Item
1. Financial Statements
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
(UNAUDITED)
|
|
March
31, 2017
|
|
|
December
31, 2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents
|
|
$
|
121,438
|
|
|
$
|
138,363
|
|
Accounts receivable, net of $28,169 reserve
at March 31, 2017 and December 31, 2016
|
|
|
518,727
|
|
|
|
281,320
|
|
Inventories, net of $20,000 reserve at March
31, 2017 and December 31, 2016
|
|
|
940,383
|
|
|
|
905,284
|
|
Prepaid income taxes
|
|
|
7,405
|
|
|
|
7,405
|
|
Prepaid expenses and
other current assets
|
|
|
207,745
|
|
|
|
258,103
|
|
Total
current assets
|
|
|
1,795,698
|
|
|
|
1,590,475
|
|
Investment in available-for-sale
equity securities
|
|
|
19,796
|
|
|
|
25,865
|
|
Property and equipment,
net
|
|
|
22,571
|
|
|
|
9,413
|
|
TOTAL ASSETS
|
|
$
|
1,838,065
|
|
|
$
|
1,625,753
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
672,729
|
|
|
$
|
407,249
|
|
Accrued employee compensation
|
|
|
250,039
|
|
|
|
249,596
|
|
Accrued professional
fees and other
|
|
|
990,425
|
|
|
|
956,884
|
|
Deferred revenue
|
|
|
145,918
|
|
|
|
159,654
|
|
Revolving note payable,
net of unamortized debt discounts of $839,969 and $637,030, respectively
|
|
|
1,410,031
|
|
|
|
612,970
|
|
Related party convertible
debt, net of debt discount of $132,522 and $0, respectively
|
|
|
158,612
|
|
|
|
-
|
|
Convertible debt, net
of unamortized debt discounts of $1,987,382 and $2,235,839, respectively
|
|
|
5,213,529
|
|
|
|
4,005,702
|
|
Other debt, net of
unamortized discounts of $167,263 and $380, respectively
|
|
|
683,116
|
|
|
|
238,157
|
|
Warrant derivative
liability
|
|
|
3,018,515
|
|
|
|
1,685,108
|
|
Conversion option liability
|
|
|
2,679,404
|
|
|
|
951,059
|
|
Total
current liabilities
|
|
|
15,222,318
|
|
|
|
9,266,379
|
|
LONG TERM LIABILITIES
|
|
|
|
|
|
|
|
|
Related party convertible
debt, net of debt discount of $0 and $165,611, respectively
|
|
|
-
|
|
|
|
125,523
|
|
Convertible debt, net
of debt discount of $5,575and $740,628, respectively
|
|
|
5,425
|
|
|
|
529,742
|
|
Deferred revenue
|
|
|
74,805
|
|
|
|
87,527
|
|
TOTAL LIABILITIES
|
|
|
15,302,548
|
|
|
|
10,009,171
|
|
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, 2017 and December 31,
2016, 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, 2017 and December
31, 2016, respectively
|
|
|
866
|
|
|
|
866
|
|
Series H Convertible
Preferred Stock, $.01 par value; 10,000 shares authorized; 10,000 shares issued and outstanding on March 31, 2017 and December
31, 2016, respectively
|
|
|
100
|
|
|
|
100
|
|
Series H2 Convertible
Preferred Stock, $.01 par value; 21 shares authorized; 21 shares issued and outstanding on March 31, 2017 and December 31,
2016, respectively
|
|
|
-
|
|
|
|
-
|
|
Series J Convertible
Preferred Stock, $.01 par value; 6,250 shares authorized; 3,521 shares issued and outstanding on March 31, 2017 and December
31, 2016, respectively
|
|
|
35
|
|
|
|
35
|
|
Series K Convertible
Preferred Stock, $.01 par value; 15,000 shares authorized; 6,816 shares issued and outstanding on March 31, 2017 and December
31, 2016, respectively
|
|
|
68
|
|
|
|
68
|
|
Common stock, $.01
par value; 100,000,000 shares authorized; 31,809,839 and 30,999,839 shares issued and outstanding on March 31, 2017 and December
31, 2016, respectively
|
|
|
318,098
|
|
|
|
309,998
|
|
Warrants to acquire
common stock
|
|
|
6,628,580
|
|
|
|
6,325,102
|
|
Additional paid-in
capital
|
|
|
27,446,472
|
|
|
|
27,244,600
|
|
Accumulated
deficit
|
|
|
(47,858,705
|
)
|
|
|
(42,264,190
|
)
|
Total
stockholders’ deficit
|
|
|
(13,464,483
|
)
|
|
|
(8,383,418
|
)
|
TOTAL LIABILITIES AND
STOCKHOLDERS’ DEFICIT
|
|
$
|
1,838,065
|
|
|
$
|
1,625,753
|
|
The
accompanying notes are an integral part of these unaudited consolidated financial statements
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
For
the Three Months Ended
March
31,
|
|
|
|
2017
|
|
|
2016
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Products,
services, other
|
|
$
|
525,998
|
|
|
$
|
454,350
|
|
Grant revenue
|
|
|
25,359
|
|
|
|
56,128
|
|
Total
revenue
|
|
|
551,357
|
|
|
|
510,478
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of products and
services
|
|
|
235,997
|
|
|
|
221,699
|
|
Research and development
|
|
|
263,456
|
|
|
|
335,270
|
|
Selling and marketing
|
|
|
213,009
|
|
|
|
191,236
|
|
General and administrative
|
|
|
837,998
|
|
|
|
808,218
|
|
Total
operating costs and expenses
|
|
|
1,550,460
|
|
|
|
1,556,423
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(999,103
|
)
|
|
|
(1,045,945
|
)
|
|
|
|
|
|
|
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(1,526,632
|
)
|
|
|
(835,144
|
)
|
Other expense
|
|
|
(959
|
)
|
|
|
(912
|
)
|
Impairment loss on
investment
|
|
|
(6,069
|
)
|
|
|
-
|
|
Change in fair value
of derivative liabilities
|
|
|
(3,061,752
|
)
|
|
|
(4,068,390
|
)
|
Total
other (expense) income
|
|
|
(4,595,412
|
)
|
|
|
(4,904,446
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(5,594,515
|
)
|
|
|
(5,950,391
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per common
share - basic and diluted
|
|
$
|
(0.18
|
)
|
|
$
|
(0.26
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common
stock shares outstanding – basic and diluted
|
|
|
31,223,061
|
|
|
|
23,198,360
|
|
The
accompanying notes are an integral part of these unaudited consolidated financial statements
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
|
|
For
the Three Months Ended
|
|
|
|
March
31,
|
|
|
|
2017
|
|
|
2016
|
|
Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,594,515
|
)
|
|
$
|
(5,950,391
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive
loss
|
|
|
|
|
|
|
|
|
Unrealized
loss on marketable securities
|
|
|
-
|
|
|
|
(139,698
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
(5,594,515
|
)
|
|
$
|
(6,090,089
|
)
|
The
accompanying notes are an integral part of these unaudited consolidated financial statements
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
For
the Three Months Ended
|
|
|
|
March
31,
|
|
|
|
2017
|
|
|
2016
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,594,515
|
)
|
|
$
|
(5,950,391
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Common
stock issued for debt extension
|
|
|
10,000
|
|
|
|
-
|
|
Depreciation
and amortization
|
|
|
2,450
|
|
|
|
6,198
|
|
Accretion
of interest and amortization of debt discount
|
|
|
1,307,889
|
|
|
|
839,234
|
|
Gain
on settlement of debt
|
|
|
-
|
|
|
|
(5,044
|
)
|
Stock-based
compensation expense
|
|
|
74,529
|
|
|
|
101,462
|
|
Warrants
issued for services
|
|
|
15,558
|
|
|
|
105,200
|
|
Impairment
loss on investment
|
|
|
6,069
|
|
|
|
-
|
|
Change
in fair value of derivative liabilities
|
|
|
3,061,752
|
|
|
|
4,068,390
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(237,407
|
)
|
|
|
(280,655
|
)
|
Inventories
|
|
|
(35,099
|
)
|
|
|
71,822
|
|
Prepaid
expenses and other assets
|
|
|
50,358
|
|
|
|
43,303
|
|
Accounts
payable
|
|
|
265,480
|
|
|
|
(161,253
|
)
|
Accrued
employee compensation
|
|
|
443
|
|
|
|
38,110
|
|
Deferred
revenue and other accrued expenses
|
|
|
(92,917
|
)
|
|
|
(109,834
|
)
|
Net
cash used in operating activities
|
|
|
(1,165,410
|
)
|
|
|
(1,233,458
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases
of property plant and equipment
|
|
|
(15,608
|
)
|
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(15,608
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
proceeds from related party convertible debt
|
|
|
-
|
|
|
|
96,667
|
|
Net
proceeds from revolving note payable
|
|
|
920,000
|
|
|
|
-
|
|
Net
proceeds from convertible debt
|
|
|
-
|
|
|
|
1,025,500
|
|
Payments
on convertible debt
|
|
|
(300,000
|
)
|
|
|
-
|
|
Net
proceeds from non-convertible debt
|
|
|
773,000
|
|
|
|
256,660
|
|
Payments
on non-convertible debt
|
|
|
(228,907
|
)
|
|
|
(168,765
|
)
|
Net
cash provided by financing activities
|
|
|
1,164,093
|
|
|
|
1,210,062
|
|
|
|
|
|
|
|
|
|
|
NET
DECREASE IN CASH
|
|
|
(16,925
|
)
|
|
|
(23,396
|
)
|
CASH
AT BEGINNING OF YEAR
|
|
|
138,363
|
|
|
|
116,783
|
|
CASH AT END OF PERIOD
|
|
$
|
121,438
|
|
|
$
|
93,387
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION
|
|
|
|
|
|
|
|
|
Interest
paid in cash
|
|
$
|
62,802
|
|
|
$
|
1,154
|
|
NON CASH TRANSACTIONS:
|
|
|
|
|
|
|
|
|
Discount
due to warrants issued with debt
|
|
|
287,920
|
|
|
|
-
|
|
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
|
|
Common
stock issued with debt
|
|
|
125,443
|
|
|
|
-
|
|
Discount
from one-time interest
|
|
|
100,000
|
|
|
|
-
|
|
The
accompanying notes are an integral part of these unaudited consolidated financial statements
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARY
NOTES
TO 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 (35,000 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 DNA, RNA, proteins, lipids, and small molecules. Our laboratory instrument, the Barocycler®®,
and our internally developed consumables product line, including PULSE® (Pressure Used to Lyse Samples for Extraction) Tubes,
other processing tubes, and application specific kits (which include consumable products and reagents) together make up our PCT
Sample Preparation System, or 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 and we cannot reasonably predict when operations will commence. Therefore, we do not have control of the subsidiary
and did not consolidate in our financial statements. PBI Europe did not have any operations in the first quarter of 2017 or in
fiscal year 2016.
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, 2017,
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 received $1,840,750 in gross proceeds from loans in the first quarter of 2017.
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, 2017 we received $1,840,750 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 consolidated balance sheet as of December 31, 2016, which was derived from audited financial statements,
and the unaudited interim 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, 2017 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2017. 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, 2016 as filed with the Securities and Exchange Commission on March 22, 2017.
|
4)
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation
The
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 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,
2017 and 2016.
|
|
For the
Three Months Ended
|
|
|
|
March
31,
|
|
|
|
2017
|
|
|
2016
|
|
Top Five
Customers
|
|
|
61
|
%
|
|
|
46
|
%
|
Federal Agencies
|
|
|
5
|
%
|
|
|
11
|
%
|
The
following table illustrates the level of concentration as a percentage of net accounts receivable balance as of March 31, 2017
and December 31, 2016:
|
|
March
31, 2017
|
|
|
December,
31, 2016
|
|
Top Five
Customers
|
|
|
66
|
%
|
|
|
82
|
%
|
Federal Agencies
|
|
|
1
|
%
|
|
|
1
|
%
|
Product
Supply
CBM
Industries (Taunton, MA) has recently become the manufacturer of the Barocycler® 2320EXT. CBM is ISO 13485:2003 and 9001:2008
Certified. CBM provides us with precision manufacturing services that include management support services to meet our specific
application and operational requirements. Among the services provided by CBM to us are:
|
●
|
CNC
Machining
|
|
|
|
|
●
|
Contract
Assembly & Kitting
|
|
|
|
|
●
|
Component
and Subassembly Design
|
|
|
|
|
●
|
Inventory
Management
|
|
|
|
|
●
|
ISO
certification
|
At
this time, we believe that outsourcing the manufacturing of our new Barocycler® 2320EXT to CBM is the most cost-effective
method for us to obtain ISO Certified, CE and CSA Marked instruments. CBM’s close proximity to our South Easton, MA facility
is a significant asset enabling interactions between our Engineering, R&D, and Manufacturing groups and their counterparts
at CBM. CBM was instrumental in helping PBI achieve CE Marking on our Barocycler 2320EXT, as announced on February 2, 2017.
Although
we currently manufacture and assemble the Barozyme HT48, Barocycler® HUB440, the SHREDDER SG3, and most of our consumables
at our South Easton, MA facility, we plan to take advantage of the established relationship with CBM and transfer manufacturing
of the entire Barocycler® product line, future instrument, and other products to CBM.
The
Barocycler® NEP3229, launched in 2008, and manufactured by the BIT Group, will be phased out over the next several years and
replaced by the new state-of-the-art Barocycler® HUB and Barozyme HT product lines.
Investment
in Available-For-Sale Equity Securities
As
of March 31, 2017, 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, 2017, our consolidated balance sheet
reflected the fair value of our investment in Everest to be $19,796, based on the closing price of Everest shares of $0.03 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. The change in market value since the receipt of
stock was determined to be other than temporary and $6,069 was recorded by us as an impairment loss in the first quarter of 2017.
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, 2017 and 2016:
|
|
For the
Three Months Ended
|
|
|
|
March
31,
|
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,594,515
|
)
|
|
$
|
(5,950,391
|
)
|
|
|
|
|
|
|
|
|
|
Denominator for basic
and diluted loss per share:
|
|
|
|
|
|
|
|
|
Weighted average
common stock shares outstanding
|
|
|
31,223,061
|
|
|
|
23,198,360
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share - basic and diluted
|
|
$
|
(0.18
|
)
|
|
$
|
(0.26
|
)
|
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,
|
|
|
|
2017
|
|
|
2016
|
|
Stock options
|
|
|
7,814,250
|
|
|
|
5,460,250
|
|
Convertible debt
|
|
|
26,067,288
|
|
|
|
25,226,800
|
|
Common stock warrants
|
|
|
25,399,195
|
|
|
|
26,998,401
|
|
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
|
|
|
3,521,000
|
|
|
|
3,546,000
|
|
Series
K Convertible Preferred Stock
|
|
|
6,816,000
|
|
|
|
11,416,000
|
|
|
|
|
74,333,433
|
|
|
|
77,363,151
|
|
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 $74,529 and $101,462 for the three months ended March 31, 2017 and 2016,
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 Consolidated Statements of Operations:
|
|
For
the Three Months Ended
March
31,
|
|
|
|
2017
|
|
|
2016
|
|
Research
and development
|
|
$
|
15,970
|
|
|
$
|
20,381
|
|
Selling and marketing
|
|
|
10,886
|
|
|
|
12,690
|
|
General and administrative
|
|
|
47,673
|
|
|
|
68,391
|
|
Total stock-based compensation
expense
|
|
$
|
74,529
|
|
|
$
|
101,462
|
|
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, 2017:
|
|
|
|
|
Fair
value measurements at March 31, 2017 using:
|
|
|
|
March
31, 2017
|
|
|
Quoted
prices in
active
markets
(Level 1)
|
|
|
Significant
other
observable
inputs
(Level
2)
|
|
|
Significant
unobservable
inputs
(Level
3)
|
|
Available-For-Sale
Equity Securities
|
|
|
19,796
|
|
|
|
19,796
|
|
|
|
-
|
|
|
|
-
|
|
Total Financial Assets
|
|
$
|
19,796
|
|
|
$
|
19,796
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
March
31, 2017
|
|
|
Quoted
prices in
active
markets
(Level 1)
|
|
|
Significant
other
observable
inputs
(Level 2)
|
|
|
Significant
unobservable
inputs
(Level
3)
|
|
Series
D Preferred Stock Purchase Warrants
|
|
$
|
89,280
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
89,280
|
|
Warrants Issued with
Convertible Debt
|
|
|
2,929,235
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,929,235
|
|
Conversion Option Derivative
Liabilities
|
|
|
2,679,404
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,679,404
|
|
Total Derivatives
|
|
$
|
5,697,919
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,697,919
|
|
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, 2017:
|
|
December
31, 2016
|
|
|
Issuance
fair value
|
|
|
Change
in
fair value
|
|
|
March
31, 2017
|
|
Series
D Preferred Stock Purchase Warrants
|
|
$
|
23,313
|
|
|
$
|
-
|
|
|
$
|
65,967
|
|
|
$
|
89,280
|
|
Warrants Issued with
Convertible Debt
|
|
|
1,661,795
|
|
|
|
-
|
|
|
|
1,267,440
|
|
|
|
2,929,235
|
|
Conversion Option Derivative
Liabilities
|
|
|
951,059
|
|
|
|
-
|
|
|
|
1,728,345
|
|
|
|
2,679,404
|
|
Total Derivatives
|
|
$
|
2,636,167
|
|
|
$
|
-
|
|
|
$
|
3,061,752
|
|
|
$
|
5,697,919
|
|
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, 2016:
|
|
|
|
|
Fair
value measurements at December 31, 2016 using:
|
|
|
|
December
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
|
|
|
25,865
|
|
|
|
25,865
|
|
|
|
-
|
|
|
|
-
|
|
Total Financial Assets
|
|
$
|
25,865
|
|
|
$
|
25,865
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
December
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
|
|
$
|
23,313
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
23,313
|
|
Warrants
Issued with Convertible Debt
|
|
|
1,661,795
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,661,795
|
|
Conversion
Option Derivative Liabilities
|
|
|
951,059
|
|
|
|
-
|
|
|
|
-
|
|
|
|
951,059
|
|
Total
Derivatives
|
|
$
|
2,636,167
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,636,167
|
|
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, 2016
|
|
|
Warrants
revalued at
March 31, 2017
|
|
Expected
life (in months)
|
|
|
60.0
|
|
|
|
5.0
|
|
|
|
1.2
|
|
Expected volatility
|
|
|
104.5
|
%
|
|
|
83.5
|
%
|
|
|
98.3
|
%
|
Risk-free interest
rate
|
|
|
0.875
|
%
|
|
|
0.62
|
%
|
|
|
0.74
|
%
|
Exercise price
|
|
$
|
0.81
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
Fair value per warrant
|
|
$
|
0.54
|
|
|
$
|
0.02
|
|
|
$
|
0.08
|
|
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, 2016
|
|
|
Warrants
revalued
at
March
31, 2017
|
|
Expected
life (in months)
|
|
|
60.0
|
|
|
|
43.0-51.0
|
|
|
|
40.0-48.0
|
|
Expected volatility
|
|
|
118.3-120.1
%
|
|
|
|
110.0-116.0
%
|
|
|
|
106.0-110.0
%
|
|
Risk-free interest
rate
|
|
|
1.48-1.69
%
|
|
|
|
1.93
|
%
|
|
|
1.50
|
%
|
Exercise price
|
|
$
|
0.40
|
|
|
$
|
0.40
|
|
|
$
|
0.40
|
|
Fair value per warrant
|
|
|
$
0.19-$0.21
|
|
|
|
$
0.12-0.14
|
|
|
|
$
0.21-0.23
|
|
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
|
|
|
At
Settlement
fair value
|
|
|
Conversion
options
revalued at
December 31, 2016
|
|
|
Conversion
options
revalued at
March 31, 2017
|
|
Expected
life (in months)
|
|
|
6.0-24.0
|
|
|
|
0-18.0
|
|
|
|
6.0-15.0
|
|
|
|
4
.0-12.0
|
|
Expected
volatility
|
|
|
104.2-153.8
|
%
|
|
|
86.9%-142.2
|
%
|
|
|
84.4-94.8
|
%
|
|
|
90.2-109.3
|
%
|
Risk-free
interest rate
|
|
|
0.05-0.99
|
%
|
|
|
0.01-0.72
|
%
|
|
|
0.62-0.85
|
%
|
|
|
0.91-1.03
|
%
|
Exercise
price
|
|
$
|
0.10-$0.35
|
|
|
$
|
0.10-$0.25
|
|
|
$
|
0.28
|
|
|
$
|
0.28
|
|
Fair
value per conversion option
|
|
$
|
0.09-$0.28
|
|
|
$
|
0.07-$0.26
|
|
|
$
|
0.03-$0.06
|
|
|
$
|
0.10-$0.13
|
|
|
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, 2016, that expires December 31, 2017, for our corporate office. We expanded
our space to include the first floor starting May 1, 2017 with an increase in monthly rent of $2,150.
On
November 1, 2014 we signed a lease for lab space in Medford, MA. 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, 2017 and 2016 we incurred $30,896 and $33,877 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 $6,329,549 (the “
Purchase Price
”).
The
Company issued a principal aggregate amount of $6,962,504 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 11,302,706 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 OTCQB (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 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 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 $5,616,009 of the debt discount to interest expense through the first quarter of 2017.
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
$2,847,624 to the total warrants out of the gross proceeds of $6,329,549. 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, 2017 are listed in the table below.
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/shares
|
|
|
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
|
|
|
177,882
|
|
|
|
177,882
|
|
|
|
17,788
|
1
|
|
|
10
|
%
2
|
|
|
2,436
|
|
|
|
175,446
|
|
|
June
15, 2016
|
|
6
months
|
|
|
40,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12
|
%
|
|
|
-
|
|
|
|
3,680
|
|
|
June
17, 2016
|
|
6
months
|
|
|
40,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12
|
%
|
|
|
-
|
|
|
|
3,899
|
|
|
June
22, 2016
|
|
6
months
|
|
|
35,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12
|
%
|
|
|
-
|
|
|
|
3,373
|
|
|
July
6, 2016
|
|
6
months
|
|
|
85,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12
|
%
|
|
|
-
|
|
|
|
15,048
|
|
|
July
29, 2016
|
|
6
months
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12
|
%
|
|
|
-
|
|
|
|
25,518
|
|
|
September
15, 2016
|
|
8
months
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
85,541
|
|
|
|
9
|
%
|
|
|
-
|
|
|
|
65,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,129,549
|
|
|
$
|
6,829,549
|
|
|
$
|
718,496
|
|
|
|
|
|
|
$
|
1,158,408
|
|
|
$
|
6,040,469
|
|
|
1
The original issue discount is reflected in the first year.
2
The annual interest starts accruing in the second year.
The
closings above included a total of approximately $291,000 convertible debentures purchased by related parties who were members
of the Company’s Board of Directors and management and their family members.
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.
In
January 2017, we executed an amendment to the July 1, 2016 convertible note that was due on January 6, 2017. We received an extension
of up to three months on the note’s due date. In exchange for the extension, we agreed to issue 50,000 shares of restricted
common stock and pay the investor $10,000 for each 30-day extension. The shares issued for the extension were valued at $10,000
and recorded as interest expense. We made a payment of $34,000 in January 2017 for the first one-month extension and interest
on the note from the initial close date through February 6, 2017. The Investor had the right, at any time, to convert all or
part of the outstanding and unpaid principal sum and accrued interest into shares of common stock at the conversion price of $0.45.
On February 28, 2017, the note was paid in full.
Revolving
Note Payable
On
October 28, 2016, an accredited investor (the “
Investor
”) purchased from us a promissory note in the aggregate
principal amount of up to $2,000,000 (the “
Revolving Note
”) due and payable on the earlier of October 28, 2017
(the “
Maturity Date
”) or on the seventh business day after the closing of a Qualified Offering (as defined
in the Revolving Note). The Investor is obligated to provide us with advances of $250,000 under the Revolving Note, but the Investor
shall not be required to advance more than $250,000 in any individual fifteen (15) day period and no more than $500,000 in the
thirty (30) day period immediately following the date of the initial advance. We received $2,250,000 pursuant to the Revolving
Note as amended and we issued to the Investor warrants to purchase 5,625,000 shares of our Common Stock at an exercise price per
share equal to $0.40 per share. The terms of the Warrants are identical except for the exercise date, issue date, and termination
date which are based on the advance date.
In
the event that a Qualified Offering occurs on or prior to the six (6) month anniversary of October 28, 2016, within seven (7)
Business Days of the closing of the Qualified Offering, the Company shall pay a cash fee equal to five percent (5%) of the total
outstanding amount owed by the Company to the Holder as of the closing date of the Qualified Offering or, at the option of the
Company, issue to the Holder a number of restricted shares of the Company’s common stock equal to (x) five percent (5%)
of the total outstanding amount owed by the Company to the Holder as of the closing date of the Qualified Offering divided by
(y) the purchase price provided by the documents governing the Qualified Offering. A
Qualified Offering
means the completion
of a public offering of the Company’s securities pursuant to which the Company receives aggregate gross proceeds of at least
Seven Million United States Dollars (US$7,000,000) in consideration of the purchase of its securities and resulting in, pursuant
to the effectiveness of the registration statement for such offering, the Company’s common stock being traded on the NASDAQ
Capital Market, NASDAQ Global Select Market or the New York Stock Exchange.
In
the event that a Qualified Offering occurs following the six (6) month anniversary of October 28, 2016, but prior to the Maturity
Date, within seven(7) Business Days of the closing of the Qualified Offering, the Company shall pay a cash fee equal to five percent
(5%) of the total outstanding amount owed by the Company to the Holder as of the closing date of the Qualified Offering or, at
the option of the Company, issue to the Holder a number of restricted shares of the Company’s common stock equal to (x)
five percent (5%) of the total outstanding amount owed by the Company to the Holder as of the closing date of the Qualified Offering
divided by (y) the purchase price provided by the documents governing the Qualified Offering.
Interest
on the principal balance of the Revolving Note shall be paid in full on the Maturity Date, unless otherwise paid prior to the
Maturity Date. Interest shall be assessed as follows: (i) a one-time interest of 10% on all principal amounts advanced prior to
April 28, 2017; (ii) the foregoing and 4% on any amount remaining outstanding if the principal amount is repaid between April
28, 2017 and July 28, 2017; or (iii) both of the foregoing and 4% on any amount remaining outstanding if the principal amount
is repaid between July 28, 2017 and October 28, 2017.
Broker
fees amounting to $196,500, the one-time interest of $225,000 and the fair value of the 5,625,000 warrants issued to the Investor
amounting to $767,650 were recorded as debt discounts and amortized over the term of the revolving note. The unamortized debt
discounts as of March 31, 2017 related to the Revolving Note amounted to $839,969.
The
following table provides a summary of the changes in convertible debt and revolving note payable, net of unamortized discount,
during 2017:
|
|
2017
|
|
Balance at January 1,
|
|
$
|
5,273,937
|
|
Issuance of convertible
debt, face value
|
|
|
1,000,000
|
|
Deferred
financing cost
|
|
|
(80,000
|
)
|
Debt
discount related to one-time interest charge
|
|
|
(100,000
|
)
|
Debt discount from
shares and warrants issued with the notes
|
|
|
(287,920
|
)
|
Payments
|
|
|
(300,000
|
)
|
Accretion of interest
and amortization of debt discount to interest expense through March 31,
|
|
|
1,281,580
|
|
Balance at March 31,
|
|
|
6,787,597
|
|
Less: current portion
|
|
|
6,782,172
|
|
Convertible debt, long-term
portion
|
|
$
|
5,425
|
|
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. We received an additional $93,161 in June 2016 under the existing Merchant Agreement. The note was still outstanding as
of March 31, 2017 with a balance of $78,322.
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. We received an additional $125,000 in June 2016 under the existing
Merchant Agreement of which $48,420 was used to pay off the prior loan. The lender provided an additional $70,000 on August 16,
2016. As of March 31, 2017, the outstanding balance on this note was zero.
On
August 26, 2016 we signed a Merchant Agreement with a lender. Under the agreement we received $122,465 net proceeds in exchange
for rights to all customer receipts which is collected at the rate of $1,386 per business day. As of March 31, 2017, the outstanding
balance on this note was zero.
On
February 6, 2017, we signed a Merchant Agreement with a lender. Under the agreement we received a loan of $125,000. The Company
paid $1,250 in fees in connection with this loan. Under the agreement, $16,180 was used to pay off the prior loan. The loan
was still outstanding as of March 31, 2017 with a balance of $72,594.
On
February 15, 2017, we received six-month, non-convertible loans in the aggregate of $220,000 from two accredited investors. We
agreed to issue an aggregate of 340,000 shares of restricted common stock. The loans earn no interest but carry a 10% original
issue fee. We recorded the fair value of the shares amounting to $43,616 as debt discounts that will be amortized to interest
expense during the term of the loans. The loans still remain outstanding as of March 31, 2017 with an aggregate balance of $220,000.
We amortized $15,551 of debt discounts in the three months ended March 31, 2017. The unamortized debt discounts as of March
31, 2017 were $48,065.
On
March 2, 2017, we signed a Merchant Agreement with a lender. Under the agreement we received a loan of $75,750. The Company paid
no fees in connection with this loan. A loan balance of $59,464 remains outstanding as of March 31, 2017.
On
March 14, 2017, we received an eight-month, non-convertible loan of $250,000 from a privately-held investment firm. The loan earns
an annual interest rate of 10% and includes a 10% original issue discount. We also agreed to issue the investor 250,000 shares
of restricted common stock. We recorded the fair value of the shares amounting to $51,748 as a debt discount that will be amortized
to interest expense during the term of the loan. The loan still remains outstanding as of March 31, 2017 with a balance of $250,000.
We amortized $7,248 of the debt discount in the three months ended March 31, 2017. The unamortized debt discount as of March
31, 2017 was $69,500.
On
March 21, 2017, we received an eight-month, non-convertible loan of $170,000 from an accredited investor. The loan earns an annual
interest rate of 10% and includes a 10% original issue discount. We also agreed to issue the investor 170,000 shares of restricted
common stock. We recorded the fair value of the shares amounting to $35,079 as a debt discount that will be amortized to interest
expense during the term of the loan. The loan still remains outstanding as of March 31, 2017 with a balance of $170,000. We
amortized $2,893 of the debt discount in the three months ended March 31, 2017. The unamortized debt discount as of March 31,
2017 was $49,186.
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, 2017, 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, 2016 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, 2017,
options to acquire 1,083,750 shares were outstanding 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, 2017, options to acquire 2,707,500 shares were outstanding under the Plan with 292,500 shares available
for future grants 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, 2017, non-qualified options to acquire
4,023,000 shares were outstanding under the Plan with 977,000 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
at time of issuance.
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, 12/31/16
|
|
|
5,269,250
|
|
|
$
|
0.42
|
|
|
|
26,459,695
|
|
|
$
|
0.40
|
|
|
|
31,728,945
|
|
|
|
29,730,959
|
|
Granted
|
|
|
2,615,000
|
|
|
|
0.28
|
|
|
|
2,600,000
|
|
|
|
0.40
|
|
|
|
5,215,000
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Expired
|
|
|
(70,000
|
)
|
|
|
1.00
|
|
|
|
(3,660,500
|
)
|
|
|
0.35
|
|
|
|
(3,730,500
|
)
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Balance
outstanding, 3/31/2017
|
|
|
7,814,250
|
|
|
$
|
0.37
|
|
|
|
25,399,195
|
|
|
$
|
0.41
|
|
|
|
33,213,445
|
|
|
|
29,245,037
|
|
|
|
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
|
|
$0.25
- $0.39
|
|
|
4,240,500
|
|
|
|
9.0
|
|
|
$
|
0.29
|
|
|
|
1,437,007
|
|
|
|
7.5
|
|
|
$
|
0.30
|
|
0.40 - 0.49
|
|
|
2,786,000
|
|
|
|
8.5
|
|
|
|
0.40
|
|
|
|
1,621,085
|
|
|
|
8.3
|
|
|
|
0.40
|
|
0.50 - 0.59
|
|
|
226,250
|
|
|
|
5.4
|
|
|
|
0.50
|
|
|
|
226,250
|
|
|
|
5.4
|
|
|
|
0.50
|
|
0.60 - 0.69
|
|
|
385,500
|
|
|
|
2.9
|
|
|
|
0.60
|
|
|
|
385,500
|
|
|
|
2.9
|
|
|
|
0.60
|
|
1.00
- 1.25
|
|
|
176,000
|
|
|
|
3.0
|
|
|
|
1.00
|
|
|
|
176,000
|
|
|
|
3.0
|
|
|
|
1.00
|
|
$0.25
- $1.25
|
|
|
7,814,250
|
|
|
|
8.3
|
|
|
$
|
0.37
|
|
|
|
3,845,842
|
|
|
|
7.0
|
|
|
$
|
0.42
|
|
As
of March 31, 2017, the total estimated fair value of unvested stock options to be amortized over their remaining vesting period
was $730,174. The non-cash, stock-based compensation expense associated with the vesting of these options is expected to be $309,911
in 2017, $286,355 in 2018, $110,522 in 2019 and $23,386 in 2020. The fair value of options granted in 2017 was $487,914.
The
aggregate intrinsic value associated with the options outstanding and exercisable as of March 31, 2017 was $28,740. The aggregate
intrinsic value associated with the warrants outstanding and exercisable as of March 31, 2017 was $79,092.
Common
Stock Issuances
On
various dates from January to March 2017 the Company issued 810,000 shares of restricted common stock to investors as compensation
for loans provided to us.
On
April 3, 2017, we signed a six-month agreement with an investor relations firm. The agreement includes a cash payment of $10,000
plus a convertible 8-month note for $50,000 with the following significant terms: (i) convertible at $0.40/share, (ii) bears 10%
annual interest, (iii) a 20% pre-payment penalty if the Company wants to pre-pay the Note, and (iv) a default rate of 18%.
On April 19, 2017, we
received a 7-month non-convertible loan of $250,000 from a privately-held investment firm. The loan earns an annual interest
rate of 10% and includes a 10% original issue discount. We agreed to issue 25,000 shares at closing. Until the loan is repaid,
we will, over the next one hundred eighty (180) days, issue 75,000 shares to the Investor every sixty (60) days for a total issuance
of 250,000 shares. No shares other than the initial 25,000 will be issued to the Investor if the loan is fully paid by June 18,
2017.
On
May 3, 2017, we received $250,000 pursuant to the Revolving Note as amended and we issued to the Investor warrants to purchase
625,000 shares of our Common Stock at an exercise price per share equal to $0.40 per share. The Revolving Note was amended
on May 2, 2017 to increase the aggregate principal amount to $3,000,000, to issue 500,000 shares of our Common Stock to the Investor,
to decrease the exercise price per share of the warrants to the lower of (i) $0.40 or (ii) the per share purchase price of the
shares of our Common Stock sold in the Qualified Offering, and to change the references in the Revolving Note from “the
six (6) month anniversary of October 28, 2016” to “July 25, 2017.”
On May 10, 2017, we
received $149,164 from the exercise of 596,657 stock purchase warrants from the Series D registered direct offering on November
10, 2011. In consideration for the warrant exercises, we issued to the investors warrants to purchase 1,044,150 shares of our
Common Stock at an exercise price per share equal to $0.28 per share. The warrants expire on the third year anniversary date.
On May 10, 2017, an
investor converted 75 shares of Series D Preferred Stock into 187,500 shares of Common Stock. In consideration for the preferred
stock conversion, we issued 112,500 shares of restricted 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, 2016. 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, which we refer to as Pressure Cycling Technology, or PCT, uses alternating cycles of hydrostatic pressure
between ambient and ultra-high levels i.e., 20,000 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, 2017, 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, 2017, 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
have 14 United States granted patents and one foreign granted patent (Japan: 5587770, EXTRACTION AND PARTITIONING OF MOLECULES)
covering multiple applications of PCT in the life sciences field. PBI also has 19 pending patents in the USA, Canada, Europe,
Australia, China, and Taiwan PCT employs a unique approach that we believe has the potential for broad use in a number of established
and emerging life sciences areas, which include, but are not limited to:
|
●
|
biological
sample preparation – including but not limited to sample extraction, homogenization, and digestion - in such study areas
as genomic, proteomic, lipidomic, metabolomic and small molecule;
|
|
|
|
|
●
|
pathogen
inactivation;
|
|
|
|
|
●
|
protein
purification;
|
|
●
|
control
of chemical reactions, particularly enzymatic; and
|
|
|
|
|
●
|
immunodiagnostics.
|
We
reported a number of accomplishments in the first few months of 2017:
On
February 2, 2017, the Company announced that it had achieved CE Marking for the Barocycler 2320EXTREME, the Company’s recently
released, next-generation PCT-based sample preparation instrument. PBI is now permitted to begin sales of the Barocycler 2320EXT
in the European Economic Area.
On
March 1, 2017, the Company announced that its Barocycler 2320EXTREME had been named the “Best New Instrument for Sample
Preparation 2017” by Corporate America News (“Corp America”) as part of the publication’s 2017 North American
Excellence Awards.
On
March 23, 2017, the Company announced that it had significantly bolstered its marketing and sales capabilities by contracting
with EKG Sales Associates, a lead generation company and by hiring two of its planned four additional field sales directors.
On
April 10, 2017, the Company announced that Joseph Damasio, Jr. had joined the Company as its full-time Chief Financial Officer
and Vice President of Finance.
Results
of Operations
Comparison
for the three months ended March 31, 2017 and 2016
Revenue
We
recognized total revenue of $551,357 for the three months ended March 31, 2017 as compared to $510,478 during the three
months ended March 31, 2016, an increase of $40,879 or 8%. 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 16% to $525,998 for the three months ended
March 31, 2017 as compared to $454,350 during the three months ended March 31, 2016. This increase was primarily attributable
to an increase in the sale of instrument systems. Sales of consumables also increased for the three months ended March 31, 2017
to $63,264 compared to $44,234 during the same period in the prior year, an increase of 43%.
Grant
Revenue
. During the three months ended March 31, 2017, we recorded grant revenue of $25,359 compared to grant revenue of $56,128
in the comparable period in 2016. Work on the $1.05 million NIH grant decreased during the first quarter but we expect an increase
in grant work later in the year.
Cost
of Products and Services
The
cost of products and services was $235,997 for the three months ended March 31, 2017 compared to $221,699 for the comparable period
in 2016. 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 increased to 55% for the three months ended March 31, 2017, as compared to 51% for
the prior period.
Research
and Development
Research
and development expenditures were $263,456 during the three months ended March 31, 2017 as compared to $335,270 in the same period
in 2016, a decrease of $71,814 or 21%. The prior period included company funded independent research activities in the development
of an improved rape kit while the current period had decreased employee related costs.
Research
and development expense recognized in the three months ended March 31, 2017 and 2016 included $15,970 and $20,381 of non-cash,
stock-based compensation expense, respectively.
Selling
and Marketing
Selling
and marketing expenses increased to $213,009 for the three months ended March 31, 2017 from $191,236 for the comparable period
in 2016, an increase of $21,773 or 11%. This increase is primarily attributable to expansion of the company’s sales force
by two individuals and recruitment fees.
During
the three months ended March 31, 2017 and 2016, selling and marketing expense included $10,886 and $12,690 of non-cash, stock-based
compensation expense, respectively.
General
and Administrative
General
and administrative costs totaled $837,998 for the three months ended March 31, 2017 as compared to $808,218 for the comparable
period in 2016, an increase of $29,780 or 4%. The prior period activity included credits received from charges incurred with a
former professional service provider.
During
the three months ended March 31, 2017 and 2016, general and administrative expense included $47,673 and $68,391 of non-cash, stock-based
compensation expense, respectively.
Operating
Loss
Our
operating loss was $999,103 for the three months ended March 31, 2017 as compared to $1,045,945 for the comparable period
in 2016, a decrease of $46,842 or 4%. This decrease was primarily due to decreases in expenditures in R&D combined
with increases in product sales, as described above.
Other
Income (Expense), Net
Interest
(Expense) Income
Interest
expense was $1,526,632 for the three months ended March 31, 2017 as compared to interest expense of $835,144 for the three months
ended March 31, 2016. Interest expense reflected amortization of debt discounts related primarily to the sale of senior secured
convertible debentures. The increase is from deferred finance charges on new convertible loans.
Change
in fair value of warrant derivative liability
During
the three months ended March 31, 2017, we recorded non-cash expense of $1,333,407 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 $1,217,722 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, 2017 as compared to the price on March 31, 2016.
The components for determining the fair value of the warrants are contained in the table in Note 4 of the accompanying consolidated
financial statements.
Change
in fair value of conversion option liability
During
the three months ended March 31, 2017, we recorded non-cash income of $1,728,345 for conversion option revaluation expense in
our 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,
2017 as compared to the price on March 31, 2016 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, 2016 we recorded non-cash income $2,850,668 for conversion option liability
revaluation. The components for determining the fair value of the conversion option liabilities are contained in the table in
Note 4 of the accompanying consolidated financial statements.
Other
Expense
Other
Expense totaled $959 for the three months ended March 31, 2017 as compared to $912 for the comparable period in 2016.
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, 2017, 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 received $1,840,750 in gross proceeds from loans in the
first quarter of 2017. 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.
On
December 22, 2016, the Company filed a preliminary Form S-1 with the Securities and Exchange Commission to register shares of
its common stock which would allow the Company to raise up to $12.5 million.
Net
cash used in operations for the three months ended March 31, 2017 was $1,165,410 as compared to $1,233,458 for the three
months ended March 31, 2016. We had a lower operating loss in the current period offset by additional interest expense.
Net
cash used in investing activities for the three months ended March 31, 2017 totaled $15,608 compared to none in the prior period.
Cash capital expenditures included laboratory equipment and IT equipment.
Net
cash provided by financing activities for the three months ended March 31, 2017 was $1,164,093 as compared to $1,210,062
for the same period in the prior year. The cash from financing activities in the period ending March 31, 2017 included $920,000
from our Revolving Note. We also received $773,000 from non-convertible debt, net of fees, less payment on non-convertible
debt of $228,907. The prior period included proceeds from senior secured convertible debt.