Brain Scientific (BRSF) Risk Analysis
Risk Overview Q4, 2022
Source: the company's latest filing for the period ended Dec 31, 2022, filed Mar 31, 2023
Risk Change Over Time
- Share Price & Shareholder Rights - Risk 1Our articles of incorporation allow for our board of directors to create new series of preferred stock without further approval by our shareholders, which could adversely affect the rights of the holders of our Common Stock.
Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. Currently, our board of directors has the authority to designate and issue up to 10,000,000 shares of our preferred stock without further shareholder approval. In the future, our board of directors could authorize the issuance of one or more series of preferred stock that would grant to holders, among other rights, the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of Common Stock and the right to the redemption of our preferred shares acquired by such persons, together with a premium, prior to the redemption of our Common Stock. In addition, our board of directors could authorize the issuance of a series of preferred stock that has greater voting power than our Common Stock or that is convertible into our Common Stock, which could decrease the relative voting power of our Common Stock or result in dilution to our existing shareholders.
- Accounting & Financial Operations - Risk 2Our future cash requirements may differ significantly from our current estimates.
Our cash requirements may differ significantly from our estimates from time to time, depending on a number of factors, including: - the costs and results of our development testing and clinical studies regarding our product candidates; - the time and costs involved in obtaining regulatory clearance and approvals; - the speed of product development at customers in which motors are used; - whether we are able to obtain funding under future licensing agreements, strategic partnerships, or other collaborative relationships, if any; - the costs of compliance with laws, regulations, or judicial decisions applicable to us; and - the costs of general and administrative infrastructure required to manage our business and protect corporate assets and shareholder interests. If we fail to raise additional funds on a timely basis, we will need to scale back our business plans, which would adversely affect our business, financial condition, and stock price, and we may even be forced to discontinue our operations and liquidate our assets.
- Accounting & Financial Operations - Risk 3We are a developmental stage medical device company and have a history of significant operating losses; we expect to continue to incur operating losses, and we may never achieve or maintain profitability.
We are a development stage company and have incurred losses from inception and had an accumulated deficit of $34,622,781 as of December 31, 2022, and a working capital deficit of $6,111,023 as of December 31, 2022. We had an accumulated deficit of $22,278,923 as of December 31, 2021, and a working capital deficit of $3,211,735 as of December 31, 2021. We expect to continue to incur significant expenses and increase operating and net losses for the foreseeable future. To date, we have financed our operations primarily through debt and equity financings. 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, including the commercialization of our products. We have never been profitable and do not expect to be profitable in the foreseeable future. Any profitability in the future will be dependent upon the successful development of our business model, of which we can give no assurance of success. We expect our expenses to increase as we pursue our objectives. The extent of our future operating losses and the timing of profitability are highly uncertain, and we expect to continue incurring significant expenses and operating losses over the next several years. Our prior losses have had, and will continue to have, an adverse effect on our stockholders' equity and working capital. Any additional operating losses may have an adverse effect on our stockholders' equity, and we cannot assure you that we will ever be able to achieve profitability. Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our development efforts, obtain regulatory approvals or continue our operations. Accordingly, we are a highly speculative venture involving significant financial risk.
- Accounting & Financial Operations - Risk 4We have generated limited revenues to date and substantially all of our revenues have been generated from our Russian subsidiary, which we are winding down.
We have generated only limited revenues from our two product lines. For the years ended December 31, 2022 and 2021, Brain Scientific Inc. and Piezo Motion Corp had a combined $214,564 and $265,747 in revenues, respectively. MMDR, previously operating as a distributor of third-party medical devices, accounted for 83.16% and 83.25% of all such revenues for the years ended December 31, 2022 and 2021, respectively. Piezo Motion Corp had $23,504 and $38,310 in revenues (10.96% and 14.42%) and Memory MD US had $12,628 and $6,194 (5.89% and 2.33%) of the revenues generated in fiscal 2022 and 2021, respectively. The NeuroCap™ and NeuroEEG™ are both ready for commercial availability within our Neurology Products. The Blue Series, Imperial Series and engineered customized motors are also ready for commercial availability within our Motion Products. In 2022, manufacture of the NeuroCap™ has started at our outsourced manufacturing partner. Our Lakewood Ranch office can handle the manufacture of the Motion Products for the foreseeable future. Distribution partners are in place for both products. If we do not gain the market acceptance for either the Neurology or Motion Products, we will not be capable of generating the revenues required for sustaining our business. In 2019, we commenced acting as a distributor of third-party medical devices in Russia, which resulted in substantially all of our revenue for 2020 and 2021. The Russian invasion of Ukraine in February 2022 negatively impacted the operation of MMDR. With the uncertainty raised due to the continued Russian invasion of Ukraine, and with such operations no longer part of the Company's business plan, the Company began winding down the operations of MMDR. Accordingly, during the second quarter of Fiscal 2022, MMDR satisfied its last distribution obligations and laid off all of its employees. Since then, no work has been conducted by MMDR, and the Company has no ongoing operations or employees in Russia. MMDR has no assets or liabilities and is currently a legal entity, waiting to be dissolved by Russian authorities, which we expect will occur during 2023. The Company does not currently sell, import, or export any of its products in, to or from Russia, nor does it plan to engage in such activities in the future. Investors are subject to all the risks incident to the creation and development of a new business and each investor should be prepared to withstand a complete loss of his, her or its investment. Furthermore, the accompanying financial statements have been prepared assuming that we will continue as a going concern. We have not emerged from the development stage and may be unable to raise further equity. These factors raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company has limited experience in medical device and piezoelectric motor development and commercialization. Our ability to become profitable depends primarily on our ability to develop our products, our successful completion of all necessary pre-clinical testing and clinical trials on such products, our ability to obtain approval for such products and, if approved, successfully commercialize such products, our ongoing research and development efforts, the timing and cost of clinical trials, our ability to identify personnel with the necessary skill sets or enter into favorable alliances with third-parties who can provide substantial capabilities in clinical development, regulatory affairs, sales, marketing and distribution and our ability to obtain and maintain necessary intellectual property rights to such products. Our limited experience in piezoelectric motor and medical device development may make it more difficult for us to complete these tasks. Even if we successfully develop and market our products, we may not generate sufficient or sustainable revenue to achieve or sustain profitability, which could cause us to cease operations and cause you to lose all of your investment. Because we are subject to these risks, you may have a difficult time evaluating our business and your investment in our Company.
- Debt & Financing - Risk 5The amount of future financing which we may require will depend on several factors, many of which are beyond our control. Our results of operations, financial condition and stock price are likely to be adversely affected if our funding requirements increase or are otherwise greater than we expect.
Our future funding requirements will depend on many factors, including, but not limited to: - the testing costs for our product candidates and other development activities conducted by us directly, and our ability to successfully conclude the studies and activities and achieve favorable results; - our ability to attract future strategic partners to pay for or share costs related to our product development efforts; - the costs and timing of seeking and obtaining regulatory clearance and approvals for our product candidates; - decisions to hire additional scientific, engineering or administrative personnel or consultants; - our ability to manage administrative and other costs of our operations; and - the presence or absence of adverse developments in our research program. If any of these factors cause our funding needs to be greater than expected, our operations, financial condition, ability to continue operations and stock price may be adversely affected.
Risk Highlights Q4, 2022
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 55
- Share Price & Shareholder Rights - Risk 1AddedOur articles of incorporation allow for our board of directors to create new series of preferred stock without further approval by our shareholders, which could adversely affect the rights of the holders of our Common Stock.
Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. Currently, our board of directors has the authority to designate and issue up to 10,000,000 shares of our preferred stock without further shareholder approval. In the future, our board of directors could authorize the issuance of one or more series of preferred stock that would grant to holders, among other rights, the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of Common Stock and the right to the redemption of our preferred shares acquired by such persons, together with a premium, prior to the redemption of our Common Stock. In addition, our board of directors could authorize the issuance of a series of preferred stock that has greater voting power than our Common Stock or that is convertible into our Common Stock, which could decrease the relative voting power of our Common Stock or result in dilution to our existing shareholders.
- Share Price & Shareholder Rights - Risk 2ChangedOur Common Stock is subject to the "penny stock" rules of the SEC, which makes transactions in our stock cumbersome and may reduce the value of an investment in our securities.
The SEC has adopted regulations which generally define a "penny stock" as an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The SEC's penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and the salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules generally require that before a transaction in a penny stock occurs, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's agreement to the transaction. If applicable in the future, these rules may restrict the ability of brokers-dealers to sell our common stock and may affect the ability of investors to sell their shares, until our common stock no longer is considered a penny stock.
- Share Price & Shareholder Rights - Risk 3ChangedThere is not now, and there may never be, an active market for our Common Stock. We cannot assure you that our Common Stock will become liquid.
There currently is no liquid market for our Common Stock. An investor may find it difficult to obtain accurate quotations as to the market value of our Common Stock and trading of our Common Stock may be extremely sporadic. An active market for our Common Stock may never develop. In addition, if we failed to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our Common Stock, which may further affect its liquidity. This would also make it more difficult for us to raise additional capital.
- Share Price & Shareholder Rights - Risk 4ChangedWe may issue more shares to raise capital, which will result in substantial dilution.
Our articles of incorporation previously provided for the issuance of a maximum of 200,000,000 shares of Common Stock and 10,000,000 shares of "blank check" preferred stock but the Company has received authorization from the board of directors and majority stockholders and increased the amount of authorized Common Stock to 750,000,000 shares. Any additional financings effected by us may result in the issuance of additional securities without stockholder approval and the substantial dilution in the percentage of common stock held by our then existing stockholders. Moreover, the securities issued in any such transaction may be valued on an arbitrary or non-arm's-length basis by our management, resulting in an additional reduction in the percentage of Common Stock held by our current stockholders on an as converted, fully-diluted basis. Our board of directors has the power to issue any or all of such authorized but unissued shares without stockholder approval. To the extent that additional shares of Common Stock or other securities convertible into or exchangeable for Common Stock are issued in connection with a financing, dilution to the interests of our stockholders will occur and the rights of the holder of Common Stock might be materially and adversely affected.
- Share Price & Shareholder Rights - Risk 5The price of our Common Stock might fluctuate significantly, and you could lose all or part of your investment.
Volatility in the market price of our Common Stock may prevent you from being able to sell your shares of our Common Stock at or above the price you paid for your shares. The trading price of our Common Stock may be volatile and subject to wide price fluctuations in response to various factors, including: - actual or anticipated fluctuations in our quarterly financial and operating results;- our progress toward developing our products;- the commencement, enrollment and results of our future clinical trials;- adverse results from, delays in or termination of our clinical trials;- adverse regulatory decisions, including failure to receive regulatory approval;- publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts, if any;- perceptions about the market acceptance of our products and the recognition of our brand;- adverse publicity about our products or industry in general;- overall performance of the equity markets;- introduction of products, or announcements of significant contracts, licenses or acquisitions, by us or our competitors;- legislative, political or regulatory developments;- additions or departures of key personnel;- threatened or actual litigation and government investigations;- sales of shares of our Common Stock by us or members of our management; and - general economic conditions. These and other factors might cause the market price of our Common Stock to fluctuate substantially, which may negatively affect the liquidity of our Common Stock. In addition, from time to time, the stock market experiences price and volume fluctuations, some of which may be significant. This volatility has had a significant impact on the market price of securities issued by many companies across many industries. The changes frequently appear to occur without regard to the operating performance of the affected companies. Accordingly, the price of our Common Stock could fluctuate based upon factors that have little or nothing to do with us, and these fluctuations could materially reduce our share price. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company's securities. This litigation, if instituted against us, could result in substantial costs, divert our management's attention and resources, and harm our business, operating results and financial condition.
- Share Price & Shareholder Rights - Risk 6We are a smaller reporting company, and the reduced reporting requirements applicable to smaller reporting companies may make our Common Stock less attractive to investors.
We are a "smaller reporting company" as defined in Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). For as long as we continue to be a smaller reporting company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not smaller reporting companies, including not being required to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley Act of 2002 ("SOX"), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding nonbinding advisory votes on executive compensation, and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our Common Stock less attractive because we may rely on these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.
- Share Price & Shareholder Rights - Risk 7Concentration of ownership of our Common Stock among our existing executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.
Our executive officers, directors, principal stockholders and their affiliates, in the aggregate, beneficially own approximately 75.5% of our outstanding common stock as of March 31, 2023. As a result, these persons, acting together, would be able to significantly influence all matters requiring stockholder approval, including the election and removal of directors, any merger, consolidation, sale of all or substantially all of our assets, or other significant corporate transactions. Some of these persons or entities may have interests different than yours. For example, they may be more interested in selling our company to an acquirer than other investors, or they may want us to pursue strategies that deviate from the interests of other stockholders.
- Share Price & Shareholder Rights - Risk 8A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the future. This could cause the market price of our Common Stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our Common Stock in the public market could occur at any time. If our stockholders sell, or the market perceives that our stockholders intend to sell, substantial amounts of our Common Stock in the public market, the market price of our Common Stock could decline significantly. Of the 1,242,647 shares of our Common Stock issued and outstanding as of March 31, 2023, approximately 256,245 shares are freely tradable without restriction by stockholders who are not our affiliates.
- Share Price & Shareholder Rights - Risk 9If securities or industry analysts do not publish research or reports, or publish unfavorable research or reports, about us, our business or our market, our stock price and trading volume could decline.
The trading market for our Common Stock has been limited to date and in the future will be influenced by the research and reports that securities or industry analysts publish about us and our business. Securities or industry analysts may elect not to provide coverage of our Common Stock, and such lack of coverage may adversely affect the market price of our Common Stock. In the event we do not secure additional securities or industry analyst coverage, we will not have any control over the analysts or the content and opinions included in their reports. The price of our stock could decline if one or more securities or industry analysts downgrade our stock or issue other unfavorable commentary or research. If one or more securities or industry analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.
- Share Price & Shareholder Rights - Risk 10Anti-takeover provisions that may be in our charter and bylaws may prevent or frustrate attempts by stockholders to change the board of directors or current management and could make a third-party acquisition of us difficult.
Our articles of incorporation and bylaws may contain provisions that may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could limit the price that investors might be willing to pay in the future for shares of our Common Stock.
See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.
