Item
1. Financial Statements
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
93,387
|
|
|
$
|
116,783
|
|
Accounts receivable
|
|
|
393,911
|
|
|
|
113,256
|
|
Inventories, net of $50,000 reserve at March 31, 2016 and December 31, 2015
|
|
|
966,549
|
|
|
|
1,038,371
|
|
Prepaid income taxes
|
|
|
7,381
|
|
|
|
7,381
|
|
Prepaid expenses and other current assets
|
|
|
337,505
|
|
|
|
213,926
|
|
Total current assets
|
|
|
1,798,733
|
|
|
|
1,489,717
|
|
Investment in available-for-sale equity securities
|
|
|
154,824
|
|
|
|
294,522
|
|
Property and equipment, net
|
|
|
13,951
|
|
|
|
20,149
|
|
TOTAL ASSETS
|
|
$
|
1,967,508
|
|
|
$
|
1,804,388
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
780,136
|
|
|
$
|
941,389
|
|
Accrued employee compensation
|
|
|
214,119
|
|
|
|
176,009
|
|
Accrued professional fees and other
|
|
|
645,003
|
|
|
|
821,088
|
|
Deferred revenue
|
|
|
207,129
|
|
|
|
140,878
|
|
Convertible debt, net of debt discount of $0 at March 31, 2016 and December 31, 2015
|
|
|
100,000
|
|
|
|
100,000
|
|
Other debt, net of discount of $2,499 and $3,041, respectively
|
|
|
238,979
|
|
|
|
151,628
|
|
Warrant derivative liability
|
|
|
5,571,000
|
|
|
|
3,295,976
|
|
Conversion option liability
|
|
|
7,028,206
|
|
|
|
3,940,791
|
|
Total current liabilities
|
|
|
14,784,572
|
|
|
|
9,567,759
|
|
LONG TERM LIABILITIES
|
|
|
|
|
|
|
|
|
Related party convertible debt, net of debt discount of $288,930 and $0, respectively
|
|
|
2,074
|
|
|
|
-
|
|
Convertible debt, net of debt discount of $5,655,498 and $5,223,658, respectively
|
|
|
1,005,002
|
|
|
|
177,342
|
|
Deferred revenue
|
|
|
36,935
|
|
|
|
36,935
|
|
TOTAL LIABILITIES
|
|
|
15,828,583
|
|
|
|
9,782,036
|
|
COMMITMENTS AND CONTINGENCIES (Note 5)
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Series D Convertible Preferred Stock, $.01 par value; 850 shares authorized; 300 shares issued
and outstanding on March 31, 2016 and December 31, 2015, respectively (Liquidation value of $300,000)
|
|
|
3
|
|
|
|
3
|
|
Series G Convertible Preferred Stock, $.01 par value; 240,000 shares authorized; 86,570 shares
issued and outstanding on March 31, 2016 and December 31, 2015, respectively
|
|
|
866
|
|
|
|
866
|
|
Series H Convertible Preferred Stock, $.01 par value; 10,000 shares authorized; 10,000 shares
issued and outstanding on March 31, 2016 and December 31, 2015, respectively
|
|
|
100
|
|
|
|
100
|
|
Series H2 Convertible Preferred Stock, $.01 par value; 21 shares authorized; 21 shares issued
and outstanding on March 31, 2016 and December 31, 2015, respectively
|
|
|
-
|
|
|
|
-
|
|
Series J Convertible Preferred Stock, $.01 par value; 6,250 shares authorized; 3,546 shares issued
and outstanding on March 31, 2016 and December 31, 2015, respectively
|
|
|
36
|
|
|
|
36
|
|
Series K Convertible Preferred Stock, $.01 par value; 15,000 shares authorized; 11,416 shares
issued and outstanding on March 31, 2016 and December 31, 2015, respectively
|
|
|
114
|
|
|
|
114
|
|
Common stock, $.01 par value; 100,000,000 shares authorized; 23,309,898 and 23,004,898 shares
issued and outstanding on March 31, 2016 and December 31, 2015, respectively
|
|
|
233,100
|
|
|
|
230,050
|
|
Warrants to acquire common stock
|
|
|
5,416,681
|
|
|
|
5,416,681
|
|
Additional paid-in capital
|
|
|
26,240,345
|
|
|
|
26,036,733
|
|
Accumulated other comprehensive income
|
|
|
(244,723
|
)
|
|
|
(105,025
|
)
|
Accumulated deficit
|
|
|
(45,507,597
|
)
|
|
|
(39,557,206
|
)
|
Total stockholders’ deficit
|
|
|
(13,861,075
|
)
|
|
|
(7,977,648
|
)
|
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
1,967,508
|
|
|
$
|
1,804,388
|
|
The
accompanying notes are an integral part of these condensed unaudited consolidated financial statements
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
For the Three Months Ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Products, services, other
|
|
$
|
454,350
|
|
|
$
|
359,364
|
|
Grant revenue
|
|
|
56,128
|
|
|
|
80,770
|
|
Total revenue
|
|
|
510,478
|
|
|
|
440,134
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of products and services
|
|
|
221,699
|
|
|
|
190,783
|
|
Research and development
|
|
|
335,270
|
|
|
|
231,923
|
|
Selling and marketing
|
|
|
191,236
|
|
|
|
166,223
|
|
General and administrative
|
|
|
808,218
|
|
|
|
726,024
|
|
Total operating costs and expenses
|
|
|
1,556,423
|
|
|
|
1,314,953
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,045,945
|
)
|
|
|
(874,819
|
)
|
|
|
|
|
|
|
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(835,144
|
)
|
|
|
(605,585
|
)
|
Other expense
|
|
|
(912
|
)
|
|
|
(36,913
|
)
|
Change in fair value of derivative liabilities
|
|
|
(4,068,390
|
)
|
|
|
(530,138
|
)
|
Total other (expense) income
|
|
|
(4,904,446
|
)
|
|
|
(1,172,636
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(5,950,391
|
)
|
|
|
(2,047,455
|
)
|
Accrued dividends on convertible preferred stock
|
|
|
-
|
|
|
|
(16,668
|
)
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common shareholders
|
|
$
|
(5,950,391
|
)
|
|
$
|
(2,064,123
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders - basic and diluted
|
|
$
|
(0.26
|
)
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common stock shares outstanding used in the basic and diluted net loss per share
calculation
|
|
|
23,198,360
|
|
|
|
18,840,390
|
|
The
accompanying notes are an integral part of these condensed unaudited consolidated financial statements
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,950,391
|
)
|
|
$
|
(2,047,455
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities
|
|
|
(139,698
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(6,090,089
|
)
|
|
$
|
(2,047,455
|
)
|
The
accompanying notes are an integral part of these condensed unaudited consolidated financial statements
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,950,391
|
)
|
|
$
|
(2,047,455
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
6,198
|
|
|
|
6,919
|
|
Accretion of interest and amortization of debt discount
|
|
|
839,234
|
|
|
|
425,226
|
|
Gain on settlement of debt
|
|
|
(5,044
|
)
|
|
|
-
|
|
Stock-based compensation expense
|
|
|
101,462
|
|
|
|
54,890
|
|
Amortization of third party fees paid in common stock and warrants
|
|
|
105,200
|
|
|
|
46,744
|
|
Change in fair value of derivative liabilities
|
|
|
4,068,390
|
|
|
|
530,138
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(280,655
|
)
|
|
|
(51,391
|
)
|
Inventories
|
|
|
71,822
|
|
|
|
51,557
|
|
Prepaid expenses and other assets
|
|
|
43,303
|
|
|
|
(22,836
|
)
|
Accounts payable
|
|
|
(161,253
|
)
|
|
|
(115,670
|
)
|
Accrued employee compensation
|
|
|
38,110
|
|
|
|
(16
|
)
|
Deferred revenue and other accrued expenses
|
|
|
(109,834
|
)
|
|
|
71,412
|
|
Net cash used in operating activities
|
|
|
(1,233,458
|
)
|
|
|
(1,050,482
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases of property plant and equipment
|
|
|
-
|
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net proceeds from related party convertible debt
|
|
|
96,667
|
|
|
|
6,300
|
|
Payment of related party debt
|
|
|
-
|
|
|
|
(12,300
|
)
|
Net proceeds from convertible debt
|
|
|
1,025,500
|
|
|
|
1,054,750
|
|
Payments on convertible debt
|
|
|
-
|
|
|
|
(500,500
|
)
|
Net proceeds from non-convertible debt
|
|
|
256,660
|
|
|
|
396,127
|
|
Payments on non-convertible debt
|
|
|
(168,765
|
)
|
|
|
(147,533
|
)
|
Net cash provided by financing activities
|
|
|
1,210,062
|
|
|
|
796,844
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH
|
|
|
(23,396
|
)
|
|
|
(253,638
|
)
|
CASH AT BEGINNING OF YEAR
|
|
|
116,783
|
|
|
|
473,948
|
|
CASH AT END OF PERIOD
|
|
$
|
93,387
|
|
|
$
|
220,310
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION
|
|
|
|
|
|
|
|
|
Interest paid in cash
|
|
$
|
1,154
|
|
|
$
|
203,311
|
|
Income taxes paid in cash
|
|
|
-
|
|
|
|
-
|
|
NON CASH TRANSACTIONS:
|
|
|
|
|
|
|
|
|
Convertible debt exchanged for common stock
|
|
|
-
|
|
|
|
138,000
|
|
Reclassification of conversion option liabilities into equity
|
|
|
-
|
|
|
|
661,464
|
|
Accrued dividends on preferred stock
|
|
|
-
|
|
|
|
16,668
|
|
Unrealized loss from available-for-sale equity securities
|
|
|
139,698
|
|
|
|
-
|
|
Debt discount from derivative liability
|
|
|
1,294,049
|
|
|
|
-
|
|
Convertible debt held in escrow
|
|
|
166,882
|
|
|
|
-
|
|
The
accompanying notes are an integral part of these condensed unaudited consolidated financial statements
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2016
(UNAUDITED)
|
1)
|
Business
Overview, Liquidity and Management Plans
|
Pressure
BioSciences, Inc. (“we”, “our”, “the Company”) is focused on solving the challenging problems
inherent in biological sample preparation, a crucial laboratory step performed by scientists worldwide working in biological life
sciences research. Sample preparation is a term that refers to a wide range of activities that precede most forms of scientific
analysis. Sample preparation is often complex, time-consuming and, in our belief, one of the most error-prone steps of scientific
research. It is a widely-used laboratory undertaking – the requirements of which drive what we believe is a large and growing
worldwide market. We have developed and patented a novel, enabling technology platform that can control the sample preparation
process. It is based on harnessing the unique properties of high hydrostatic pressure. This process, called pressure cycling technology,
or PCT, uses alternating cycles of hydrostatic pressure between ambient and ultra-high levels i.e., 35,000 pounds per square inch
(“
psi
”) or greater to safely, conveniently and reproducibly control the actions of molecules in biological
samples, such as cells and tissues from human, animal, plant and microbial sources.
Our
pressure cycling technology uses internally developed instrumentation that is capable of cycling pressure between ambient and
ultra-high levels at controlled temperatures and specific time intervals, to rapidly and repeatedly control the interactions of
bio-molecules, such as deoxyribonucleic acid (“
DNA
”), ribonucleic acid (“
RNA
”), proteins,
lipids and small molecules. Our laboratory instrument, the Barocycler
®
, and our internally developed consumables
product line, which include our Pressure Used to Lyse Samples for Extraction (“
PULSE
”) tubes, and other processing
tubes, and application specific kits such as consumable products and reagents, together make up our PCT Sample Preparation System
(“
PCT SPS
”).
In
2015, together with an investment bank, we formed a subsidiary called Pressure BioSciences Europe (“PBI Europe”) in
Poland. We have 49% ownership interest with the investment bank retaining 51%. As of now, PBI Europe does not have any operating
activities but is expected to commence operations in 2016. Therefore, we don’t have control of the subsidiary and did not
consolidate in our financial statements.
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates
the realization of assets and the liquidation of liabilities in the normal course of business. However, we have experienced negative
cash flows from operations with respect to our pressure cycling technology business since our inception. As of March 31, 2016,
we do not have adequate working capital resources to satisfy our current liabilities and as a result, there is substantial doubt
regarding our ability to continue as a going concern. We have been successful in raising cash through debt and equity offerings
in the past and as described in Note 6, we completed an over-subscribed $5.0 million debt financing on March 31, 2016 with a total
amount raised of $6.3 million. We have financing efforts in place to continue to raise cash through debt and equity offerings.
Management
has developed a plan to continue operations. This plan includes obtaining equity or debt financing. During the three months ended
March 31, 2016 we received $1,684,549 net proceeds, in additional convertible and non-convertible debt. Although we have successfully
completed financings and reduced expenses in the past, we cannot assure you that our plans to address these matters in the future
will be successful.
We
need substantial additional capital to fund normal operations in future periods. In the event that we are unable to obtain financing
on acceptable terms, or at all, we will likely be required to cease our operations, pursue a plan to sell our operating assets,
or otherwise modify our business strategy, which could materially harm our future business prospects. These financial statements
do not include any adjustments that might result from this uncertainty.
|
3)
|
Interim
Financial Reporting
|
The
accompanying unaudited condensed consolidated balance sheet as of December 31, 2015, which was derived from audited financial
statements, and the unaudited interim condensed consolidated financial statements of Pressure BioSciences, Inc. have been prepared
in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting
principles” or “GAAP”) for interim financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management,
all material adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2016. For further information, refer to the audited consolidated financial statements
and footnotes thereto included in the Company’s Annual Report on Form 10-K (the “Form 10-K”) for the fiscal
year ended December 31, 2015 as filed with the Securities and Exchange Commission on April 5, 2016.
|
4)
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation
The
condensed consolidated financial statements include the accounts of Pressure BioSciences, Inc., and its wholly-owned subsidiary
PBI BioSeq, Inc. All intercompany accounts and transactions have been eliminated in consolidation.
Use
of Estimates
To
prepare our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United
States of America, we are required to make significant estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. In addition, significant estimates were made in projecting future cash flows
to quantify deferred tax assets, the costs associated with fulfilling our warranty obligations for the instruments that we sell,
and the estimates employed in our calculation of fair value of stock options awarded and warrant derivative liability. We base
our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results could differ from the estimates and assumptions used.
Concentrations
Credit
Risk
Our
financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents,
and trade receivables. We have cash investment policies which, among other things, limit investments to investment-grade securities.
We perform ongoing credit evaluations of our customers, and the risk with respect to trade receivables is further mitigated by
the fact that many of our customers are government institutions, large pharmaceutical and biotechnology companies, and academic
laboratories.
The
following table illustrates the level of concentration as a percentage of total revenues during the three months ended March 31,
2016 and 2015.
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Top Five Customers
|
|
|
46
|
%
|
|
|
64
|
%
|
Federal Agencies
|
|
|
11
|
%
|
|
|
26
|
%
|
The
following table illustrates the level of concentration as a percentage of net accounts receivable balance as of March 31, 2016
and December 31, 2015:
|
|
March
31, 2016
|
|
|
December,
31, 2015
|
|
Top
Five Customers
|
|
|
55
|
%
|
|
|
93
|
%
|
Federal
Agencies
|
|
|
0
|
%
|
|
|
1
|
%
|
Product
Supply
BIT
Group, Inc. of California has been our sole contract manufacturer for our PCT NEP3229 and NEP2320 instrumentation. However, the
Company has reached agreement for a Massachusetts-based contract manufacturer to assemble its future instrumentation builds starting
with the new NEP2320 Extreme Barocycler instrument, effective in May 2016.
Investment
in Available-For-Sale Equity Securities
As
of March 31, 2016, we held 601,500 shares of common stock of Everest Investments Holdings S.A. (“Everest”), a Polish
publicly traded company listed on the Warsaw Stock Exchange. We account for this investment in accordance with ASC 320
“Investments
— Debt and Equity Securities”
as securities available for sale. On March 31, 2016, our balance sheet reflected
the fair value of our investment in Everest to be $154,824, based on the closing price of Everest shares of $0.26 per share on
that day. The carrying value of our investment in Everest common stock held will change from period to period based on the closing
price of the common stock of Everest as of the balance sheet date. This change in market value will be recorded by us on a quarterly
basis as an unrealized gain or loss in Comprehensive Income or Loss.
Debt
Issuance Costs
In
April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 requires
that debt issuance costs be presented as a direct deduction from the carrying amount of the related debt liability, consistent
with the presentation of debt discounts. Prior to the issuance of ASU 2015-03, debt issuance costs were required to be presented
as deferred charge assets, separate from the related debt liability. ASU 2015-03 does not change the recognition and measurement
requirements for debt issuance costs. The Company early-adopted ASU 2015-03 as of the end of its Fiscal 2015, and applied its
provisions retrospectively.
Computation
of Loss per Share
Basic
loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding.
Diluted loss per share is computed by dividing loss available to common shareholders by the weighted average number of common
shares outstanding plus additional common shares that would have been outstanding if dilutive potential common shares had been
issued. For purposes of this calculation, convertible preferred stock, common stock dividends, and warrants and options to acquire
common stock, are all considered common stock equivalents in periods in which they have a dilutive effect and are excluded from
this calculation in periods in which these are anti-dilutive to our net loss.
The
following table illustrates our computation of loss per share for the three months ended March 31, 2016 and 2015:
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,950,391
|
)
|
|
$
|
(2,047,455
|
)
|
Preferred dividends accrued
|
|
|
-
|
|
|
|
(16,668
|
)
|
Net loss applicable to common shareholders
|
|
$
|
(5,950,391
|
)
|
|
$
|
(2,064,123
|
)
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
Weighted average common stock shares outstanding
|
|
|
23,198,360
|
|
|
|
18,840,390
|
|
|
|
|
|
|
|
|
|
|
Loss per common share - basic and diluted
|
|
$
|
(0.26
|
)
|
|
$
|
(0.11
|
)
|
The
following table presents securities that could potentially dilute basic loss per share in the future. For all periods presented,
the potentially dilutive securities were not included in the computation of diluted loss per share because these securities would
have been anti-dilutive to our net loss. The Series D Convertible Preferred Stock, Series G Convertible Preferred Stock, Series
H Convertible Preferred Stock, Series J Convertible Preferred Stock and Series K Convertible Preferred Stock are presented below
as if they were converted into common shares according to the conversion terms.
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Stock options
|
|
|
5,460,250
|
|
|
|
3,406,250
|
|
Convertible debt
|
|
|
25,226,800
|
|
|
|
8,555,938
|
|
Common stock warrants
|
|
|
26,998,401
|
|
|
|
19,182,201
|
|
Convertible preferred stock:
|
|
|
|
|
|
|
|
|
Series D Convertible Preferred Stock
|
|
|
750,000
|
|
|
|
750,000
|
|
Series G Convertible Preferred Stock
|
|
|
865,700
|
|
|
|
865,700
|
|
Series H Convertible Preferred Stock
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
Series H2 Convertible Preferred Stock
|
|
|
2,100,000
|
|
|
|
2,100,000
|
|
Series J Convertible Preferred Stock
|
|
|
3,546,000
|
|
|
|
3,546,000
|
|
Series K Convertible Preferred Stock
|
|
|
11,416,000
|
|
|
|
11,416,000
|
|
|
|
|
77,363,151
|
|
|
|
50,822,089
|
|
Accounting
for Stock-Based Compensation Expense
We
maintain equity compensation plans under which incentive stock options and non-qualified stock options are granted to employees,
independent members of our Board of Directors and outside consultants. We recognize stock-based compensation expense over the
requisite service period using the Black-Scholes formula to estimate the fair value of the stock options on the date of grant.
Determining
Fair Value of Stock Option Grants
Valuation
and Amortization Method - The fair value of each option award is estimated on the date of grant using the Black-Scholes pricing
model based on certain assumptions. The estimated fair value of employee stock options is amortized to expense using the straight-line
method over the vesting period.
Expected
Term - The Company uses the simplified calculation of expected life, as the Company does not currently have sufficient historical
exercise data on which to base an estimate of expected term. Using this method, the expected term is determined using the average
of the vesting period and the contractual life of the stock options granted.
Expected
Volatility - Expected volatility is based on the Company’s historical stock volatility data over the expected term of the
award.
Risk-Free
Interest Rate - The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield
currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term.
Forfeitures
- The Company records stock-based compensation expense only for those awards that are expected to vest. The Company estimated
a forfeiture rate of 5% for awards granted based on historical experience and future expectations of options vesting. The Company
used this historical rate as our assumption in calculating future stock-based compensation expense.
The
Company recognized stock-based compensation expense of $101,462 and $54,890 for the three months ended March 31, 2016 and 2015,
respectively. The following table summarizes the effect of this stock-based compensation expense within each of the line items
of our costs and expenses within our Condensed Consolidated Statements of Operations:
|
|
For the Three Months Ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Research and development
|
|
$
|
20,381
|
|
|
$
|
11,343
|
|
Selling and marketing
|
|
|
12,690
|
|
|
|
6,975
|
|
General and administrative
|
|
|
68,391
|
|
|
|
36,572
|
|
Total stock-based compensation expense
|
|
$
|
101,462
|
|
|
$
|
54,890
|
|
Fair
Value of Financial Instruments
Due
to their short maturities, the carrying amounts for cash and cash equivalents, accounts receivable, accounts payable, and accrued
expenses approximate their fair value. Long-term liabilities are primarily related to convertible debentures and deferred revenue
with carrying values that approximate fair value.
Fair
Value Measurements
The
Company follows the guidance of FASB ASC Topic 820, “
Fair Value Measurements and Disclosures
” (“ASC 820”)
as it related to all financial assets and financial liabilities that are recognized or disclosed at fair value in the financial
statements on a recurring basis.
The
Company generally defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date (exit price). The Company uses a three-tier fair value
hierarchy, which classifies the inputs used in measuring fair values. These tiers include: Level 1, defined as observable inputs
such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active
markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market
data exists, therefore requiring the Company to develop its own assumptions.
Financial
assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value
measurement. The Company has determined that its financial assets are classified within Level 1 and its financial liabilities
are currently classified within Level 3 in the fair value hierarchy. The development of the unobservable inputs for Level 3 fair
value measurements and fair value calculations are the responsibility of the Company’s management.
The
following tables set forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring
basis as of March 31, 2016:
|
|
|
|
|
Fair value measurements at March 31, 2016 using:
|
|
|
|
March 31, 2016
|
|
|
Quoted
prices in
active
markets
(Level 1)
|
|
|
Significant
other
observable
inputs
(Level
2)
|
|
|
Significant
unobservable
inputs
(Level
3)
|
|
Available-For-Sale Equity Securities
|
|
|
154,824
|
|
|
|
154,824
|
|
|
|
-
|
|
|
|
-
|
|
Total Financial Assets
|
|
$
|
154,824
|
|
|
$
|
154,824
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
March 31, 2016
|
|
|
Quoted
prices in
active
markets
(Level 1)
|
|
|
Significant
other
observable
inputs
(Level 2)
|
|
|
Significant
unobservable
inputs
(Level 3)
|
|
Series D Preferred Stock Purchase Warrants
|
|
$
|
256,420
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
256,420
|
|
Warrants Issued with Convertible Debt
|
|
|
5,314,580
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,314,580
|
|
Conversion Option Derivative Liabilities
|
|
|
7,028,206
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,028,206
|
|
Total Derivatives
|
|
$
|
12,599,206
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
12,599,206
|
|
The
following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial
instruments, measured at fair value on a recurring basis using significant unobservable inputs for the three months ended March
31, 2016:
|
|
December 31, 2015
|
|
|
Issuance
fair value
|
|
|
Change in
fair value
|
|
|
March 31, 2016
|
|
Series D Preferred Stock Purchase Warrants
|
|
$
|
173,526
|
|
|
$
|
-
|
|
|
$
|
82,894
|
|
|
$
|
256,420
|
|
Warrants Issued with Convertible Debt
|
|
|
3,122,450
|
|
|
|
1,087,254
|
|
|
|
1,104,876
|
|
|
|
5,314,580
|
|
Conversion Option Derivative Liabilities
|
|
|
3,940,791
|
|
|
|
1,535,290
|
|
|
|
1,552,125
|
|
|
|
7,028,206
|
|
Total Derivatives
|
|
$
|
7,236,767
|
|
|
$
|
2,622,544
|
|
|
$
|
2,739,895
|
|
|
$
|
12,599,206
|
|
The amounts above valued at issuance includes $1,328,495 that was
charged directly to “change in fair value of derivative liabilities” at issuance.
The following tables
set forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of
December 31, 2015:
|
|
|
|
|
Fair value
measurements at December 31, 2015 using:
|
|
|
|
December 31,
2015
|
|
|
Quoted
prices in
active
markets
(Level 1)
|
|
|
Significant
other observable inputs
(Level 2)
|
|
|
Significant
unobservable
inputs
(Level 3)
|
|
Available-For-Sale Equity Securities
|
|
|
294,522
|
|
|
|
294,522
|
|
|
|
-
|
|
|
|
-
|
|
Total Financial Assets
|
|
$
|
294,522
|
|
|
$
|
294,522
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2015
|
|
|
Quoted
prices in
active
markets
(Level 1)
|
|
|
Significant
other
observable inputs
(Level 2)
|
|
|
Significant
unobservable
inputs
(Level 3)
|
|
Series D Preferred Stock Purchase Warrants
|
|
$
|
173,526
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
173,526
|
|
Warrants Issued with Convertible Debt
|
|
|
3,122,450
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,122,450
|
|
Conversion Option Derivative Liabilities
|
|
|
3,940,791
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,940,791
|
|
Total Derivatives
|
|
$
|
7,236,767
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,236,767
|
|
The
following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial
instruments, measured at fair value on a recurring basis using significant unobservable inputs for the three months ended March
31, 2015:
|
|
January 1, 2015
|
|
|
Change in Fair Value
|
|
|
Reclassified to Equity
|
|
|
March 31, 2015
|
|
Series D Preferred Stock Purchase Warrants
|
|
$
|
159,875
|
|
|
$
|
51,031
|
|
|
|
-
|
|
|
$
|
210,906
|
|
The
assumptions for the binomial pricing model are represented in the table below for the warrants issued in the Series D private
placement reflected on a per share common stock equivalent basis.
Assumptions
|
|
November 10, 2011
|
|
|
Warrants revalued at
December 31, 2015
|
|
|
Warrants revalued at
March 31, 2016
|
|
Expected life (in months)
|
|
|
60.0
|
|
|
|
11.0
|
|
|
|
7.0
|
|
Expected volatility
|
|
|
104.5
|
%
|
|
|
104.9
|
%
|
|
|
103.6
|
%
|
Risk-free interest rate
|
|
|
0.875
|
%
|
|
|
0.65
|
%
|
|
|
0.39
|
%
|
Exercise price
|
|
$
|
0.81
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
Fair value per warrant
|
|
$
|
0.54
|
|
|
$
|
0.16
|
|
|
$
|
0.24
|
|
The
assumptions for the binomial pricing model are represented in the table below for the warrants issued with the Convertible Debt
throughout the period reflected on a per share common stock equivalent basis.
Assumptions
|
|
At Issuance Fair value
|
|
|
Warrants revalued at December
31, 2015
|
|
|
Warrants revalued at
March 31, 2016
|
|
Expected life (in months)
|
|
|
60.0
|
|
|
|
55.0-60.0
|
|
|
|
48.0-60.0
|
|
Expected volatility
|
|
|
118.3 - 138.3
|
%
|
|
|
136.3-141.6
|
%
|
|
|
138.3 -142.2
|
%
|
Risk-free interest rate
|
|
|
1.23-1.69
|
%
|
|
|
1.29-1.76
|
%
|
|
|
1.21
|
%
|
Exercise price
|
|
$
|
0.40
|
|
|
|
0.40
|
|
|
$
|
0.40
|
|
Fair value per warrant
|
|
|
$ 0.19-$.40
|
|
|
|
0.30
|
|
|
$
|
0.40
|
|
The
assumptions for the binomial pricing model are represented in the table below for the conversion options reflected on a per share
common stock equivalent basis.
Assumptions
|
|
At Issuance
fair value
|
|
|
Conversion options revalued
at December 31, 2015
|
|
|
Conversion options
revalued at
March 31, 2016
|
|
Expected life (in months)
|
|
|
6-24
|
|
|
|
18-24
|
|
|
|
12-24
|
|
Expected volatility
|
|
|
104.2-153.8
|
%
|
|
|
112.2-114.7
|
%
|
|
|
112.03-113.67
|
%
|
Risk-free interest rate
|
|
|
0.05-0.99
|
%
|
|
|
1.06
|
%
|
|
|
0.59-0.73
|
%
|
Exercise price
|
|
|
$0.28-$0.35
|
|
|
$
|
0.28
|
|
|
$
|
0.28
|
|
Fair value per conversion option
|
|
|
$0.09-$0.30
|
|
|
|
$0.14-$0.33
|
|
|
|
$0.27-$0.30
|
|
|
5)
|
Commitments
and Contingencies
|
Operating
Leases
Our
corporate offices are currently located at 14 Norfolk Avenue, South Easton, Massachusetts 02375. We are currently paying $4,800
per month, on a lease extension, signed on December 29, 2015, that expires December 31, 2016, for our corporate office.
On
November 1, 2014 we signed a lease for lab space in Medford, MA. We subsequently expanded our space in Medford. The lease expires
December 30, 2017 and requires monthly payments of $5,385 subject to annual cost of living increases.
Rental
costs are expensed as incurred. During the three months ended March 31, 2016 and
2015 we incurred $33,877 and $22,722 in
rent expense, respectively for the use of our corporate office and research and development facilities.
Government
Grants
We
have received a $1.05 million NIH SBIR Phase II Grant. Under the grant, the NIH has committed to pay the Company to develop a
high-throughput, high pressure-based DNA Shearing System for Next Generation Sequencing and other genomic applications.
|
6)
|
Convertible
Debt and Other Debt
|
We
entered into Subscription Agreements (the “
Subscription Agreement
”) with various individuals (each, a “
Purchaser
”)
between July 23, 2015 and March 31, 2016, pursuant to which the Company sold Senior Secured Convertible Debentures (the “
Debentures
”)
and warrants to purchase shares of common stock equal to 50% of the number of shares issuable pursuant to the subscription amount
(the “
Warrants
”) for an aggregate purchase price of $6,319,549 (the “
Purchase Price
”).
The
Company issued a principal aggregate amount of $6,951,504 in Debentures which includes a 10% original issue discount on the Purchase
Price. The Debenture does not accrue any additional interest during the first year it is outstanding but accrues interest at a
rate equal to 10% per annum for the second year it is outstanding. The Debenture has a maturity date of two years from issuance.
The Debenture is convertible any time after its issuance date. The Purchaser has the right to convert the Debenture into shares
of the Company’s common stock at a fixed conversion price equal to $0.28 per share, subject to applicable adjustments. In
the second year that the Debenture is outstanding, any interest accrued shall be payable quarterly in either cash or common stock,
at the Company’s discretion.
At
any time after the Issuance Date, the Company has the option, subject to certain conditions, to redeem some or all of the then
outstanding principal amount of the Debenture for cash in an amount equal to the sum of (i) 120% of the then outstanding principal
amount of the Debenture, (ii) accrued but unpaid interest and (iii) any liquidated damages and other amounts due in respect of
the Debenture.
Warrants
The
Company issued warrants exercisable into a total of 11,284,909 shares of our common stock. The Warrants issued in this transaction
are immediately exercisable at an exercise price of $0.40 per share, subject to applicable adjustments including full ratchet
anti-dilution in the event that we issue any securities at a price lower than the exercise price then in effect. The Warrants
have an expiration period of five years from the original issue date. The Warrants are subject to adjustment for stock splits,
stock dividends or recapitalizations and also include anti-dilution price protection for subsequent equity sales below the exercise
price.
Subject
to the terms and conditions of the Warrants, at any time commencing six months from the Final Closing, the Company has the right
to call the Warrants for cancellation if the volume weighted average price of its Common Stock on the OTC QB Market (or other
primary trading market or exchange on which the Common Stock is then traded) equals or exceeds three times the per share exercise
price of the Warrants for 15 out of 20 consecutive trading days.
Security
Agreement
In
connection with the Subscription Agreement and Debenture, the Company entered into Security Agreements with the Purchasers whereby
the Company agreed to grant to Purchasers an unconditional and continuing, first priority security interest in all of the assets
and property of the Company to secure the prompt payment, performance and discharge in full of all of Company’s obligations
under the Debentures, Warrants and the other Transaction Documents.
The
Company determined that the conversion feature of the Debentures met the definition of a liability in accordance with ASC 815-40
and therefore bifurcated the conversion feature on each debt agreement and accounted for it as a derivative liability. The fair
value of the conversion feature was accounted for as a note discount and are amortized to interest expense over the life of the
loan. The fair value of the conversion feature was reflected in the conversion option liability line in the condensed consolidated
balance sheets.
The
proceeds from these convertible debts were allocated between the host debt instrument and the convertible option based on the
residual method. The estimated fair value of the convertible option was determined using a binomial formula, resulting in allocations
to the convertible option and accounted for as a liability in the Company’s condensed consolidated balance sheet. In accordance
with the provisions of ASC 815-40, the gross proceeds are offset by debt discounts, which are amortized to interest expense over
the expected life of the debt.
ASC
470-20 states that the proceeds from the issuance of debt with detachable stock warrants should be allocated between the debt
and warrants on the basis of their relative fair market values. The debt discount will be amortized to interest expense over the
two year term of these loans. We amortized $839,234 of the debt discount to interest expense in 2016. The warrants issued in connection
with the convertible debentures are classified as warrant derivative liabilities because the warrants are entitled to certain
rights in subsequent financings and the warrants contain “down-round protection” and therefore, do not meet the scope
exception for treatment as a derivative under ASC 815, Derivatives and Hedging, (“ASC 815”). Since “down-round
protection” is not an input into the calculation of the fair value of the warrants, the warrants cannot be considered indexed
to the Company’s own stock which is a requirement for the scope exception as outlined under ASC 815. The estimated fair
value of the warrants was determined using the binomial model, resulting in an allocation of $2,840,446 to the total warrants
out of the gross proceeds of $6,319,549. The fair value will be affected by changes in inputs to that model including our stock
price, expected stock price volatility, the contractual term, and the risk-free interest rate. We will continue to classify the
fair value of the warrants as a liability until the warrants are exercised, expire or are amended in a way that would no longer
require these warrants to be classified as a liability, whichever comes first.
The
specific terms of the convertible debts and outstanding balances as of March 31, 2016 are listed in the table below.
Fixed Rate Convertible Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception Date
|
|
Term
|
|
|
Loan Amount
|
|
|
Outstanding Balance
|
|
|
Original Issue Discount
|
|
|
|
|
|
Interest Rate
|
|
|
|
|
|
Deferred
Finance
Fees
|
|
|
Discount
related to Fair value of conversion feature and warrants
|
|
July 22, 2015
|
|
|
24
months
|
|
|
$
|
2,180,000
|
|
|
$
|
2,180,000
|
|
|
$
|
218,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
$
|
388,532
|
|
|
$
|
2,163,074
|
|
September 25, 2015
|
|
|
24
months
|
|
|
|
1,100,000
|
|
|
|
1,100,000
|
|
|
|
110,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
185,956
|
|
|
|
1,022,052
|
|
October 2, 2015
|
|
|
24
months
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
15,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
26,345
|
|
|
|
140,832
|
|
October 6, 2015
|
|
|
24
months
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
3,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
5,168
|
|
|
|
26,721
|
|
October 14, 2015
|
|
|
24
months
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
5,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
8,954
|
|
|
|
49,377
|
|
November 2, 2015
|
|
|
24
months
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
25,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
43,079
|
|
|
|
222,723
|
|
November 10, 2015
|
|
|
24
months
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
5,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
8,790
|
|
|
|
46,984
|
|
November 12, 2015
|
|
|
24
months
|
|
|
|
215,000
|
|
|
|
215,000
|
|
|
|
21,500
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
38,518
|
|
|
|
212,399
|
|
November 20, 2015
|
|
|
24
months
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
20,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
37,185
|
|
|
|
200,000
|
|
December 4, 2015
|
|
|
24
months
|
|
|
|
170,000
|
|
|
|
170,000
|
|
|
|
17,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
37,352
|
|
|
|
170,000
|
|
December 11, 2015
|
|
|
24
months
|
|
|
|
360,000
|
|
|
|
360,000
|
|
|
|
36,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
75,449
|
|
|
|
360,000
|
|
December 18, 2015
|
|
|
24
months
|
|
|
|
55,000
|
|
|
|
55,000
|
|
|
|
5,500
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
11,714
|
|
|
|
55,000
|
|
December 31, 2015
|
|
|
24
months
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
10,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
20,634
|
|
|
|
100,000
|
|
January 11, 2016
|
|
|
24
months
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
10,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
24,966
|
|
|
|
80,034
|
|
January 20, 2016
|
|
|
24
months
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
5,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
9,812
|
|
|
|
40,188
|
|
January 29, 2016
|
|
|
24
months
|
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
30,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
60,887
|
|
|
|
239,113
|
|
February 26, 2016
|
|
|
24
months
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
20,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
43,952
|
|
|
|
156,048
|
|
March 10, 2016
|
|
|
24
months
|
|
|
|
125,000
|
|
|
|
125,000
|
|
|
|
12,500
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
18,260
|
|
|
|
106,740
|
|
March 18, 2016
|
|
|
24
months
|
|
|
|
360,000
|
|
|
|
360,000
|
|
|
|
36,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
94,992
|
|
|
|
265,008
|
|
March 24, 2016
|
|
|
24
months
|
|
|
|
106,667
|
|
|
|
106,667
|
|
|
|
10,667
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
15,427
|
|
|
|
91,240
|
|
March 31, 2016
|
|
|
24
months
|
|
|
|
167,882
|
|
|
|
167,882
|
|
|
|
16,788
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
2,436
|
|
|
|
165,446
|
|
|
|
|
|
|
|
$
|
6,319,549
|
|
|
$
|
6,319,549
|
|
|
$
|
631,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,158,408
|
|
|
$
|
5,912,979
|
|
1
The original issue discount is reflected in the first year.
2
The annual interest starts accruing in the second year.
The closings above on
March 10, 24, and 31, 2016 included $264,667 of proceeds received from related parties.
At
any time after six months from the Inception Date, the Company has the right to prepay the above Debentures in cash for 120% of
the principal amount outstanding and any accrued interest. As of March 31, 2016, a total of approximately $291,000 convertible
debentures were issued to related parties.
The
following table provides a summary of the changes in convertible debt, net of unamortized discount, during 2016:
|
|
2016
|
|
Balance at January 1,
|
|
$
|
277,342
|
|
Issuance of convertible debt, face value
|
|
|
1,550,504
|
|
Original issue discount
|
|
|
(140,955
|
)
|
Debt discount from derivative liabilities (embedded conversion option and warrants)
|
|
|
(1,143,817
|
)
|
Deferred financing fees
|
|
|
(275,232
|
)
|
Accretion of interest and amortization of debt discount to interest expense through March 31,
|
|
|
839,234
|
|
Balance at March 31,
|
|
|
1,107,076
|
|
Less: current portion
|
|
|
100,000
|
|
Convertible debt, long-term portion
|
|
$
|
1,007,076
|
|
Other
Notes
On
January 6, 2016 we signed a Merchant Agreement with a lender. Under the agreement we received $250,000 in exchange for rights
to all customer receipts until the lender is paid $322,500, which is collected at the rate of $1,280 per business day. The payments
were secured by second position rights to all customer receipts until the loan has been paid in full. $138,840 of the proceeds
were used to pay off the outstanding balance of a previous loan from another lender. The Company recognized a gain on the settlement
of the previous loan of $5,044 which was credited to interest expense. The Company paid $2,500 in fees in connection with this
loan. The note was still outstanding as of March 31, 2016 with a balance of $175,774.
On
January 20, 2016, we borrowed $50,000 from an individual with no interest or fees. We paid back the loan in March 2016.
On
February 8, 2016 we signed a Merchant Agreement with a lender. Under the agreement we received $100,000 in exchange for third
position rights to all customer receipts until the lender is paid $129,900, which is collected at the rate of $927 per business
day. The Company paid $2,000 in fees in connection with this loan. The note was still outstanding as of March 31, 2016 with a
balance of $65,704.
Preferred
Stock
We
are authorized to issue 1,000,000 shares of preferred stock with a par value of $0.01. Of the 1,000,000 shares of preferred stock:
|
1)
|
20,000
shares have been designated as Series A Junior Participating Preferred Stock (“
Junior A
”)
|
|
|
|
|
2)
|
313,960
shares have been designated as Series A Convertible Preferred Stock (“
Series A
”)
|
|
|
|
|
3)
|
279,256
shares have been designated as Series B Convertible Preferred Stock (“
Series B
”)
|
|
|
|
|
4)
|
88,098
shares have been designated as Series C Convertible Preferred Stock (“
Series C
”)
|
|
|
|
|
5)
|
850
shares have been designated as Series D Convertible Preferred Stock (“
Series D
”)
|
|
|
|
|
6)
|
500
shares have been designated as Series E Convertible Preferred Stock
(“Series E”)
|
|
|
|
|
7)
|
240,000
shares have been designated as Series G Convertible Preferred Stock (“
Series G
”)
|
|
|
|
|
8)
|
10,000
shares have been designated as Series H Convertible Preferred Stock (“
Series H
”)
|
|
|
|
|
9)
|
21
shares have been designated as Series H2 Convertible Preferred Stock (“
Series H2
”)
|
|
|
|
|
10)
|
6,250
shares have been designated as Series J Convertible Preferred Stock (“
Series J
”)
|
|
|
|
|
11)
|
15,000
shares have been designated as Series K Convertible Preferred Stock (“
Series K
”)
|
As
of March 31, 2016, there were no shares of Junior A, and Series A, B, C and E issued and outstanding. See our Annual Report on
Form 10-K for the year ended December 31, 2015 for the pertinent disclosures of preferred stock.
Stock
Options and Warrants
Our
stockholders approved our amended 2005 Equity Incentive Plan (the “Plan”) pursuant to which an aggregate of 1,800,000
shares of our common stock were reserved for issuance upon exercise of stock options or other equity awards made under the Plan.
Under the Plan, we may award stock options, shares of common stock, and other equity interests in the Company to employees, officers,
directors, consultants, and advisors, and to any other persons the Board of Directors deems appropriate. As of March 31, 2016,
options to acquire 1,720,750 shares were outstanding under the Plan with 79,250 shares available for future grant under the Plan.
On
December 12, 2013 at the Company’s special meeting the shareholders approved the 2013 Equity Incentive Plan (the “2013
Plan”) pursuant to which 3,000,000 shares of our common stock were reserved for issuance upon exercise of stock options
or other equity awards. Under the 2013 Plan, we may award stock options, shares of common stock, and other equity interests in
the Company to employees, officers, directors, consultants, and advisors, and to any other persons the Board of Directors deems
appropriate. As of March 31, 2016 1,675,500 options have been granted under the 2013 Plan.
On
November 29, 2015 the Company’s Board of Directors adopted the 2015 Nonqualified Stock Option Plan (the “2015 Plan”)
pursuant to which 5,000,000 shares of our common stock were reserved for issuance upon exercise of non-qualified stock options.
Under the 2015 Plan, we may award non-qualified stock options in the Company to employees, officers, directors, consultants, and
advisors, and to any other persons the Board of Directors deems appropriate. As of March 31, 2016, non-qualified options to acquire
2,068,000 shares were outstanding under the Plan with 2,932,000 shares available for future grants under the 2015 Plan.
All
of the outstanding non-qualified options had an exercise price that was at or above the Company’s common stock share price
on March 31, 2016.
The
following tables summarize information concerning options and warrants outstanding and exercisable:
|
|
Stock Options
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Total
|
|
|
|
Shares
|
|
|
Price
per share
|
|
|
Shares
|
|
|
Price
per share
|
|
|
Shares
|
|
|
Exercisable
|
|
Balance outstanding, 01/01/15
|
|
|
3,406,250
|
|
|
$
|
0.51
|
|
|
|
19,182,201
|
|
|
$
|
0.49
|
|
|
|
22,588,451
|
|
|
|
16,611,528
|
|
Granted
|
|
|
2,500,000
|
|
|
|
0.40
|
|
|
|
10,901,426
|
|
|
|
0.40
|
|
|
|
13,401,426
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Expired
|
|
|
(205,000
|
)
|
|
|
1.00
|
|
|
|
(791,678
|
)
|
|
|
0.31
|
|
|
|
(996,678
|
)
|
|
|
|
|
Forfeited
|
|
|
(130,000
|
)
|
|
|
0.70
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(130,000
|
)
|
|
|
|
|
Balance outstanding, 12/31/15
|
|
|
5,571,250
|
|
|
$
|
0.44
|
|
|
|
29,291,949
|
|
|
$
|
0.49
|
|
|
|
34,863,199
|
|
|
|
31,664,469
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
2,929,552
|
|
|
|
0.40
|
|
|
|
2,929,552
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Expired
|
|
|
(111,000
|
)
|
|
|
1.00
|
|
|
|
(5,223,100
|
)
|
|
|
0.40
|
|
|
|
(5,334,100
|
)
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Balance outstanding, 3/31/2016
|
|
|
5,460,250
|
|
|
$
|
0.43
|
|
|
|
26,998,401
|
|
|
$
|
0.45
|
|
|
|
32,458,651
|
|
|
|
29,658,673
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
Weighted Average
|
|
|
Weighted Average
|
|
Range of
Exercise Prices
|
|
Number of
Options
|
|
|
Remaining
Contractual
Life (Years)
|
|
|
Exercise
Price
|
|
|
Number of
Options
|
|
|
Remaining
Contractual
Life (Years)
|
|
|
Exercise Price
|
|
$0.30 - $0.39
|
|
|
1,675,500
|
|
|
|
8.5
|
|
|
$
|
0.30
|
|
|
|
1,085,024
|
|
|
|
8.5
|
|
|
$
|
0.30
|
|
0.40 - 0.49
|
|
|
2,811,000
|
|
|
|
9.5
|
|
|
|
0.40
|
|
|
|
601,498
|
|
|
|
8.4
|
|
|
|
0.40
|
|
0.50 - 0.59
|
|
|
226,250
|
|
|
|
6.4
|
|
|
|
0.50
|
|
|
|
226,250
|
|
|
|
6.4
|
|
|
|
0.50
|
|
0.60 - 0.69
|
|
|
402,500
|
|
|
|
3.9
|
|
|
|
0.60
|
|
|
|
402,500
|
|
|
|
3.9
|
|
|
|
0.60
|
|
1.00 - 1.25
|
|
|
345,000
|
|
|
|
2.5
|
|
|
|
1.00
|
|
|
|
345,000
|
|
|
|
2.5
|
|
|
|
1.00
|
|
$0.30 - $1.25
|
|
|
5,460,250
|
|
|
|
8.2
|
|
|
$
|
0.43
|
|
|
|
2,660,272
|
|
|
|
6.8
|
|
|
$
|
0.48
|
|
As
of March 31, 2016, the total estimated fair value of unvested stock options to be amortized over their remaining vesting period
was $647,398. The non-cash, stock-based compensation expense associated with the vesting of these options is expected to be $273,013
for the remainder of 2016, $217,137 in 2017 and $157,248 in 2018.
Common
Stock Issuances
On
various dates from January to March 2016 the Company issued 305,000 shares of restricted common stock to investor relations firms
for services rendered.
On
May 9, 2016, the Company received a $200,000, three-month, non-convertible loan from an investor. Loan terms include 12% annualized
interest and the award of a three-year warrant to purchase 100,000 shares of the Company’s common stock at an exercise price
set at $0.55.
On May 6, 2016, all remaining
Series K preferred shareholders except one converted their preferred stock into approximately 4.3 million shares of the Company’s
common stock.
ITEM
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). In some cases, forward-looking statements are identified by terms such as “may,” “will,”
“should,” “could,” “would,” “expects,” “plans,” “anticipates,”
“believes,” “estimates,” “projects,” “predicts,” “potential” and similar
expressions intended to identify forward-looking statements. Such statements include, without limitation, statements regarding:
|
●
|
our
need for, and our ability to raise, additional equity or debt financing on acceptable terms, if at all;
|
|
|
|
|
●
|
our
need to take additional cost reduction measures, cease operations or sell our operating assets, if we are unable to obtain
sufficient additional financing;
|
|
|
|
|
●
|
our
belief that we have sufficient liquidity to finance normal operations;
|
|
|
|
|
●
|
the
options we may pursue in light of our financial condition;
|
|
|
|
|
●
|
the
amount of cash necessary to operate our business;
|
|
|
|
|
●
|
the
anticipated uses of grant revenue and the potential for increased grant revenue in future periods;
|
|
|
|
|
●
|
our
plans and expectations with respect to our continued operations;
|
|
|
|
|
●
|
our
belief that PCT has achieved initial market acceptance in the mass spectrometry and other markets;
|
|
|
|
|
●
|
the
expected increase in the number of pressure cycling technology (
“PCT”)
and constant pressure (
“CP”
)
based units installed and the increase in revenues from the sale of consumable products and extended service contracts;
|
|
|
|
|
●
|
the
expected development and success of new instrument and consumables product offerings;
|
|
|
|
|
●
|
the
potential applications for our instrument and consumables product offerings;
|
|
|
|
|
●
|
the
expected expenses of, and benefits and results from, our research and development efforts;
|
|
|
|
|
●
|
the
expected benefits and results from our collaboration programs, strategic alliances and joint ventures;
|
|
|
|
|
●
|
our
expectation of obtaining additional research grants from the government in the future;
|
|
|
|
|
●
|
our
expectations of the results of our development activities funded by government research grants;
|
|
|
|
|
●
|
the
potential size of the market for biological sample preparation;
|
|
|
|
|
●
|
general
economic conditions;
|
|
|
|
|
●
|
the
anticipated future financial performance and business operations of our company;
|
|
|
|
|
●
|
our
reasons for focusing our resources in the market for genomic, proteomic, lipidomic and small molecule sample preparation;
|
|
|
|
|
●
|
the
importance of mass spectrometry as a laboratory tool;
|
|
●
|
the
advantages of PCT over other current technologies as a method of biological sample preparation in biomarker discovery, forensics,
and histology and for other applications;
|
|
|
|
|
●
|
the
capabilities and benefits of our PCT sample preparation system, consumables and other products;
|
|
|
|
|
●
|
our
belief that laboratory scientists will achieve results comparable with those reported to date by certain research scientists
who have published or presented publicly on PCT and our other products;
|
|
|
|
|
●
|
our
ability to retain our core group of scientific, administrative and sales personnel; and
|
|
|
|
|
●
|
our
ability to expand our customer base in sample preparation and for other applications of PCT and our other products.
|
These
forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors that may
cause our actual results, levels of activity, performance or achievements to be materially different from any future results,
levels of activity, performance or achievements, expressed or implied, by such forward-looking statements. Also, these forward-looking
statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q. Except as otherwise
required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking
statement contained in this Quarterly Report on Form 10-Q to reflect any change in our expectations or any change in events, conditions
or circumstances on which any of our forward-looking statements are based. Factors that could cause or contribute to differences
in our future financial and other results include those discussed in the risk factors set forth in Part I, Item 1A of our Annual
Report on Form 10-K for the year ended December 31, 2015. We qualify all of our forward-looking statements by these cautionary
statements.
OVERVIEW
We
are focused on solving the challenging problems inherent in biological sample preparation, a crucial laboratory step performed
by scientists worldwide working in biological life sciences research. Sample preparation is a term that refers to a wide range
of activities that precede most forms of scientific analysis. Sample preparation is often complex, time-consuming and, in our
belief, one of the most error-prone steps of scientific research. It is a widely-used laboratory undertaking – the requirements
of which drive what we believe is a large and growing worldwide market. We have developed and patented a novel, enabling technology
platform that can control the sample preparation process. It is based on harnessing the unique properties of high hydrostatic
pressure. This process, called pressure cycling technology, or PCT, uses alternating cycles of hydrostatic pressure between ambient
and ultra-high levels i.e., 35,000 pounds per square inch (“
psi
”) or greater to safely, conveniently and reproducibly
control the actions of molecules in biological samples, such as cells and tissues from human, animal, plant and microbial sources.
Our
pressure cycling technology uses internally developed instrumentation that is capable of cycling pressure between ambient and
ultra-high levels at controlled temperatures and specific time intervals, to rapidly and repeatedly control the interactions of
bio-molecules, such as deoxyribonucleic acid (“
DNA
”), ribonucleic acid (“
RNA
”), proteins,
lipids and small molecules. Our laboratory instrument, the Barocycler
®
, and our internally developed consumables
product line, which include our Pressure Used to Lyse Samples for Extraction (“
PULSE
”) tubes, and other processing
tubes, and application specific kits such as consumable products and reagents, together make up our PCT Sample Preparation System
(“
PCT SPS
”).
We
have experienced negative cash flows from operations with respect to our pressure cycling technology business since our inception.
As of March 31, 2016, we did not have adequate working capital resources to satisfy our current liabilities and as a result we
have substantial doubt about our ability to continue as a going concern. Based on our current projections, including equity financing
subsequent to March 31, 2016, we believe we will have the cash resources that will enable us to continue to fund normal operations
into the foreseeable future.
We
need substantial additional capital to fund normal operations in future periods. If we are able to obtain additional capital or
otherwise increase our revenues, we may increase spending in specific research and development applications and engineering projects
and may hire additional sales personnel or invest in targeted marketing programs. In the event that we are unable to obtain financing
on acceptable terms, or at all, we will likely be required to cease our operations, pursue a plan to sell our operating assets,
or otherwise modify our business strategy, which could materially harm our future business prospects.
We
hold 14 United States and 10 foreign patents covering multiple applications of PCT in the life sciences field. Our pressure cycling
technology employs a unique approach that we believe has the potential for broad use in a number of established and emerging life
sciences areas, including;
|
●
|
sample
preparation for genomic, proteomic, and small molecule studies;
|
|
|
|
|
●
|
pathogen
inactivation;
|
|
|
|
|
●
|
protein
purification;
|
|
|
|
|
●
|
control
of chemical (particularly enzymatic) reactions; and
|
|
|
|
|
●
|
immunodiagnostics
(clinical laboratory testing).
|
We
reported a number of accomplishments in the first four months of 2016:
On January 12, 2016 SCIEX,
a global leader in life science analytical technologies (Framingham, MA) and a wholly-owned subsidiary of Danaher Corporation
(NYSE: DHR), announced an exclusive co-marketing agreement with PBI to improve protein quantification in complex samples.
On January 28, 2016 in
a report focused on the exclusive co-marketing agreement between SCIEX and PBI, Emerging Growth LLC indicated the combination
of the two company’s technologies could result in superior biological insights and discoveries and in rapid and dramatic
revenue growth for PBI.
On February 3, 2016 SCIEX
and Children’s Medical Research Institute (Sydney, Australia) announced they had joined forces to advance the promise of
precision medicine. The partners stated they would benefit from SCIEX’s exclusive collaborators, including Pressure BioSciences,
and PBI’s PCT platform for increased protein quantitation and reproducibility.
On March 14, 2016 the
Company announced that it would participate in a SCIEX workshop on new innovations towards industrialized proteomics at the US
HUPO scientific conference in Boston.
On April 12, 2016, the
Company announced it had been added to the high-performing Richmond Club Index. The Richmond Index has outperformed the S&P
500 Index by an average of 11% each year for the past ten years.
Results
of Operations
Comparison
for the three months ended March 31, 2016 and 2015
Revenue
We
recognized total revenue of $510,478 for the three months ended March 31, 2016 as compared to $440,134 during the three months
ended March 31, 2015, an increase of $70,344 or 16%. This increase is attributable to increases in the sales of our products and
services as detailed below.
Products,
Services, Other
. Revenue from the sale of products and services increased 26% to $454,350 for the three months ended March
31, 2016 as compared to $359,364 during the three months ended March 31, 2015. This increase was primarily attributable to an
increase in the sale of pressure-based instrument systems. Sales of consumables also increased for the three months ended March
31, 2016 to $44,234 compared to $39,835 during the same period in the prior year, an increase of 11%.
Grant
Revenue
. During the three months ended March 31, 2016, we recorded grant revenue of $56,128 compared to grant revenue of $80,770
in the comparable period in 2015. Work on the $1.05 million NIH grant decreased during the first quarter as we needed to wait
for certain significant parts to be manufactured. These parts are expected to be received during the second quarter of 2016, which
should result in an increase in grant work beginning in the third quarter of the 2016 calendar year.
Cost
of Products and Services
The
cost of products and services was $221,699 for the three months ended March 31, 2016 compared to $190,783 for the comparable period
in 2015. The cost of products and services increased with the concomitant increase in the sales of instrument systems and consumables.
Gross profit margin on products and services was 51% for the three months ended March 31, 2016, as compared to 47% for the prior
period.
Research
and Development
Research
and development expenditures were $335,270 during the three months ended March 31, 2016 as compared to $231,923 in the same period
in 2015, an increase of $103,347 or 45%. This increase resulted primarily from: (i) the addition of a full-time, Ph.D. level electrical
engineer, a key contributor to the development of our new Barocycler NEP2320 Extreme, initially required for the SCIEX co-marketing
deal, (ii) our support of Dr. Bruce McCord and Team who are developing an enhanced rape kit test, based on the PCT Platform, (iii)
rent increase related to the additional R&D space necessary for growth, and (iv) additional travel, lab supplies, and unused
PTO (“paid time off”).
Research
and development expense recognized in the three months ended March 31, 2016 and 2015 included $20,381 and $11,343 of non-cash,
stock-based compensation expense, respectively.
Selling
and Marketing
Selling
and marketing expenses increased to $191,236 for the three months ended March 31, 2016 from $166,223 for the comparable period
in 2015, an increase of $25,013 or 15%. This increase is primarily attributed to expenses incurred to attend additional tradeshows,
more active marketing, and to the generation of data by our collaborative partners that can be used to introduce new and upgraded
products and services.
During
the three months ended March 31, 2016 and 2015, selling and marketing expense included $12,690 and $6,975 of non-cash, stock-based
compensation expense, respectively.
General
and Administrative
General
and administrative costs totaled $808,218 for the three months ended March 31, 2016 as compared to $726,024 for the comparable
period in 2015, an increase of $82,194 or 11%. We increased spending on patent/trademark activities, as well as investor and public
relations, in outside consulting services, and in other activities that we believed would augment and support our successful 2015/2016
fund raising efforts.
During
the three months ended March 31, 2016 and 2015, general and administrative expense included $68,391 and $36,572 of non-cash, stock-based
compensation expense, respectively.
Operating
Loss
Our
operating loss was $1,045,945 for the three months ended March 31, 2016 as compared to $874,819 for the comparable period in 2015,
an increase of $171,126 or 20%. This increase was primarily due to increases in expenditures in R&D and in G&A, as described
above.
Other
Income (Expense), Net
Interest
(Expense) Income
Interest
expense was $835,144 for the three months ended March 31, 2016 as compared to interest expense of $605,585 for the three months
ended March 31, 2015. We amortized $839,234 of debt discounts in the three months ended March 31, 2016. We recorded $70,560 of
amortized debt discount and $130,760 of prepayment penalties for the three months ended March 31, 2015 related primarily to the
sale of senior secured convertible debentures.
Change
in fair value of warrant derivative liability
During
the three months ended March 31, 2016, we recorded non-cash expense of $1,217,722 for warrant revaluation in our consolidated
statements of operations due to an increase in the fair value of the warrant liability related to warrants issued in our private
placement offerings. We recorded $51,031 non-cash income in the prior comparable period. This increase in fair value was primarily
due to the increase in price of the Company’s common stock at March 31, 2016 as compared to the price on March 31, 2015.
The components for determining the fair value of the warrants are contained in the table in Note 4 of the accompanying condensed
consolidated financial statements.
Change
in fair value of conversion option liability
During the three months
ended March 31, 2016, we recorded non-cash income of $2,850,668 for conversion option revaluation expense in our condensed consolidated
statements of operations due to an increase in the fair value of the conversion option liability related to convertible debt.
This increase in fair value was primarily due to the increase in price of the Company’s common stock on March 31, 2016 as
compared to the price on March 31, 2015 or the date the debt was incurred during the quarter and the shorter time to maturity
of the debt. For the three months ended March 31, 2015 we recorded non-cash income $354,666 for conversion option liability revaluation.
For the three months ended March 31, 2016 and 2015, we recorded a non-cash expense of $1,298,544 and $124,441, respectively upon
issuance of convertible debt to account for the excess of fair value of the conversion option liability embedded in the debt instruments
over the amount of the debt incurred and the change in fair value during the period. The components for determining the fair value
of the conversion option liabilities are contained in the table in Note 4 of the accompanying condensed consolidated financial
statements.
Other
Expense
Other Expense totaled
$912 for the three months ended March 31, 2016 as compared to $36,913 for the comparable period in 2015.
Net
Loss Applicable to Common Shareholders
During
the three months ended March 31, 2016, we recorded a net loss to common shareholders of $5,950,391 or $(0.26) per share, as compared
to a net loss to common shareholders of $2,064,123 or $(0.11) per share in the three months ended March 31, 2015. Net loss per
share increased by $0.15 due to the increased net loss to common shareholders as detailed above. The weighted average common shares
outstanding for the period increased because of the issuance of shares of common stock to investor relations firms for services
rendered.
Liquidity
and Financial Condition
We
have experienced negative cash flows from operations with respect to our pressure cycling technology business since our inception.
As of March 31, 2016, we did not have adequate working capital resources to satisfy our current liabilities and as a result, we
have substantial doubt regarding our ability to continue as a going concern. We have been successful in raising cash through debt
and equity offerings in the past and as described in Note 6, we completed an over-subscribed $5 million PIPE through March 31,
2016, raising a total of $6.3 million between July 2015 and March 2016. We have efforts in place to continue to raise cash through
debt and equity offerings.
We
will need substantial additional capital to fund our operations in future periods. In the event that we are unable to obtain financing
on acceptable terms, or at all, we will likely be required to cease our operations, pursue a plan to sell our operating assets,
or otherwise modify our business strategy, which could materially harm our future business prospects.
Net
cash used in operations for the three months ended March 31, 2016 was $1,233,458 as compared to $1,050,482 for the three months
ended March 31, 2015. The increase in cash used in operations in 2016 is principally due to the increase in loss from operations.
Cash
used in investing activities for the three months ended March 31, 2016 and 2015 was not significant.
Net
cash provided by financing activities for the three months ended March 31, 2016 was $1,210,062 as compared to $796,844 for the
same period in the prior year. The cash from financing activities in the period ending March 31, 2016 included $1,122,167 from
senior secured convertible debt. We also received $256,600 from non-convertible debt, net of fees, less payment on non-convertible
debt of $168,765. In the prior year we received $1,054,750 from convertible debt and $396,127 in proceeds from non-convertible
debt.