condensed Consolidated Statements of Stockholders’ Deficit for the Three Months Ended as of March 31, 2020 and March 31, 2019 (unaudited) | 3 | |
| Condensed Consolidated Statements of Cash Flows for the | ||
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i
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 60 | $ | 160 | ||||
| Accounts Receivable | 57 | - | ||||||
| Inventory | 2,260 | 3,420 | ||||||
| Total current assets | 2,377 | 3,580 | ||||||
| Total Assets | 2,377 | 3,580 | ||||||
| LIABILITIES AND (DEFICIENCY IN) STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | 7,189 | 6,262 | ||||||
| Due to related parties | 70,358 | 42,863 | ||||||
| Convertible notes payable | 69,600 | 35,000 | ||||||
| Total current liabilities | 147,147 | 84,125 | ||||||
| Commitments and contingencies | - | - | ||||||
| Stockholders’ equity (deficit) | ||||||||
| Common stock, $0.001 par value, 50,000,000 shares authorized, 10,000,000 shares issued and outstanding as of September 30, 2017 and December 31, 2016. | 10,000 | 10,000 | ||||||
| Additional paid-in capital | 4,303 | 238 | ||||||
| Accumulated deficit | (159,073 | ) | (90,783 | ) | ||||
| Total (deficiency in) stockholders’ equity | (144,770 | ) | (80,545 | ) | ||||
| Total liabilities and stockholders’ equity | $ | 2,377 | $ | 3,580 | ||||
| March 31, 2020 | December 31, 2019 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 27,947 | $ | 261,436 | ||||
| Accounts receivable | 6,706 | 5,555 | ||||||
| Inventory | 371 | - | ||||||
| Prepaid expenses and other current assets | 10,329 | 21,637 | ||||||
| Prepaid expenses and other current assets - related party | 700 | 700 | ||||||
| TOTAL CURRENT ASSETS | 46,053 | 289,328 | ||||||
| Property and equipment, net | 1,333 | 1,674 | ||||||
| TOTAL ASSETS | $ | 47,386 | $ | 291,002 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 495,091 | $ | 298,578 | ||||
| Accounts payable and accrued expenses - related party | 8,737 | 9,263 | ||||||
| Notes payable | 70,000 | 50,000 | ||||||
| Convertible notes payable, net | 565,781 | 499,232 | ||||||
| Finance lease - short term | 4,595 | 6,377 | ||||||
| Loans payable - related party | 322,967 | 323,084 | ||||||
| TOTAL CURRENT LIABILITIES: | 1,467,171 | 1,186,534 | ||||||
| TOTAL LIABILITIES | 1,467,171 | 1,186,534 | ||||||
| Commitments and contingencies | - | - | ||||||
| STOCKHOLDERS' DEFICIT | ||||||||
| Preferred stock, $0.001 par value; 10,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively | - | - | ||||||
| Common stock, $0.001 par value; 200,000,000 shares authorized, 19,383,794 and 19,380,460 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively | 19,384 | 19,381 | ||||||
| Additional paid in capital | 2,772,711 | 2,756,798 | ||||||
| Accumulated deficit | (4,211,193 | ) | (3,672,077 | ) | ||||
| Accumulated other comprehensive income | (687 | ) | 366 | |||||
| TOTAL STOCKHOLDERS' DEFICIT | (1,419,785 | ) | (895,532 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 47,386 | $ | 291,002 | ||||
The accompanying notes toare an integral part of these unaudited condensed consolidated financial statements.
For the Three Months Ended September 30, 2017 | For the Three Months Ended September 30, 2016 | For the Nine Months Ended September 30, 2017 | For the Nine Months Ended September 30, 2016 | |||||||||||||
| Revenue | $ | 272 | $ | - | $ | 7,022 | $ | - | ||||||||
| Cost of good sold | $ | (20 | ) | - | (1,160 | ) | - | |||||||||
| Gross Profit | 252 | - | 5,862 | - | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | 27,908 | 24,282 | 70,087 | 69,373 | ||||||||||||
| Total operating expenses | 27,908 | 24,282 | 70,087 | 69,373 | ||||||||||||
| Net Operating Loss | (27,656 | ) | (24,282 | ) | (64,225 | ) | (69,373 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | (1,403 | ) | - | (4,065 | ) | - | ||||||||||
| Total other expense | (1,403 | ) | - | (4,065 | ) | - | ||||||||||
| Loss before provision for income taxes | (29,059 | ) | (24,282 | ) | (68,290 | ) | (69,373 | ) | ||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Net loss | $ | (29,059 | ) | $ | (24,282 | ) | $ | (68,290 | ) | $ | (69,373 | ) | ||||
| Net loss per share – basic & diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
| Weighted average shares outstanding – basic & diluted | 10,000,000 | 10,000,000 | 10,000,000 | 9,895,000 | ||||||||||||
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| REVENUE | $ | 133,845 | $ | 2,250 | ||||
| COST OF GOODS SOLD | 104,982 | - | ||||||
| GROSS PROFIT | 28,863 | 2,250 | ||||||
| SELLING, GENERAL AND ADMINISTRATIVE | ||||||||
| Research and development | 96,390 | 22,290 | ||||||
| Professional fees | 123,608 | 111,073 | ||||||
| Sales and marketing expenses | 40,584 | 47,792 | ||||||
| Occupancy expenses | 11,638 | 22,060 | ||||||
| General and administrative expenses | 208,635 | 201,241 | ||||||
| TOTAL SELLING, GENERAL AND ADMINISTRATIVE | 480,855 | 404,456 | ||||||
| LOSS FROM OPERATIONS | (451,992 | ) | (402,206 | ) | ||||
| OTHER INCOME (EXPENSE): | ||||||||
| Interest expense | (88,291 | ) | (8,053 | ) | ||||
| Other income | 1,290 | - | ||||||
| Foreign currency transaction loss | (123 | ) | - | |||||
| TOTAL OTHER EXPENSE | (87,124 | ) | (8,053 | ) | ||||
| LOSS BEFORE INCOME TAXES | (539,116 | ) | (410,259 | ) | ||||
| PROVISION FOR INCOME TAXES | - | - | ||||||
| NET LOSS | (539,116 | ) | (410,259 | ) | ||||
| OTHER COMPREHENSIVE LOSS | ||||||||
| Foreign currency translation adjustment | (1,053 | ) | - | |||||
| TOTAL COMPREHENSIVE LOSS | $ | (540,169 | ) | $ | (410,259 | ) | ||
| NET LOSS PER COMMON SHARE | ||||||||
| Basic and diluted | $ | (0.03 | ) | $ | (0.02 | ) | ||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | ||||||||
| Basic and diluted | 19,380,460 | 19,205,624 | ||||||
The accompanying notes toare an integral part of these unaudited condensed consolidated financial statements.
5Brain Scientific Inc. and Subsidiaries
TableCONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Comprehensive | |||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income | Total | |||||||||||||||||||
| Balance at December 31, 2019 | 19,380,460 | $ | 19,381 | $ | 2,756,798 | $ | (3,672,077 | ) | $ | 366 | $ | (895,532 | ) | |||||||||||
| Fair value of stock options vested | - | - | 5,914 | - | - | 5,914 | ||||||||||||||||||
| Issuance of common stock for services | 3,334 | 3 | 9,999 | - | - | 10,002 | ||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | (1,053 | ) | (1,053 | ) | ||||||||||||||||
| Net loss | - | - | - | (539,116 | ) | (539,116 | ) | |||||||||||||||||
| Balances at March 31, 2020 | 19,383,794 | $ | 19,394 | $ | 2,772,711 | $ | (4,211,193 | ) | $ | (687 | ) | $ | (1,419,785 | ) | ||||||||||
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Comprehensive | |||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income | Total | |||||||||||||||||||
| Balance at December 31, 2018 | 19,205,624 | $ | 19,206 | $ | 2,595,034 | $ | (2,668,212 | ) | $ | - | $ | (53,972 | ) | |||||||||||
| Fair value of stock options vested | - | - | 4,334 | - | - | 4,334 | ||||||||||||||||||
| Issuance of common stock for services | 13,334 | 13 | 548 | - | - | 561 | ||||||||||||||||||
| Net loss | - | - | - | (410,259 | ) | (410,259 | ) | |||||||||||||||||
| Balances at March 31, 2019 | 19,218,958 | $ | 19,219 | $ | 2,599,916 | $ | (3,078,471 | ) | $ | - | $ | (459,336 | ) | |||||||||||
The accompanying notes are an integral part of Contents
| For the | For the | |||||||
| Nine Months Ended | Nine Months Ended | |||||||
| September 30, | September 30, | |||||||
| 2017 | 2016 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (68,290 | ) | $ | (69,373 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Imputed interest | 4,065 | - | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | (57 | ) | - | |||||
| Inventory | 1,160 | - | ||||||
| Accounts payable | 927 | 30,360 | ||||||
| Due to related parties | 11,095 | 39,063 | ||||||
| Net cash used in operating activities | (51,100 | ) | 50 | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from officer loan | 16,400 | - | ||||||
| Proceeds from convertible notes payable | 34,600 | - | ||||||
| Net cash provided by financing activities | 51,000 | - | ||||||
| Net decrease in cash and cash equivalents | (100 | ) | 50 | |||||
| Cash and cash equivalents at beginning of period | 160 | 50 | ||||||
| Cash and cash equivalents at end of period | $ | 60 | $ | 100 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Interest paid | $ | - | $ | - | ||||
| Income taxes paid | $ | - | $ | - | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Offset officer salary payable against subscription receivable | $ | - | $ | 10,000 | ||||
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (539,116 | ) | $ | (410,259 | ) | ||
| Change in net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | 341 | 299 | ||||||
| Amortization of debt discount | 66,549 | 3,117 | ||||||
| Fair value of stock options vested | 5,914 | 4,334 | ||||||
| Common stock issued for services | 10,002 | 561 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (1,151 | ) | - | |||||
| Inventory | (371 | ) | - | |||||
| Other liabilities | (1,782 | ) | (1,411 | ) | ||||
| Prepaid expenses and other current assets | 11,308 | (5,707 | ) | |||||
| Accounts payable and accrued expenses | 196,513 | 17,163 | ||||||
| Accounts payable - related party | (526 | ) | (31,900 | ) | ||||
| NET CASH USED IN OPERATING ACTIVITIES | $ | (252,319 | ) | $ | (423,803 | ) | ||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | $ | - | $ | (1,005 | ) | |||
| NET CASH USED IN INVESTING ACTIVITIES | $ | - | $ | (1,005 | ) | |||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible notes payable | $ | - | $ | 230,000 | ||||
| Proceeds from note payable | 20,000 | - | ||||||
| Proceeds from related party loans | - | 75,000 | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | $ | 20,000 | $ | 305,000 | ||||
| Effect of exchange rate changes on cash | (1,170 | ) | - | |||||
| NET CHANGE IN CASH | (233,489 | ) | (119,808 | ) | ||||
| CASH AT BEGINNING OF THE PERIOD | 261,436 | 163,563 | ||||||
| CASH AT END OF THE PERIOD | $ | 27,947 | $ | 43,755 | ||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Cash paid for interest | $ | - | $ | - | ||||
| Cash paid for taxes | $ | - | $ | - | ||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities | ||||||||
| Financing fees payable to a related party related to the issuance of convertible debentures | $ | - | $ | 18,400 | ||||
The accompanying notes toare an integral part of these unaudited condensed consolidated financial statements.
BRAIN SCIENTIFIC INC.
March 31, 2020
(unaudited)
NOTE 1 – Nature of Business and Significant Accounting Policies
Brain Scientific Inc. (the “Company”), was incorporated inunder the laws of the state of Nevada on November 18, 2013 (“Inception”), to market a soft gel Kre-Alkalyn capsule.
Reverse Merger and Corporate Restructure
On September 21, 2018, the Company has one major order distributedentered into a merger agreement (the “Merger Agreement”) with MemoryMD and sold over 400 BottlesAFGG Acquisition Corp. to acquire MemoryMD (the “Acquisition”). The transactions contemplated by the Merger Agreement were consummated on September 21, 2018 and, pursuant to the terms of the Merger Agreement, all outstanding shares of MemoryMD were exchanged for shares of the Company’s common stock. Accordingly, the Company acquired 100% of MemoryMD in exchange for the issuance of shares of the Company’s common stock and MemoryMD became the Company’s wholly owned subsidiary. The Company issued an additional 4,083,252 shares of its common stock upon the automatic conversion at the closing of an aggregate of $1,507,000 principal amount plus accrued interest of outstanding convertible promissory notes issued by MemoryMD, and it further issued an additional 1,604,378 shares of its common stock upon the automatic conversion immediately subsequent to the closing of an aggregate of $640,000 principal amount plus accrued interest of outstanding convertible promissory notes issued by MemoryMD. Furthermore, as of the dateclosing, Mr. Amer Samad, the sole director and executive officer until the consummation of this report.the Acquisition, committed to tender for cancellation 6,495,000 shares of the Company’s common stock as part of the conditions to closing, of which 6,375,000 have been cancelled at December 31, 2018 and 120,000 are expected to be cancelled as soon as practicable. Total shares issued as a result of the Acquisition was 13,421,752.
The Acquisition has been accounted for as a reverse recapitalization of Brain Scientific by MemoryMD, but in substance as a capital transaction, rather than a business combination since Brain Scientific had nominal or no operations and assets prior to and as of the closing of the Acquisition. The transaction is deemed a reverse recapitalization and the accounting is similar to that resulting from a reverse acquisition, except that no goodwill or other intangible assets should be recorded. For accounting purposes, MemoryMD is treated as the surviving entity and accounting acquirer although Brain Scientific was the legal acquirer. Accordingly, the Company’s historical financial statements are those of MemoryMD.
All references to common stock, share and per share amounts have been retroactively restated to reflect the reverse recapitalization as if the transaction had taken place as of the beginning of the earliest period presented.
Assignment and Assumption Agreement
As of immediately prior to the closing of the Acquisition, the Company entered into an Assignment and Assumption Agreement with Chromium 24 LLC, pursuant to which Chromium 24 LLC assumed all of the Company’s remaining assets and liabilities through the closing of the Acquisition. Accordingly, as of the closing of the Acquisition, Brain Scientific had no assets or liabilities other than the shares of MemoryMD acquired in the Acquisition.
Name Change and Increase in Authorized Shares
On September 18, 2018, the Company filed an amendment to its certificate of incorporation with the Nevada Secretary of State to change its name to Brain Scientific Inc. On September 18, 2018, FINRA approved of the name change as well as a ticker symbol change, which was effective as of September 19, 2018. In addition, the Company increased its authorized shares of common stock from 50,000,000 to 200,000,000 and created and authorized 10,000,000 shares of undesignated preferred stock.
BRAIN SCIENTIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)
Unaudited Interim Financial Information
The Company has prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These consolidated financial statements are unaudited and, in the Company’s opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of its balance sheets, operating results, and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for 2020. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles and reflect all adjustments which, in the opinionGAAP.
Principles of management, are necessary for a fair presentation. All such adjustments are of a normal recurring nature.
The Company has adopted a fiscal year endevaluates the need to consolidate affiliates based on standards set forth in ASC 810 Consolidation (“ASC 810”).
The consolidated financial statements include the accounts of December 31st.
Use of Estimates
The preparation of financial statements in conformityaccordance with accounting principles generally accepted in the United StatesU.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosuredisclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments with initial maturitiesan original maturity of three months or less. less to be cash equivalents. At March 31, 2020 and December 31, 2019, the Company had no cash equivalents.
The Company maintains itsCompany’s cash balances at credit-worthyis held with financial institutions, that are insured byand the account balances may, at times, exceed the Federal Deposit Insurance Corporation (“FDIC”)(FDIC) insurance limit. Accounts are insured by the FDIC up to $250,000. Deposits$250,000 per financial institution. The Company has not experienced any losses in such accounts with these banks may exceed the amount of insurance provided on such deposits; however, these deposits typically may be redeemed upon demand and, therefore, bear minimal risk.financial institutions. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, the Company had no cash equivalents.$0 and $11,436, respectively, in excess over the FDIC insurance limit.
BRAIN SCIENTIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)
Inventory
Inventory consists of finished goods that are periodically evaluatedvalued at lower of cost or market using the weighted average method. As of March 31, 2020 and December 31, 2019, the Company had inventory totaling $371 and $0, respectively.
Property, Equipment and Depreciation
Property and equipment are recorded at cost, less depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Expenditures for collectability based on past credit historyrepair and maintenance are charged to operations as incurred. Property and equipment consisted of computer equipment, with customersan estimated useful life of three years. Depreciation expense was $341 and their current financial condition. Bad debts expense or write offs$299 for the three months ended March 31, 2020 and 2019, respectively.
Convertible Notes Payable
The Company has issued convertible notes, which contain variable conversion features, whereby the outstanding principal and accrued interest automatically convert into common shares at a fixed price which may be at a discount to the common stock at the time of receivablesconversion. The conversion features of these notes are determined oncontingent upon future events, whereby, the basis of loss experience, known and inherent risksholder agreed not to convert until the contingent future event has occurred.
Revenue Recognition
On January 1, 2018, the Company adopted ASC Topic 606 Revenue from Contracts with Customers. This guidance requires an entity to recognize revenue by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the receivable portfoliocontract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and current economic conditions. During(5) recognize revenue when each performance obligation is satisfied. Once the periods ended September 30, 2017 and September 30, 2016, the Company wrote off accounts receivable totaling $0 and $0, respectively. There were no allowances for doubtful accounts recorded for the period ended September 30, 2017 or the year ended December 31, 2016.
The Company had no items that required fair value measurement on a recurring basis.
Research and determinable;Development Costs
The Company expenses all research and (4) collectabilitydevelopment costs as they are incurred. Research and development includes expenditures in connection with in-house research and development salaries and staff costs, application and filing for regulatory approval of proposed products, regulatory and scientific consulting fees, as well as contract research, data collection, and monitoring, related to the research and development of the cloud infrastructure, data imaging, and proprietary products and technology. Research and development costs recognized in the statement of operations for the three months ended March 31, 2020 and 2019 were $96,390 and $22,290, respectively.
Sales and Marketing
Advertising and marketing costs are expensed as incurred. Advertising and marketing costs recognized in the statement of operations for the three months ended March 31, 2020 and 2019 were $40,584 and $47,792, respectively.
Stock-based Compensation
The Company measures and recognizes compensation expense for all stock-based payments at fair value over the requisite service period. The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options and warrants. Equity-based compensation expense is reasonably assured. Determination of criteria (3) and (4) arerecorded in administrative expenses based on management’s judgment regarding the fixed natureclassification of the selling pricesemployee or vendor. The determination of fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as by assumptions regarding a number of subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the products deliveredawards, and the collectability of those amounts. Provisions for discountsactual and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.projected employee stock option exercise behaviors.
BRAIN SCIENTIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)
Basic and Diluted Net Loss Per Common Share
Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividingoutstanding for the net loss adjusted on an “asperiod and, if converted” basis, by the weighted average number ofdilutive, potential common shares outstanding plus potentialduring the period. Potentially dilutive securities. Forsecurities consist of the periods presented, there were no outstanding potentialincremental common shares issuable upon exercise of common stock equivalents such as stock options, warrants and thereforeconvertible debt instruments. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. As a result, the basic and diluted earnings per share resultamounts for all periods presented are identical. In the three months ended March 31, 2020 2,302,250 anti-dilutive securities were excluded from the computation.
Fair Value of Financial Instruments
The Company’s financial instruments are measured and recorded at fair value based on inputs and assumptions that market participants would use in pricing an asset or a liability. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, management considers the principal or most advantageous market in which the Company would transact, and also considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
Fair value is determined for assets and liabilities using a three-tiered value hierarchy into which these assets and liabilities are grouped based upon significant inputs as follows:
| ● | Level 1 - Quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2 - Observable inputs, other than Level 1 prices, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. |
| ● | Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. When a determination is made to classify a financial instrument within Level 3, the determination is based upon the lack of significance of the observable parameters to the overall fair value measurement. However, the fair value determination for Level 3 financial instruments may consider some observable market inputs. |
The lowest level of significant input determines the placement of the entire fair value measurement in the same figure.
The Company did not issuehave any stockother Level 1, Level 2 or optionsLevel 3 assets or liabilities as of March 31, 2020 and December 31, 2019.
Income Taxes
The Company accounts for services or compensationincome taxes using the asset-and-liability method in accordance with ASC Topic 740, “Income Taxes”. Deferred tax assets and liabilities are recognized for the nine months ended September 30, 2017future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and September 30, 2016.
BRAIN SCIENTIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)
The Company follows the guidance in ASC Topic 740-10 in assessing uncertain tax positions. The standard applies to all tax positions and clarifies the recognition of tax benefits in the financial statements by providing for a two-step approach of recognition and measurement. The first step involves assessing whether the tax position is more-likely-than-not to be sustained upon examination based upon its technical merits. The second step involves measurement of the services provided, oramount to be recognized. Tax positions that meet the fair market valuemore-likely-than-not threshold are measured at the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate finalization with the stock issued multipliedtaxing authority. The Company recognizes the impact of an uncertain income tax position in the financial statements if it believes that the position is more likely than not to be sustained by the numberrelevant taxing authority. The Company will recognize interest and penalties related to tax positions in income tax expense. As of shares awarded.
On December 22, 2017, the passage of legislation commonly referred to as the Tax Cuts and Jobs Act (“TCJA”) was enacted and significantly revised the U.S. income tax law. The TCJA includes changes, which reduce the corporate income tax rate from 34% to 21% for our employee stock options underyears beginning after December 31, 2017. On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued and allows a company to recognize provisional amounts when it does not have the fair value methodnecessary information available, prepared or analyzed, including computations, in reasonable detail to complete its accounting for the change in tax law. SAB 118 provides for a measurement of accounting using a Black-Scholes valuation modelup to measure stock option expense atone year from the date of grant. We do not backdate, re-price,enactment.
Recent Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board (“FASB”) or grant stock-based awards retroactively. Asother standard setting bodies that the Company adopts as of the datespecified effective date. Unless otherwise discussed, the Company does not believe that the impact of this report, we have not issued any stock options.
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses at the point a loss is probable to occur, rather than expected to occur, which will generally result in earlier recognition of allowances for credit losses. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted ASU 2016-13 in the first quarter of 2020 and the adoption did not have a material impact on its condensed consolidated financial statements.
NOTE 3 – Going Concern
The accompanying financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company has incurred recurringas a going concern for a period of one year from the issuance of these financial statements. For the three months ended March 31, 2020, the Company had $133,845 in revenues, a net losses fromloss of $539,116 and had net cash used in operations resulting in anof $252,319. Additionally, as of March 31, 2020, the Company had working capital deficit, stockholders’ deficit and accumulated deficit of $159,073, cash of $60,$1,421,118, $1,419,785 and a working capital deficit of ($144,770) as of September 30, 2017. These factors$4,211,193 respectively. It is management’s opinion that these conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management is actively pursuing new ventures to increase revenues. In addition,concern for a period of twelve months from the Company is currently seeking additional sourcesdate of capital to fund short term operations. The Company, however, is dependent upon its ability to secure equity and/or debt financing and there are no assurances that the Company will be successful, therefore, without sufficient financing it would be unlikely for the Company to continue as a going concern.
The financial statements do not include any adjustments that might result fromto reflect the outcome of any uncertainty as to the Company’s ability to continue as a going concern. The financial statements also do not include any adjustments relating topossible future effect on the recoverability and classification of recorded asset amounts,assets or the amounts and classifications of liabilities that mightmay result from the outcome of this uncertainty.
BRAIN SCIENTIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)
Successful completion of the Company’s development program and, ultimately, the attainment of profitable operations are dependent upon future events, including obtaining adequate financing to fulfill its development activities, acceptance of the Company’s patent applications and ultimately achieving a level of sales adequate to support the Company’s cost structure. However, there can be necessary shouldno assurances that the Company will be unableable to continue as a going concern.
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Finished goods inventory | $ | 2,260 | $ | 3,420 | ||||
NOTE 4 – CONVERTIBLE NOTES PAYABLE
In January 2019, the Company commenced an offering of up to $500,000 pursuant to which the Company will issue convertible notes to investors. On January 18, 2019, February 5, – Convertible Notes Payable
The notes are convertible into common stock of the Company 90 days after issuancefollowing events on the following terms: with no action on the part of the note holder upon the consummation of a Qualified Financing, the debt will be converted to new round stock based on the product of the outstanding principal and accrued interest multiplied by 1.35, then divided by the accrual per share price of the new round common stock. If a change of control occurs or if the Company completes a firmly underwritten public offering of its common stock prior to the Qualified Financing the notes would, at the election of the holders of a majority of the outstanding principal of the notes, be either payable on demand as of the closing of such change of control or Initial Public Offering (‘IPO”) or convertible into shares of common stock immediately prior to such change of control transaction or IPO transaction at a rate of $0.002price per share equal to the lesser of the per share value of the common stock as determined by the Company’s Board of Directors or the per share consideration to be received by the holders of the common stock in such change of control or IPO transaction. Based on the terms of the conversion, the holders may receive a discount, and the notes are considered to have a contingent beneficial conversion feature. If conversion of the debt occurs, the Company will recognize an expense related to the intrinsic value. The Company recorded $37,541of accrued interest and has a total outstanding principal balance of 17,500,000 shares. Since$380,000 as of March 31, 2020.
In the event that the Company consummates a financing prior to the Maturity Date, other than a Qualified Financing, and the economic terms thereof are more favorable to the investors in such financing than the terms of the note, the note shall automatically be amended to reflect such more favorable economic terms.
December 31, 2019 Securities Purchase Agreement
On December 31, 2019, the Company entered into a Securities Purchase Agreement and issued and sold to a third party (the “Investor”) a Convertible Note in the original principal amount of $275,000 (the “Note”), and a warrant to purchase 100,000 shares of the Company’s common stock (the “Warrant”). The aggregate purchase price received by the Company was $250,000 after an original issue discount of $25,000. A one-time interest charge of 8% was applied on December 31, 2019 and will be payable, along with the Principal, on July 31, 2020 (the “Maturity Date”), as may be extended at the option of the Investor.
The unpaid outstanding principal amount and accrued and unpaid interest under the Note shall be convertible into shares of the Company’s common stock at any time at the option of the Investor. The conversion price shall be equal to 80% multiplied by the price per share paid by the investors in the next capital raising transaction consummated by the Company in the amount of $1,000,000 or more (the “Qualified Financing”), subject to adjustments as provided in the Note. In the event the Investor elects to convert the Note prior to a Qualified Financing, the conversion price shall be the effective exercise price per share from time to time pursuant to the Warrant. At any time prior to the Maturity Date, upon 10 business days’ notice to the Investor, the Company shall have the right to pre-pay the entire remaining principal amount of the Note subject to the pre-payment terms contained in the Note. The note is valued at face value and not considered a derivative since the Qualified Financing is at the control of the Company. The Company recorded $9,429 of accrued interest and has a total outstanding principal balance of $275,000 as of March 31, 2020.
BRAIN SCIENTIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)
The Note contains a price-based anti-dilution provision, pursuant to which the conversion price of the November 2017 Convertible Note shall be reduced upon the occurrence of certain dilutive issuances of Company securities as set forth in the Note. The conversion of the Note is also subject to a beneficial ownership limitation of 4.99% of the number of shares of common stock outstanding immediately after giving effect to such conversion. In the event the Company, prior to the Maturity Date, issues any Security (as defined in the Note) with any term more favorable to the holder of such Security or with a term in favor of the holder of such Security that was abovenot similarly provided to the stock priceInvestor, then at the Investor’s option such term shall become a part of $0.001 established in recent transactions, there was no beneficial conversion feature or discount associated with this note.the Note. The Company calculated imputed interest atalso agreed to provide piggy-back registration rights to the rate of 8% per year on this note, and charged the amount of $706 and $2,093Investor pursuant to operations and credited additional paid-in capital during the three and nine months ended September 30, 2017.
The Note contains events of $34,600 (the “January 2017 Convertible Note”). This note was originallydefault which, among other things, entitle the Investor to accelerate the due 90 days from the date of the note, but was further extendedunpaid principal amount of, and all accrued and unpaid interest on, the Note. Upon the occurrence of any event of default, the outstanding balance shall immediately and automatically increase to
The Warrant has an exercise price of $0.001 established$1.25 per share (the “Exercise Price”), subject to adjustments as provided in recent transactions, there was nothe Warrant, and has a term of five years. The Warrant contains a price-based anti-dilution provision, pursuant to which the exercise price of the Warrant shall be reduced upon the occurrence of certain dilutive issuances of securities as set forth in the Warrant, with a corresponding increase in the number of shares underlying the Warrant if the dilutive event occurs during the first three years of the Warrant, and a cashless exercise provision. The exercise of the Warrant is subject to a beneficial conversion feature associated with this note. The January 2017 Convertible Note was not funded until January 13, 2017, and therefore was recorded onownership limitation of 9.99% of the
In the year on this note,ended December 31, 2019, the Company recorded a total debt discount of $155,768 related to the above convertible notes. Amortization of the debt discount is recorded as interest expense and charged the amounta total of $697 and $1,972 to operations and credited additional paid-in capital$66,549 was amortized during the three and nine months ended September 30, 2017.March 31, 2020.
NOTE 5 – PROMISSORY NOTES
October 23, 2019 Note
On October 23, 2019, an investor of the Company subscribed for a promissory note (the “October Note”) and loaned to the Company $50,000.
The October Note bears interest at a fixed rate of 14% per annum, computed based on a 360-day year of twelve 30-day months, which interest will be payable quarterly until the maturity date. The principal amount and any accrued and unpaid interest due under the October Note is payable on October 21, 2020. The Company recorded $1,359 of accrued interest and has a total outstanding principal balance of $50,000 as of March 31, 2020.
The October Note contains customary events of default, which, if uncured, entitle the lender to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, the October Note.
BRAIN SCIENTIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)
February 21, 2020 Note
On February 21, 2020, a third party loaned the Company $20,000, evidenced by a non-convertible promissory note (the “February Note”).The February Note bears interest at a fixed rate of 12% per annum, computed based on a 360-day year of twelve 30-day months, which interest will be payable quarterly until the maturity date. The principal amount and any accrued and unpaid interest due under the February Note is payable on July 1, 2020. The Company recorded $260 of accrued interest and has a total outstanding principal balance of $20,000 as of March 31, 2020.
The February Note contains customary events of default, which, if uncured, entitle the lender to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, the February Note.
NOTE 6 – OTHER LIABILITIES
In 2016, the Company recorded a liability in connection with the sale of two Electroencephalograms (“EEG”) machines as it provided a guarantee to the customer’s financing company (See Note 2). In June 2017, the customer defaulted on its payments and an additional $19,107 was booked as a liability and recognized as a loss on the sale of the assets for interest and some taxes related to the transaction. As of March 31, 2020 and December 31, 2019, total liability to the financing company reflected in Other Liabilities is $4,595 and $6,377, respectively.
Future minimum commitments related to the EEG liability consisted of the following at March 31, 2020:
| Years ended December 31, | Amount (USD) | |||
| Remainder 2020 | 4,595 | |||
| Total | $ | 4,595 | ||
NOTE 7 – Related Party Transactions
During the nineyear ended December 31, 2018, an entity controlled by Mr. Vadim Sakharov, former CEO of the Company and current director and executive officer, 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 March 31, 2020, and December 31, 2019, the balance was $55,530 and $55,530, respectively.
During the three months ended September 30, 2017,March 31, 2020 and 2019, the Company had expenses related to research and development costs of $10,200 and $0, respectively, to an entity controlled by Mr. Sakharov.
During the year ended December 31, 2019, an affiliate of Boris Goldstein, the Company’s CEO, Gene Nelson,Chairman of the Board, provided an aggregate total of $50,000, in non-interest-bearing, no-term loans to the Company. As of March 31, 2020 and December 31, 2019, the balance was paid$50,000 and $50,000, respectively.
On September 1, 2018, the net amount of $30,000 as partial payment of accrued salary. At September 30, 2017, Mr. Nelson is owedCompany entered into a sublease agreement with a company controlled by the amount of $53,958Company’s Chairman, whereby the Company makes payments to the related party for accrued salary.
During the nineyear 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 March 31, 2020 and December 31, 2019, the balance was $217,000 and $217,000, respectively.
During the three months ended September 30, 2017,March 31, 2020 and 2019, the Company’s CEO, Gene Nelson, advanced theCompany purchased an aggregate of $101,613 and $0 of medical devices for resale and distribution from Neurotech, a company $16,400that Mr. Sakharov is a shareholder and executive manager.
BRAIN SCIENTIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)
NOTE 8 – STOCKHOLDERS’ DEFICIT
Preferred Stock
The Company has authorized 10,000,000 shares of undesignated preferred stock with a $0.001 par value. As of March 31, 2020, no preferred shares have been issued and these shares are considered blank check preferred shares with no terms, limitations, or rights associated with them.
Common Stock
The Company has authorized 200,000,000 shares of common stock with a $0.001 par value per share. The holders of common stock are entitled to fund operations. These amounts bear interestone vote for each share of common stock held at the time of vote. As of March 31, 2020, the Company had 19,383,794 shares outstanding or deemed outstanding.
Shares Issued for Services
On August 8, 2018, the Company entered into a one-year agreement with an advisor for consulting services, as extended for an additional one-year period. The Company extended this agreement through August 9, 2020. Pursuant to the agreement, as amended, the Company has the right to pay $5,000 or issue the advisor a maximum of 6,667 shares of common stock on a quarterly basis. The Company elected to issue 1,667 shares for the services provided during the three months ended March 31, 2020 at a value of $3.00 per share or $5,001.
On August 28, 2018, the Company entered into a one-year agreement with an advisor for consulting services, as extended for an additional one-year period. The Company has extended this agreement through August 28, 2020. Pursuant to the agreement, as amended, the Company has the right to pay $5,000 or issue the advisor a maximum of 6,667 shares of common stock on a quarterly basis. The Company elected to issue 1,667 shares for the services provided during the three months ended March 31, 2020 at a value of $3.00 per share or $5,001.
Warrants
The following table summarized the warrant activity for the three months ended March 31, 2020:
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Number of | Exercise | Contractual | Intrinsic | |||||||||||||
| Warrants | Shares | Price | Term | Value | ||||||||||||
| Balance Outstanding, December 31, 2019 | 502,250 | $ | 0.57 | 3.98 | $ | - | ||||||||||
| Granted | - | - | - | - | ||||||||||||
| Forfeited | - | - | - | - | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Expired | - | - | - | - | ||||||||||||
| Balance Outstanding, March 31, 2020 | 502,250 | $ | 0.57 | 3.73 | $ | - | ||||||||||
| Exercisable, March 31, 2020 | 502,250 | $ | 0.57 | 3.73 | $ | - | ||||||||||
Options
On January 14, 2019, the Board of Directors approved the issuance of options to purchase an aggregate of 800,000 and 200,000 shares of common stock to Boris Goldstein and Vadim Sakharov, respectively. The options have an exercise price of $0.75 per share which will vest over a 24-month period as follows: 25% (or 200,000 and 50,000, respectively) shall vest six months after the grant date with the remaining options will vest on a monthly basis at a rate of 3%1/24th per annum,month. The options will expire on January 14, 2029. The aggregate fair value of $17,111 was calculated using the Black-Scholes pricing model with the following assumptions: (i) expected life 10 years, (ii) volatility of 77%, (iii) risk free rate of 2.71% (iv) dividend rate of zero, (v) stock price of $0.042, and (vi) exercise price of $0.75. The expense will be amortized over the vesting period and a total of $10,432 was recorded during the year ended December 31, 2019. A total of $1,595 was recorded during the three months ended March 31, 2020.
BRAIN SCIENTIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)
On January 30, 2020, the Board of Directors approved the issuance of options to purchase an aggregate of 800,000 of common stock to Boris Goldstein. The options have an exercise price of $0.75 per share which will vest over a 24-month period on a monthly basis at a rate of 1/24th per month. The options will expire on January 30, 2030. The aggregate fair value of $51,757 was calculated using the Black-Scholes pricing model with the following assumptions: (i) expected life 10 years, (ii) volatility of 76%, (iii) risk free rate of 1.57% (iv) dividend rate of zero, (v) stock price of $0.12, and (vi) exercise price of $0.75. The expense will be amortized over the vesting period. A total of $4,319 was recorded during the three months ended March 31, 2020.
The following table summarized the option activity for the three months ended March 31, 2020:
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Number of | Exercise | Contractual | Intrinsic | |||||||||||||
| Options | Shares | Price | Term | Value | ||||||||||||
| Balance Outstanding, December 31, 2019 | 1,000,000 | $ | 0.75 | 9.05 | $ | - | ||||||||||
| Granted | 800,000 | 0.75 | 10 | - | ||||||||||||
| Forfeited | - | - | - | - | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Expired | - | - | - | - | ||||||||||||
| Balance Outstanding, March 31, 2020 | 1,800,000 | $ | 0.75 | 9.26 | $ | - | ||||||||||
| Exercisable, March 31, 2020 | 818,750 | $ | 0.75 | 8.92 | $ | - | ||||||||||
For future periods, the remaining value of the stock options totaling approximately $52,523 will be amortized into the statement of operations consistent with the period for which the services will be rendered.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Operating Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on their balance sheets as a right-of-use asset with a corresponding lease liability. Lessor accounting under the standard is substantially unchanged. Additional qualitative and quantitative disclosures are duealso required. The Company adopted the standard effective January 1, 2019 using the cumulative-effect adjustment transition method, which applies the provisions of the standard at the effective date without adjusting the comparative periods presented. The Company adopted the following practical expedients and elected the following accounting policies related to this standard update:
| ● | The option to not reassess prior conclusions related to the identification, classification and accounting for initial direct costs for leases that commenced prior to January 1, 2019. |
| ● | Short-term lease accounting policy election allowing lessees to not recognize right-of-use assets and liabilities for leases with a term of 12 months or less. |
| ● | The option to not separate lease and non-lease components for certain equipment lease asset categories such as freight car, vehicles and work equipment. |
| ● | The package of practical expedients applied to all of its leases, including (i) not reassessing whether any expired or existing contracts are or contain leases, (ii) not reassessing the lease classification for any expired or existing leases, and (iii) not reassessing initial direct costs for any existing leases. |
BRAIN SCIENTIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(unaudited)
As a result of the above, the adoption of ASC 842 did not have a material effect on demand.
The Company has inventoried all leases where the Company is a lessee as of the initial date of application and has examined other contracts with suppliers, vendors, customers and other outside parties to identify whether such contracts contain an embedded lease as defined under the new guidance. The Company’s lease population comprises lease for corporate office space and a warehouse that are year-to-year basis with monthly rent ranging from approximately $150 to $3,200 and qualify under the practical expedient of short-term leases. The Company does not have exclusive rights of control to any assets in the customer and vendor contracts reviews and does not have any financing leases as of the date of adoption of ASC 842.
Beginning January 1, 2020, the Company entered into a 12-month lease agreement ending December 31, 2020, with a third party in Russia. The Company is authorized to issue 50,000,000 sharespaying rent at a rate of $0.001 par value common stock.17,900 Rubles ($227) per month.
Beginning June 1, 2019, the Company entered into a 10-month lease agreement ending March 31, 2020 with a third party in Russia. The Company has 10,000,000 common shares issuedis paying rent at a rate of 12,000 Rubles ($152) per month.
Additionally, the Company also rents a warehouse. Beginning December 1, 2018, the Company entered into a 6-month warehouse rental agreement for $2,980 per month. The lease was renewed on June 1, 2019 for an additional year ending May 31, 2020, for $3,171 per month.
Total rent expense for the three months ended March 31, 2020 and outstanding as2019 was $11,638 and $22,060 respectively.
Equity Incentive Plan
As of September 30, 201721, 2018, the Company’s board of directors adopted, and December 31, 2016.
NOTE 10 – SUBSEQUENT EVENTS
In accordance with ASC 855 “Subsequent Events,” Company management reviewed all material events through the date this report was issued, and the following subsequent events took place.
The Effects of COVID-19
The World Health Organization (WHO) declared the coronavirus outbreak a pandemic on January 30, 2020. Since the outbreak in China in December 2019, COVID-19 has expanded its impact to Europe, where all of our operations reside, as well as our employees, suppliers and customers. While the disruption is currently expected to be temporary, there is considerable uncertainty around the duration of the closings and shelter-in-place orders and the ultimate impact of governmental initiatives. However, the financial impact and duration cannot be reasonably estimated at this time.
Convertible Grid Notes
On April 21, 2020, the Company issued a Convertible Grid Promissory Note 9 – Subsequent Events
9BRAIN SCIENTIFIC INC. AND SUBSIDIARIES
On April 22, 2020, the Grid Investors each made their first cash advance of $25,000 pursuant to the terms of the Grid Notes, for an aggregate cash advance to the Company of $50,000 (the “First Advance”). The Grid Investors shall make additional cash advances to the Company pursuant to the terms of their Grid Notes.
The Grid Notes bear interest on the unpaid balances at a fixed simple rate of twelve percent (12%) per annum (subject to a rate increase if the Company commits an Event of Default (as defined in the Grid Notes)), computed based on a 360-day year of twelve 30-day months, commencing on the date of the respective advance and payable quarterly. The principal amount of the Aggregate Advance, or so much thereof as has been advanced to the Company by the Grid Investors from time to time pursuant to the Grid Notes, will be payable on April 21, 2021 (the “Maturity Date”), unless sooner converted into shares of the Company’s common stock pursuant to the terms of the Grid Notes.
The unpaid outstanding principal amount and accrued and unpaid interest under the Grid Notes shall be convertible at any time prior to the Maturity Date at the election of the Grid Investors into such number of shares of the Company’s common stock obtained by dividing the amount so converted by $1.00 (the “Conversion Price”). At the Maturity Date, all of the remaining unpaid outstanding principal amount and accrued and unpaid interest (the “Outstanding Balance”) under the Grid Notes shall automatically convert into such number of shares of the Company’s common stock obtained by dividing the Outstanding Balance by the Conversion Price. The Grid Notes may not be prepaid by the Company in whole or in part without the prior written consent of the respective Grid Investor.
The Grid Notes contain customary events of default, which, if uncured, entitle the Grid Investors to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, their Grid Notes.
Forward Looking Statements
The following discussion should be read in conjunction with our unaudited financial statements and related notes included in Item 1, “Financial Statements,” of this Quarterly Report on Form 10-Q. Certain information contained in this MD&A includes “forward-looking statements.” Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition and results of operations, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our existing and proposed business, including many assumptions regarding future events. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors, including those risks described in detail in the section entitled “Risk Factors” of this Quarterly Report on Form 10-Q.
Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “will,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology.
In light of these risks and uncertainties, and especially given the nature of our existing and proposed business, there can be no assurance that the forward-looking statements contained in this section and elsewhere in this Quarterly Report on Form 10-Q will in fact occur. Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
Overview
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 cutting-edge 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.
On September 21, 2018, we entered into a merger agreement (the “Merger Agreement”) with MemoryMD, Inc. and AFGG Acquisition Corp. to acquire MemoryMD, Inc. (the “Acquisition”). The transactions contemplated by the Merger Agreement were consummated on September 21, 2018 and, pursuant to the terms of the Merger Agreement, all outstanding shares of MemoryMD were exchanged for shares of our common stock. Accordingly, we acquired 100% of Memory MD, Inc. in exchange for the issuance of shares of our common stock and MemoryMD, Inc. became our wholly-owned subsidiary. We issued an additional 4,083,252 shares of our common stock upon the automatic conversion at the closing of an aggregate of $1,507,000 principal amount plus accrued interest of outstanding convertible promissory notes issued by MemoryMD Inc., and we further issued an additional 1,604,378 shares of our common stock upon the automatic conversion immediately subsequent to the closing of an aggregate of $640,000 principal amount plus accrued interest of outstanding convertible promissory notes issued by MemoryMD Inc.
As of immediately prior to the closing of the Acquisition, we entered into an Assignment and Assumption Agreement with Chromium 24 LLC, pursuant to which Chromium 24 LLC assumed all of our remaining assets and liabilities through the closing of the Acquisition. Accordingly, as of the closing of the Acquisition, we had no assets or liabilities.
Our sole business since the Acquisition is the business of MemoryMD. Our management’s discussion and analysis below is based on the financial results of MemoryMD.
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 of MemoryMD in 2015 and had an accumulated deficit of $4,211,193 as of March 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 and other borrowings. To fund our operations, for the three months ended March 31, 2020, we issued one promissory note for gross proceeds of $20,000. For the year ended December 31, 2019, we issued convertible promissory notes for aggregate gross proceeds of $630,000. In addition, during the fiscal year ended December 31, 2019, we borrowed an aggregate of $273,084 from related parties. Additionally, in April 2020, existing stockholders of the Company agreed to advance to the Company an aggregate amount of $250,000 pursuant to the terms of Convertible Grid Promissory Notes (the “Grid Notes”). As of May 12, 2020, a total aggregate amount of $50,000 has been advanced pursuant to the terms of the Grid Notes.
We need to obtain substantial additional funding in connection with our continuing operations through public or private equity or debt financings or other sources, which may include collaborations with third parties. However, we may be unable to raise additional funds when needed on favorable terms or at all. Our failure to raise such capital as and when needed would have a negative impact on our financial condition and our ability to develop and commercialize our products and future products and our ability to pursue our business strategy. See “–Liquidity and Capital Requirements” below.
Financial Overview
Revenue
For the three months ended March 31, 2020, we have generated approximately $134,000 of revenue 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.
We expect our research and development expenses to remain substantially the same for the next six to nine months as we continue to develop and commercialize our products. As we develop our cloud-based computing system, we expect our research and development expenses to significantly increase.
Interest Expense
Interest expense primarily consists of amortized note issuance costs and interest costs related to the convertible notes we issued in 2019. The convertible notes bear interest at fixed rate ranging from 8%-10% per annum.
Results of Operations
Comparison of the Three Months Ended March 31, 2020 and 2019
The following table sets forth the results of operations of the Company for the three months ended September 30, 2017, we had a net loss of $68,290,March 31, 2020 and March 31, 2019.
| Three Months Ended March 31, | Period to Period | |||||||||||
| 2020 | 2019 | Change | ||||||||||
| Revenues | $ | 133,845 | $ | 2,250 | $ | 131,595 | ||||||
| General and administrative | $ | 208,635 | $ | 201,241 | $ | 7,394 | ||||||
| Research and development | $ | 96,390 | $ | 22,290 | $ | 74,100 | ||||||
| Professional fees | $ | 123,608 | $ | 111,073 | $ | 12,535 | ||||||
| Interest expense | $ | 88,291 | $ | 8,053 | $ | 80,238 | ||||||
| Other income | $ | 1,290 | $ | - | $ | 1,290 | ||||||
Three Months Ended March 31, 2020 and 2019
Revenues
Revenue for the three months ended March 31, 2020 was $133,845 compared to a net loss of $69,373$2,250 for the ninethree months ended March 31, 2019. In the three months ended March 31, 2020, we generated 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). In the three months ended March 31, 2019, our revenue was related to data analysis of the EEG software.
General and administrative expenses
General and administrative expenses were $208,635 for the three months ended March 31, 2020, compared to $201,241 for the three months ended March 31, 2019. General and administrative costs were in-line quarter over quarter.
Research and development expenses
Research and development expenses were $96,390 for the three months ended March 31, 2020, compared to $22,290 for the three months ended March 31, 2019. The increase was primarily due to an increase in development activities surrounding the development of a new, modified version of the NeuroCap.
Professional fees
Professional fees were $123,608 for the three months ended March 31, 2020, compared to $111,073 for the three months ended March 31, 2019. The increase was primarily due to an increase in accounting fees in the current year.
Interest expense
Interest expense, for the three months ended March 31, 2020 was $88,921, of which, approximately $67,000 is related to the amortization of debt discount related to the Company’s convertible promissory notes. The additional $22,000 is related to interest expense related to the Company’s convertible notes and promissory notes. Interest expense, for the three months ended March 31, 2019 was $8,053, consisting of interest expense of $4,216 and amortization of debt issuance costs of $3,117 related to the Company’s convertible promissory notes totaling $230,000, as well as interest expense related to a lease of $720.
Other income
Other income for the three months ended March 31, 2020 was $1,290 compared to $0 in the three months ended March 31, 2019. This is primarily related to the write-off of $1,167 of accrued interest.
Liquidity and Capital Resources
While we have generated revenue in 2019 and 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 material 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. Through July 23, 2019, we sold an aggregate principal amount of approximately $2.95 million in multiple tranches of convertible promissory notes, of which $380,000 remains outstanding and unconverted. In addition, on December 31, 2019, we issued and sold to a third party a convertible note in the original principal amount of $275,000, and a warrant to purchase 100,000 shares of our common stock, pursuant to which we received $250,000 after an original issue discount of $25,000. We have also from time to time issued shares of our common stock to individuals and entities as payment for services rendered to us in lieu of cash.
All of our then-outstanding convertible promissory notes, in the aggregate principal amount plus interest through September 30, 2016, respectively. 21, 2018 of $2,275,050, converted into aggregate of 5,687,630 shares of our common stock upon or immediately after the closing of the Acquisition.
In connection with the private placement of the convertible promissory notes, we paid the placement agent a cash fee of $117,880, in addition to equity compensation in the form of common stock purchase warrants.
We have no current source of revenue to sustain our present activities other than as acting as a distributor of medical devices in Russia (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.
Our accumulated deficitindependent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of September 30, 2017 was $159,073. These conditions raiseand for the years ended December 31, 2019 and 2018, noting the existence of substantial doubt about our ability to continue as a going concern overconcern. 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 next twelve months.
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 July 2020.
In January 2019, we commenced a convertible note offering for the Three Months Ended September 30, 2017 and September 30, 2016
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 of goods sold during the three months ended September 30, 2016.
Net cash used in operating activities
Net cash used in operating activities was $252,319 for the three months ended September 30, 2017March 31, 2020 compared to $24,282$423,803 for the three months ended September 30, 2016. GeneralMarch 31, 2019. This fluctuation is primarily due to an increase in net loss of approximately $130,000 offset by an increase of approximately $63,000 in amortization of debt discount related to the 2019 issuance of a convertible debenture and administrative expensein accounts payable and changes in accrued expenses third party and related party of approximately $210,000.
Net cash used in investing activities
Net cash used in investing activities was $0 for the three months ended September 30, 2017 and September 30, 2016 consisted primarily of officer salary, legal and accounting fees, filing fees and bank service charges.
Net cash provided by financing activities
Net cash provided by financing activities was $20,000 for the three months ended September 30, 2016.
| September 30, 2017 | December 31, 2016 | |||||||
| Current Assets | $ | 2,377 | $ | 3,580 | ||||
| Current Liabilities | $ | 147,147 | $ | 84,125 | ||||
| Working Capital (Deficit) | $ | (144,770 | ) | $ | (80,545 | ) | ||
Net cash provided by financing activities was $305,000 for the three months ended March 31, 2019, which primarily consisted of the sale of the Company’s CEO Gene Nelson. There was no cash flowconvertible promissory notes for aggregate gross proceeds of $230,000 as well as proceeds from investing activities during the nine months ended September 30, 2017.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of Company’s net loss of $69,373, decreased by net change in the components of working capital in the net amount of $69,423. There was no cash flow from financing or investing activities during the nine months ended September 30, 2016.
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 complications frequently encountered by entrance into established marketsjudgments.
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 competitive naturereported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying consolidated financial statements include the estimates of useful lives for depreciation.
Fair Value of Financial Instruments: Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
| ● | Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. |
| ● | Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means. |
| ● | Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. |
Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and borrowings. The fair value of current financial assets and current financial liabilities approximates their carrying value because of the short-term maturity of these financial instruments.
Income Taxes. The Company accounts for income taxes under the asset and liability method, as required by the accounting standard for income taxes, ASC 740. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, 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 we operate.
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 generate sufficient cash fromrecognize 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 meet our cash needs and/or to raise funds to finance ongoing operations and repay debt. There can be no assurance, however, that weprovide service in exchange for the compensation. Any remaining unrecognized balance will be successfulrecognized 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 our effortsaccordance with the measurement and recognition criteria of ASC 505-50 “Equity-Based Payments to raise additional debt or equity capital and/or that our cash generated by our future operationsNon-Employees.”
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses at the point a loss is probable to occur, rather than expected to occur, which will be adequate to meet our needs. These factors, among others, indicate that we may be unable to continue as a going concerngenerally result in earlier recognition of allowances for a reasonable period of time.
Off-Balance Sheet Arrangements
We do not have anyno off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results orof operations, liquidity, capital expenditures or capital resources that are material to investors.
Not applicable as we are currently considered afor smaller reporting company.
Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures are(as defined in Rule 13a-15(e) under the Exchange Act). As required by Rule 13a-15(b) under the Exchange Act, management of the Company, under the direction of our Board of Directors and Chief Financial Officer, reviewed and performed an evaluation of the effectiveness of design and operation of our disclosure controls and other procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of March 31, 2020. Based on that are designedreview and evaluation, the Board of Directors and Chief Financial Officer, along with the management of the Company, have determined that as of March 31, 2020, the disclosure controls and procedures were not effective to ensureprovide reasonable assurance that information required to be disclosed by us in the reports that we file or submit pursuant tounder the requirements of the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’sSEC’s rules and forms. Disclosure controlsforms and procedures include, among other things, controls and procedures designedwere not effective to ensureprovide reasonable assurance that such information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officers,officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during our most recentlast fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
OTHER INFORMATION
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to which our companyinherent uncertainties, and an adverse result in these or subsidiary isother matters may arise from time to time that may harm business.
We are not currently a party in any legal proceeding or of which any of their property is the subject. In addition,governmental regulatory proceeding nor are we do not knowcurrently aware of any such proceedings contemplated by anypending or potential legal proceeding or governmental authorities.
Not required for a smaller reporting company.
All unregistered issuances of equity securities during the period covered by this quarterly report have been previously disclosed on our Current Reports on Form 8-K. Please see Item 5- Other Information regarding unregistered issuances of equity securities during the period subsequent to the period covered by this quarterly report.
None.
Not applicable.
None.
The exhibits listed below are hereby furnished to the SEC as part of this report:
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| By: | /s/ | ||
| Name: | Boris Goldstein | ||
| Title: | Chairman of the Board | ||
| (Interim Principal Executive Officer) | |||
| By: | |||
| Name: | Mark Corrao | ||
| Title: | Chief Financial Officer | ||
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