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 MedTech company with two innovative product lines: neurology and motion
products. Since October 1, 2021, we have had two direct subsidiaries, each of
which is focused on one of our complimentary product lines.
The products of our subsidiary Memory MD, Inc., hereinafter referred to as the
Neurology Products, are medical devices designed for the neurology market. The
products of our subsidiary Piezo, hereinafter referred to as the Motion
Products, are small piezoelectric motors which are designed for and expected to
have valuable and beneficial uses as motors within medical devices and devices
outside of the MedTech industry
Since the merger between Brain Scientific Inc. and Piezo, we have focused on
building an experienced team and platform to grow revenues from existing
products and introduce new technologies to the market while leveraging our store
of intellectual property.
Historically, we have financed our operations principally through the issuance
of convertible debt. Based on our current operating plan, substantial doubt
about our ability to continue as a going concern for a period of at least one
year from the date that the financial statements included in this prospectus are
issued exists. Our ability to continue as a going concern depends on our ability
to raise additional capital, through the sale of equity or debt securities, to
support our future operations. If we are unable to secure additional capital, we
will be required to curtail our operations and take additional measures to
reduce costs. We have provided additional disclosure in Note 1 to the condensed
consolidated financial statements and under Liquidity below.
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Our financial statements are based upon the Piezo Motion Corp. financials up
until the Piezo Acquisition. The combined company financials are provided
inclusive of the operations of the Company unrelated to Piezo for the fourth
quarter of 2021. The accounting is based upon reverse merger accounting due to
the majority of outstanding shares after the Piezo Acquisition were with the
Piezo shareholders.
The majority of our revenue in 2021 was from 4th quarter sales from our
subsidiary which operates as a distributor of third-party medical devices in
Russia (except for $38,309 from Piezo sales and $6,194 of sales from Memory MD
in the U.S.). The Russian invasion of Ukraine on February 24, 2022 has impacted
our Russian operations for the foreseeable future. With the uncertainty raised
due to the continued Russian invasion of Ukraine, we do not anticipate having
continued sales in Russia in the foreseeable future. No decision has been made
as to winding down operations.
We have limited resources. To date, our primary activities have been limited to,
and our limited resources have been dedicated to, commercializing our
piezoelectric motors, NeuroCap™ and NeuroEEG™, performing business and financial
planning, raising capital, recruiting personnel, and conducting development
activities, although we have acted as a distributor of third-party medical
devices in Russia (which has generated revenue for us in 2021 and 2022). Both
our Neurology Products and Motion Products are production ready for manufacture
and sale. For all our products we have commenced some non-recurring, initial
sales.
Corporate History
We were initially organized on November 18, 2013 as a Nevada limited liability
company under the name Global Energy Express LLC. On December 18, 2015, we
converted from a Nevada limited liability company under the name Global Energy
Express LLC to a Nevada corporation under the name All Soft Gels Inc. On
September 18, 2018, we changed our name from All Soft Gels Inc. to Brain
Scientific Inc. and changed our ticker symbol on the OTC Market to "BRSF".
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 MemoryMD, Inc. in exchange for
the issuance of shares of our common stock and MemoryMD, Inc. became our
wholly-owned subsidiary. In conjunction with the Acquisition, we ceased all
direct operations and assigned all of our assets and liabilities from prior to
the Acquisition, and assumed and commenced the business of MemoryMD as our sole
business.
On June 11, 2021, we entered into a merger agreement (the "Piezo Merger
Agreement") with Piezo and BRSF Acquisition Corp. to acquire Piezo. (the "Piezo
Acquisition"). The transactions contemplated by the Piezo Merger Agreement were
consummated on October 1, 2021. Pursuant to the terms of the Piezo Merger
Agreement, all outstanding shares of Piezo were exchanged for shares of our
common stock. Accordingly, we acquired 100% of Piezo in exchange for the
issuance of shares of common stock and Piezo became our wholly-owned subsidiary.
Financial Overview
Revenue
Revenues for the nine months ended September 30, 2022 were generated primarily
from the Russian subsidiary for distributing third-party medical devices in
Russia (including those purchased from a company affiliated with one of our
former officers and directors), while we continue to commercialize our products.
The revenue for the three months ended September 30, 2022 proportionally saw an
increase in our sales of Neurology and Motion Products, with $527 and $8,685,
respectively. 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. Sales for piezoelectric motors decreased from 2021
as the Company focused on the final commercialization of the Blue Series of
motors. Revenues for the nine months ended September 30, 2021 of $14,482 related
to the sales of evaluation kits. 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.
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General and Administrative
General and administrative expenses consist primarily of personnel-related costs
for administration, product management, engineering and for personnel in
functions not directly associated with sales and marketing or research and
development activities. Other significant costs include rent, travel, legal fees
relating to corporate matters, intellectual property costs, professional fees
for consultants assisting with regulatory, product development and financial
matters, and product costs. We anticipate that our general and administrative
expenses will be steady in the near to support our continued commercialization
of our Products and maintaining the infrastructure for a public company.
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, 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 be maintained at the current
level until we begin generating revenue from our existing Neurology and Motion
Products. We anticipate it will then begin to increase as we exploit additional
patents in our Motion Products and develop our Neurology Products, including
conducting preclinical testing and clinical trials.
Interest Expense
Interest expense primarily consists of costs and interest costs related to the
convertible notes we issued in 2022 and 2021. The convertible notes bear
interest at fixed rate of 10% per annum.
Results of Operations
The following table sets forth the results of operations of the Company for the
three months ended September 30, 2022 and 2021.
Three Months Ended Period to
September 30, Period
2022 2021 change
Revenue $ 11,432 $ 5,275 $ 6,157
Cost of goods sold $ 4,058 $ 4,143 $ (85 )
Research and development $ 56,684 $ 48,282 $ 8,402
Professional fees $ 94,014 $ 247,423 $ (153,409 )
Sales and marketing expenses $ 165,414 $ 260,832 $ (95,418 )
General and administrative $ 1,083,778 $ 1,177,077 $ (93,299 )
Share based compensation $ 2,625,571 $ - $ 2,625,571
Interest expense $ 703,232 $ 68,357 $ 634,875
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Three Months Ended September 30, 2022 vs. Three Months Ended September 30, 2021
Revenues
Revenue for the three months ended September 30, 2022 was $11,432, compared to
$5,275 for the three months ended September 30, 2021. In the three months ended
September 30, 2022, we generated our revenue primarily through sales of Motion
Products. Revenues for the three months ended September 30, 2021 of $5,275
related to the sales of evaluation kits.
General and administrative expenses
General and administrative expenses were $1,083,778 for the three months ended
September 30, 2022, compared to $1,177,077 for the three months ended September
30, 2021. The decrease in general and administrative expenses was primarily due
to decreases in bonus, recruiting, travel and ERP software expenses partially
offset by increases in insurance expense and amortization of intangible assets.
Research and development expenses
Research and development expenses were $56,684 for the three months ended
September 30, 2022, compared to $48,282 for the three months ended September 30,
2021. The increase in research and development expenses were primarily due to
increased activities in our Ukrainian office as well as payroll expenses.
Professional fees
Professional fees were $94,014 for the three months ended September 30, 2022,
compared to $247,423 for the three months ended September 30, 2021. The decrease
was primarily due to a decrease in legal, accounting and consulting fees
incurred in preparation for the merger.
Interest expense
Interest expense for the three months ended September 30, 2022 was $703,232
consisting of interest expense of $150,032 and amortization of debt issuance
costs and discounts of approximately $553,200 related to the Company's
convertible and non-convertible promissory notes. Interest expense for the three
months ended September 30, 2021 consisted of interest expense relating to
convertible notes payable.
The following table sets forth the results of operations of the Company for the
nine months ended September 30, 2022 and 2021.
Nine Months Ended Period to
September 30, Period
2022 2021 change
Revenue $ 209,484 $ 14,482 $ 195,002
Cost of goods sold $ 148,701 $ 7,840 $ 140,861
Research and development $ 224,405 $ 147,324 $ 77,081
Professional fees $ 538,188 $ 573,309 $ (35,121 )
Sales and marketing expenses $ 570,666 $ 498,583 $ 72,083
General and administrative $ 3,628,337 $ 2,292,775 $ 1,335,562
Share based compensation $ 3,204,382 $ - $ 3,204,382
Interest expense $ 2,589,486 $ 182,574 $ 2,406,912
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Nine Months Ended September 30, 2022 vs. Nine Months Ended September 30, 2021
Revenues
Revenue for the nine months ended September 30, 2022 was $209,484, compared to
$14,482 for the nine months ended September 30, 2021. In the nine months ended
September 30, 2022, we generated our revenue primarily through our Russian
subsidiary acquired in the merger, acting as a distributor of third-party
medical devices in Russia (including those purchased from a company affiliated
with one of our former officers and directors). Revenues for the nine months
ended September 30, 2021 related to the sales of evaluation kits.
General and administrative expenses
General and administrative expenses were $3,628,337 for the nine months ended
September 30, 2022, compared to $2,292,775 for the nine months ended September
30, 2021. The increase in general and administrative expenses was primarily due
to an increase in payroll and related expenses, expenses associated with a
combined company post-merger and being a public entity and amortization of
intangible assets.
Research and development expenses
Research and development expenses were $224,405 for the nine months ended
September 30, 2022, compared to $147,324 for the nine months ended September 30,
2021. The increase in research and development expenses were primarily due to
increased activities in our Ukrainian office as well as payroll expenses.
Professional fees
Professional fees were $538,188 for the nine months ended September 30, 2022,
compared to $573,309 for the nine months ended September 30, 2021. The decrease
was primarily due to a decrease in legal, accounting and consulting fees
incurred in preparation for the merger.
Interest expense
Interest expense for the nine months ended September 30, 2022 was $2,589,486
consisting of interest expense of $697,069 and amortization of debt issuance
costs and discounts of approximately $1,892,417 related to the Company's
convertible and non-convertible promissory notes. Interest expense for the three
months ended September 30, 2021 consisted of interest expense relating to
convertible notes payable.
Liquidity and Capital Resources
While we have generated revenue in 2022 and 2021, 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 significant sales of our
products. We anticipate that our expenses will increase substantially as we
develop additional 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. 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.
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We have no current substantial 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 we successfully
expand our sales efforts for our current products, 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 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, 2021 and 2020, 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 will require additional funds and/or generate revenues, to continue to fund
operations of the company.
During the nine months ended September 30, 2022, we issued convertible
promissory notes in the amount of $7,659,500. We may obtain additional financing
in the future through the issuance of our common stock, through other equity or
debt financings or through collaborations or partnerships with other companies.
We may not be able to raise additional capital on terms acceptable to us, or at
all, and any failure to raise capital as and when needed could compromise our
ability to execute on our business plan.
The development of our products is subject to numerous uncertainties, and we
have based these estimates on assumptions that may prove to be substantially
different than we currently anticipate and could use our cash resources sooner
than we expect. Additionally, the process of developing medical devices is
costly, and the timing of progress in pre-clinical tests and clinical trials is
uncertain. Our ability to successfully transition to profitability will be
dependent upon achieving a level of product sales adequate to support our cost
structure. We cannot assure you that we will ever be profitable or generate
positive cash flow from operating activities.
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Net cash used in operating activities
Net cash used in operating activities was $4,691,693 for the nine months ended
September 30, 2022 compared to $2,791,561 for the nine months ended September
30, 2021. This fluctuation is primarily due to an increase in net loss of
$5,534,775, change in fair market value of derivative liabilities of $1,375,048,
gain on debt extinguishment of $201,097 and a gain on lease settlement of
$1,660, partially offset by increases in amortization of debt discount of
$1,892,418, share based compensation expenses of $3,204,382, depreciation and
amortization expenses of $583,008, and decreases in gain on forgiveness of
paycheck protection loan of $112,338 and in cash provided in working capital of
$578,013.
Net cash used in investing activities
Net cash used in investing activities was $27,466 for the nine months ended
September 30, 2022, compared to $641,406 for the nine months ended September 30,
2021. The decrease was due primarily to a decrease in purchases of property and
equipment and cash paid for notes receivable.
Net cash provided by financing activities
Net cash provided by financing activities was $6,018,610 for the nine months
ended September 30, 2022, which primarily consisted of the issuances of
convertible promissory notes, net of issuance costs for aggregate gross proceeds
of $6,421,610, offset by the partial repayments of non-convertible promissory
notes and accrued interest in the amount of $403,000.
Net cash provided by financing activities was $3,469,982 for the nine months
ended September 30, 2021, which consisted of proceeds from the issuances of
convertible promissory notes.
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.
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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, the valuation of stock options, and
the valuation of derivative liabilities.
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
Management does not believe that any recently issued, but not yet effective
accounting pronouncements, when adopted, will have a material effect on the
accompanying consolidated financial statements, other than those disclosed
below.
In August 2020, the FASB issued Accounting Standards Update ("ASU") 2020-06,
"Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging - Contracts in Entity's Own Equity (Subtopic 815 - 40)" ("ASU
2020-06"). ASU 2020-06 simplifies the accounting for certain financial
instruments with characteristics of liabilities and equity, including
convertible instruments and contracts on an entity's own equity. The ASU is part
of the FASB's simplification initiative, which aims to reduce unnecessary
complexity in U.S. GAAP. The ASU's amendments are effective for fiscal years
beginning after December 15, 2023, and interim periods within those fiscal
years. The Company is currently evaluating the impact ASU 2020-06 will have on
its 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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