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.

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

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.

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.

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.

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

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:

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.

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:

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.

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:

NOTE 9 – COMMITMENTS AND CONTINGENCIES

During the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with FASB ASC 450-20-50, Contingencies. The Company evaluates its exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. As of December 31, 2020, the Company is not aware of any contingent liabilities that should be reflected in the financial statements.

The Company entered into employment agreements with its President and Chief Executive Officer as of March 15, 2020. Under the terms of these agreements the Company will be liable for severance and other payments under certain conditions. The employment agreements are for a period of 36 months and may be terminated by the Chief Executive Officer or President upon three months written notice.

The Company entered into a facilities’ lease on January 1, 2020 for a premise located at 6968 Professional Parkway East, Sarasota, FL 34240. The lease period is for one year. Under Topic 842, a short-term lease is a lease that, at the commencement date, has a ‘lease term’ of 12 months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise. Although short-term leases are in the scope of Topic 842, a simplified form of accounting is permitted. A lessee can elect, by class of underlying asset, not to apply the recognition requirements of Topic 842 and instead to recognize the lease payments as lease cost on a straight-line basis over the lease term. The Company has elected the short-term method to account for these leases. Total rent expense for the years ending December 31, 2020 and 2019 were $45,551 and $42,571, respectively, which are included in general and administrative expense within the accompanying statements of operations.

NOTE 10 – GOING CONCERN

The Company’s financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. At December 31, 2020 and December 31, 2019, the Company had $68,493 and $169,501 in cash and $1,987,853 and $43,264 in negative working capital, respectively. For the years ended December 31, 2020 and 2019, the Company had a net loss of 2,803,029 and $1,857,633, respectively. Continued losses may adversely affect the liquidity of the Company in the future. In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to raise additional capital, obtain financing and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 11 – INCOME TAXES

The Company adopted the provisions of uncertain tax positions as addressed in ASC 740-10-65-1. As a result of the implementation of ASC 740-10-65-1, the Company recognized no increase in the liability for unrecognized tax benefits. As of December 31, 2020 the Company had net operating loss carry forwards of approximately $13,178,237 that may be available to reduce future years’ taxable income in varying amounts through 2030. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards.

The valuation allowance at December 31, 2020 was approximately $13,178,237. The net change in valuation allowance during the year ended December 31, 2020 was $(2,803,029). In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized.

The components of the net deferred tax asset (liability) at December 31, 2020 and, 2019 and the statutory tax rate, the effective tax rate and the elected amount of the valuation allowance are indicated below:

Income tax benefit resulting from applying statutory rates in jurisdictions in which we are taxed (Federal and State of Florida) differs from the income tax provision (benefit) in our financial statements. The following table reflects the reconciliation for the years ended December 31, 2020 and 2019:

NOTE 12 – SUBSEQUENT EVENTS

On January 19, 2021, the Company issued a 10% convertible note for $250,000. The note matures on August 21, 2021 and is convertible to Company common stock at a 120% multiplier of the conversion rate of a public or private placement of $1,000,000 or greater.

The Company changed its name from DTI Motion Corp. to Piezo Motion Corp. on February 1, 2021.

The Company entered into a lease agreement for office space located in Sarasota, Florida. The term of the lease is for a period of two years commencing on February 1, 2021 and ending on February 1, 2023. The rent is $6,530 per month for year 1, $6,726 per month for year 2 and $6,928 per month for year 3. The Company will account for the lease under ASC 842 whereby the operating lease right-of-use assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date.

On January 19, 2021 and February 10, 2021 respectively, the Company issued 10% convertible notes for $250,000 each, for a total of $500,000. The notes mature on August 21, 2021 and are convertible to Company common stock at a 120% multiplier of the conversion rate of a public or private placement of $1,000,000 or greater.

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