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MarketScreener Homepage  >  Equities  >  OTC Bulletin Board - Other OTC  >  All Soft Gels Inc    BRSF

ALL SOFT GELS INC

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BRAIN SCIENTIFIC : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

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08/14/2019 | 12:28pm EDT

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 full-montage standard encephalograph, 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. Except as otherwise indicated herein, all share and per share
information in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" section gives retroactive effect to the exchange of
MemoryMD Shares for shares of our common stock in the Acquisition. The following
discussion and analysis provides information which we believe to be relevant to
an assessment and understanding of the results of operations and financial
condition of MemoryMD, Inc.

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. Our first product, the NeuroCap, is ready for commercialization and sale and we have commenced some initial sales. Our other products are still being tested or are still under development.




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We have incurred losses since inception and had an accumulated deficit of
$3,284,968 as of June 30, 2019, 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 and the Acquisition. 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. For the six months ended June
30, 2019 and the year ended December 31, 2018, we issued convertible promissory
notes for aggregate gross proceeds of $230,000 and $1,059,500, respectively, to
fund our operations. Additionally, we borrowed an aggregate of $190,000 from
Nickolay Kukekov, a director, in the six months ended June, 2019 and through the
date of filing of this Form 10-Q. Additionally, in April 2019 we borrowed
$25,000 from an affiliate of Boris Goldstein, the Company's Chairman of the
Board.



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



From inception to June 30, 2019, we have generated approximately $135,000 of
revenue with respect to the sale of our NeuroCap product and our electrodes,
along with data analysis services. We do not expect to generate recurring,
material revenue 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
generate any further revenue.

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 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 a fixed rate of 10% per annum.

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Results of Operations


The following table sets forth the results of operations of the Company for the three and six months ended June 30, 2019 and 2018.




                            Three Months Ended June 30,            Period to          Six Months Ended June 30,           Period to
                             2019                 2018           Period Change          2019               2018         Period Change
Revenue                 $       75,376       $            -     $        75,376$      77,626       $        -     $        77,626
Cost of Goods Sold      $       47,042       $            -     $        47,042$      47,042       $        -     $        47,042
Research and
development             $       27,776$       26,312     $         1,464     $      50,066$   63,218$       (13,152 )
Professional fees       $       40,102$       60,901$       (20,799 )$     151,175$  119,718$        31,457
Sales and marketing
expenses                $       12,006$       12,614     $          (608 )   $      59,798$   31,075$        28,723
General and
administrative          $      120,286$      120,389     $          (103 )   $     321,527$  263,225$        58,302
Interest expense        $       10,971$       40,639$       (29,688 )$      19,024$   84,291$       (65,267 )

Three Months Ended June 30, 2019 vs. June 30, 2018

Revenue and cost of goods sold




Revenue for the three months ended June 30, 2019 was $75,376, compared to nil
for the three months ended June 30, 2018, related to data analysis of the EEG
software and hardware and the sale of electrodes. Cost of goods sold for the
three months ended June 30, 2019 was $47,042, compared to nil in the three
months ended June 20, 2018.



Professional fees



Professional fees were $40,102 for the three months ended June 30, 2019,
compared to $60,901 for the three months ended June 30, 2018. The decrease was
primarily due to a reduction in legal fees and accounting fees in the current
year.


General and administrative expenses




General and administrative expenses were $120,286 for the three months ended
June 30, 2019, compared to $120,389 for the three months ended June 30, 2018.
The over-all expenses were in line for the comparative quarters although in the
current year to date we relied less on consultants and saw an increase in
payroll costs.



Interest expense


Interest expense for the three months ended June 30, 2019 was $10,971, consisting of interest expense of $5,748 and amortization of debt issuance costs of $4,587 related to the Company's convertible promissory notes totaling $230,000, as well as interest expense related to a lease of $636.

Six Months Ended June 30, 2019 vs. June 30, 2018

Revenue and cost of goods sold




Revenue for the six months ended June 30, 2019 was $77,626, compared to nil for
the six months ended June 30, 2018 related to data analysis of the EEG software
and hardware and the sale of electrodes. Cost of goods sold for the six months
ended June 30, 2019 was $47,042, compared to nil in the six months ended June
20, 2018.


Research and development expenses




Research and development expenses were $50,066 for the six months ended June 30,
2019, compared to $63,218 for the six months ended June 30, 2018. The decrease
was primarily due to a decrease in development activities and a focus on growth
of the operations of the Company.



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Professional fees



Professional fees were $151,175 for the six months ended June 30, 2019, compared
to $119,718 for the six months ended June 30, 2018. The increase was primarily
due to the costs associated with being a public company.



Sales and marketing expenses



Sales and marketing expenses were $59,798 for the six months ended June 30,
2019, compared to $31,075 in the six months ended June 30, 2018. The increase
was primarily due to a decrease in development activities and an increased focus
on marketing and sales.


General and administrative expenses




General and administrative expenses were $321,527 for the six months ended June
30, 2019, compared to $263,225 for the six months ended June 30, 2018. The
increase during the six months ended June 30, 2019 was primarily due to an
increase in salary expense of approximately $120,000 offset by a decrease in
consulting fees of approximately $88,000 and an increase in insurance expense of
approximately $33,000.



Interest expense



Interest expense for the six months ended June 30, 2019 was $19,024, consisting
of interest expense of $9,964 and amortization of debt issuance costs of $7,704
related to the Company's convertible promissory notes totaling $230,000, as well
as interest expense related to a lease of $1,356.



Liquidity and Capital Resources




While we have commenced generating revenue in 2018, we anticipate that we will
continue to incur losses for the foreseeable future. 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. Through August 13, 2019, we sold an aggregate
principal amount of approximately $2.55 million in multiple tranches of
convertible promissory notes, of which $380,000 remains outstanding and
unconverted. 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.
During the six months ended June 30, 2019 and through August 13, 2019, Nickolay
Kukekov, a director, provided an aggregate of $190,000 in non-interest-bearing,
no-term loans to the Company. Additionally, in April 2019, an affiliate of Boris
Goldstein, the Company's Chairman of the Board, provided $25,000, in a
non-interest-bearing, no-term loan to the Company.



All of our then-outstanding convertible promissory notes, in the aggregate principal amount plus interest through September 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.

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We have no current source of revenue to sustain our activities as presently
conducted, and we do not expect to generate material, recurring revenue to cover
our expenses until, and unless, we successfully commercialize and sell our
Products. Until such time, if ever, as we can generate substantial product
revenue, we expect to finance our cash needs through a combination of equity 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 technology that we would otherwise
prefer to develop and market ourselves.



Our independent registered public accounting firm included an explanatory
paragraph in its report on our financial statements as of and for the years
ended December 31, 2018 and 2017, noting the existence of substantial doubt
about our ability to continue as a going concern. This uncertainty arose from
management's review of our results of operations and financial condition and its
conclusion that, based on our operating plans, we did not have sufficient
existing working capital to sustain operations for a period of twelve months
from the date of the issuance of these financial statements.



We believe our existing cash and cash equivalents, without raising additional
funds or generating revenues, will be insufficient to fund our operating
expenses for the foreseeable future. We need to raise additional capital to fund
our operating expenses; however, we cannot give any assurance at this time that
we will successfully raise all or some of such capital or any other capital.



In January 2019, we commenced a convertible note offering for up to $500,000, of
which we have raised $380,000 through August 13, 2019. We are also seeking to
obtain additional financing of up to approximately $1,000,000 through the
issuance of our common stock, through other equity or debt financings or through
collaborations or partnerships with other companies, which if successful will
enable us to continue operations based on our current burn rate for at least
another six to nine months. However, we may not be able to raise such additional
capital on terms acceptable to us, or at all, and any failure to raise capital
as and when needed could compromise our ability to execute on our business plan.



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



Net cash used in operating activities




Net cash used in operating activities was $581,044 for the six months ended June
30, 2019 compared to $454,217 for the six months ended June 30, 2018. This
fluctuation is primarily due to an increase in net loss of approximately $37,000
along with a decrease in amortization of debt discount of approximately $26,000
and a decrease in the change in accounts payable and accounts payable- related
party of approximately $62,000.



Net cash used in investing activities




Net cash used in investing activities was $1,005 for the six months ended June
30, 2019, compared to $0 for the six months ended June 30, 2018. The increase is
due to the purchase of fixed assets.



Net cash provided by financing activities




Net cash provided by financing activities was $445,153 for the six months ended
June 30, 2019, which consisted of the sale of the Company's convertible
promissory notes for aggregate gross proceeds of $230,000 as well as proceeds
from a related party loan of $215,000.



Net cash provided by financing activities was $196,368 for the six months ended
June 30, 2018, which primarily consisted of the sale of the Company's
convertible promissory notes for aggregate gross proceeds of $180,620, along
with proceeds from related party loans of $50,000 offset by the payment of
related party loans in the amount of $34,252.



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Critical Accounting Policies and Significant Judgments and Estimates




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



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



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


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



? Level 1 Inputs - Unadjusted quoted prices in active markets for identical

assets or liabilities that the reporting entity has the ability to access at

the measurement date.

? Level 2 Inputs - Inputs other than quoted prices included in Level 1 that

are observable for the asset or liability, either directly or indirectly.

These might include quoted prices for similar assets or liabilities in

active markets, quoted prices for identical or similar assets or liabilities

in markets that are not active, inputs other than quoted prices that are

observable for the asset or liability (such as interest rates, volatilities,

prepayment speeds, credit risks, etc.) or inputs that are derived

principally from or corroborated by market data by correlation or other

means.

? Level 3 Inputs - Unobservable inputs for determining the fair values of

assets or liabilities that reflect an entity's own assumptions about the

assumptions that market participants would use in pricing the assets or

     liabilities.




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



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



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



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



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Recent Accounting Pronouncements




In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09,
Revenue from Contracts with Customers (Topic 606), as amended, which supersedes
all existing revenue recognition requirements, including most industry-specific
guidance. The new standard requires a company to recognize revenue when it
transfers goods or services to customers in an amount that reflects the
consideration that the Company expects to receive for those goods or services.
The standard will be effective for fiscal years and interim periods within those
years beginning after December 15, 2017. The Company has adopted Topic 606 with
no material effect on its financial statements.



In November 2016, FASB issue ASU No. 2016-18, Statement of Cash Flows (Topic
230) Restricted Cash (ASU 2016-18), requiring restricted cash and cash
equivalents to be included with cash and cash equivalents of the statement of
cash flows. The new standard is effective for fiscal years, and interim periods
within that year, beginning December 15, 2017, with early adoption permitted.
The Company adopted this new ASU at January 1, 2018 and it has had no material
impact on its financial statements



In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new
standard requires that all lessees recognize the assets and liabilities that
arise from leases on the balance sheet and disclose qualitative and quantitative
information about its leasing arrangements. The new standard will be effective
for the Company on January 1, 2020. The Company is currently evaluating the
method of adoption and the potential impact that this standard may have on its
financial position and results of operations.



In June 2018, the Financial Accounting Standards Board (the "FASB") issued
Accounting Standards Update ("ASU") 2018-07, Compensation - Stock Compensation
(Topic 718). This update is intended to reduce cost and complexity and to
improve financial reporting for share-based payments issued to non-employees
(for example, service providers, external legal counsel, suppliers, etc.). The
ASU expands the scope of Topic 718, Compensation-Stock Compensation, which
currently only includes share-based payments issued to employees, to also
include share-based payments issued to non-employees for goods and services.
Consequently, the accounting for share-based payments to non-employees and
employees will be substantially aligned. This standard will be effective for
financial statements issued by public companies for the annual and interim
periods beginning after December 15, 2018. Early adoption of the standard is
permitted. The adoption of this ASU had no material impact on the Company's
consolidated financial statements.



Off-Balance Sheet Arrangements




We have no 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 of operations, liquidity, capital
expenditures or capital resources.





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