UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
[X]
Quarterly Report Pursuant
to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For
the quarterly period ended March 31, 2020
or
[ ]
Transition Report Pursuant
to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For
the transition period from _____________ to
_____________
Commission
File Number 001-38185
PRESSURE
BIOSCIENCES, INC.
(Exact
name of registrant as specified in its charter)
Massachusetts |
|
04-2652826 |
(State
or other jurisdiction of |
|
(I.R.S.
Employer |
incorporation
or organization) |
|
Identification
No.) |
14
Norfolk Avenue |
|
|
South
Easton, Massachusetts |
|
02375 |
(Address
of principal executive offices) |
|
(Zip
Code) |
(508)
230-1828
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
[X]
Yes [ ] No
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
[X]
Yes [ ] No
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
|
Large
accelerated filer |
[ ] |
Accelerated
filer |
[ ] |
|
Non-accelerated
filer |
[X] |
Smaller
reporting company |
[X] |
|
Emerging
Growth Company |
[ ] |
|
|
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
N/A |
|
N/A |
|
N/A |
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
[ ]
Indicate
by check mark whether the registrant is a shell company (as defined
in Exchange Act Rule 12b-2 of the Exchange Act).
[ ]
Yes [X] No
The
number of shares outstanding of the Issuer’s common stock as of
June 24, 2020 was 3,158,663
EXPLANATORY
NOTE
On
March 25, 2020, the Securities and Exchange Commission (“SEC”)
issued an order and guidance (collectively, the “Order”) providing
regulatory relief to public companies whose operations may be
affected by the novel coronavirus disease (“COVID-19”). The Order
provided public companies with a 45-day extension to file certain
disclosure reports, including the Quarterly Report on Form 10-Q for
the period ended March 31, 2020 ( the “March 31 Quarterly Report”),
that would otherwise have been due between March 1, 2020 and July
1, 2020.
Due
to the Company’s operations and business being disrupted due to the
unprecedented conditions surrounding the COVID-19 pandemic
spreading throughout the United States and the world the Company
was unable to timely review and prepare the March 31 Quarterly
Report and, on May 15, 2020, submitted a Current Report on Form 8-K
in accordance with and reliance upon the Order.
Due
to the outbreak of COVID-19, the routine efforts of the Company’s
accounting and finance personnel to prepare the Company’s financial
statements and disclosures have taken a greater amount of time and
the Company was unable to finalize and file its March 31 Quarterly
Report on a timely basis to meet its filing deadline of May 15,
2020. This Form 10-Q is being filed in reliance on the SEC
Order.
PRESSURE
BIOSCIENCES, INC.
TABLE
OF CONTENTS
PART I - FINANCIAL
INFORMATION
Item 1. Financial
Statements
PRESSURE
BIOSCIENCES, INC.
CONSOLIDATED BALANCE
SHEETS
(UNAUDITED)
|
|
March 31, 2020 |
|
|
December 31, 2019 |
|
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
$ |
31,819 |
|
|
$ |
29,625 |
|
Accounts receivable |
|
|
120,930 |
|
|
|
229,402 |
|
Inventories, net of $342,496 reserve
at March 31, 2020 and December 31, 2019 |
|
|
655,790 |
|
|
|
617,716 |
|
Prepaid
expenses and other current assets |
|
|
203,850 |
|
|
|
213,549 |
|
Total current
assets |
|
|
1,012,389 |
|
|
|
1,090,292 |
|
Investment in equity securities |
|
|
166,014 |
|
|
|
16,643 |
|
Property and
equipment, net |
|
|
32,225 |
|
|
|
55,590 |
|
Right of use asset leases |
|
|
59,178 |
|
|
|
76,586 |
|
Intangible
assets, net |
|
|
555,288 |
|
|
|
576,923 |
|
TOTAL
ASSETS |
|
$ |
1,825,094 |
|
|
$ |
1,816,034 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
870,227 |
|
|
|
815,764 |
|
Accrued employee compensation |
|
|
415,315 |
|
|
|
451,200 |
|
Accrued professional fees and
other |
|
|
1,680,587 |
|
|
|
1,658,452 |
|
Accrued interest |
|
|
3,766,366 |
|
|
|
2,949,621 |
|
Deferred revenue |
|
|
28,504 |
|
|
|
23,248 |
|
Convertible debt, net of unamortized
debt discounts of $1,843,315 and $619,227, respectively |
|
|
6,607,100 |
|
|
|
6,121,338 |
|
Other debt, net of unamortized
discounts of $0 and $1,769, respectively |
|
|
1,926,083 |
|
|
|
1,675,667 |
|
Other related party debt |
|
|
90,000 |
|
|
|
81,500 |
|
Operating lease
liability |
|
|
59,178 |
|
|
|
76,586 |
|
Total
current liabilities |
|
|
15,443,360 |
|
|
|
13,853,376 |
|
LONG TERM LIABILITIES |
|
|
|
|
|
|
|
|
Deferred
revenue |
|
|
41,667 |
|
|
|
18,065 |
|
TOTAL
LIABILITIES |
|
|
15,485,027 |
|
|
|
13,871,441 |
|
COMMITMENTS AND CONTINGENCIES (Note
4) |
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
Series D Convertible Preferred Stock,
$.01 par value; 850 shares authorized; 300 shares issued and
outstanding on March 31, 2020 and December 31, 2019, respectively
(Liquidation value of $300,000) |
|
|
3 |
|
|
|
3 |
|
Series G Convertible Preferred Stock,
$.01 par value; 240,000 shares authorized; 80,570 shares issued and
outstanding on March 31, 2020 and December 31, 2019,
respectively |
|
|
806 |
|
|
|
806 |
|
Series H Convertible Preferred Stock,
$.01 par value; 10,000 shares authorized; 10,000 shares issued and
outstanding on March 31, 2020 and December 31, 2019,
respectively |
|
|
100 |
|
|
|
100 |
|
Series H2 Convertible Preferred Stock,
$.01 par value; 21 shares authorized; 21 shares issued and
outstanding on March 31, 2020 and December 31, 2019,
respectively |
|
|
- |
|
|
|
- |
|
Series J Convertible Preferred Stock,
$.01 par value; 6,250 shares authorized; and 3,458 shares issued
and outstanding on March 31, 2020 and December 31, 2019,
respectively |
|
|
35 |
|
|
|
35 |
|
Series K Convertible Preferred Stock,
$.01 par value; 15,000 shares authorized; 6,880 shares issued and
outstanding on March 31, 2020 and December 31, 2019,
respectively |
|
|
68 |
|
|
|
68 |
|
Series AA Convertible Preferred Stock,
$.01 par value; 10,000 shares authorized; 7,939 shares issued and
outstanding on March 31, 2020 and December 31, 2019,
respectively |
|
|
80 |
|
|
|
80 |
|
Common stock, $.01 par value;
100,000,000 shares authorized; 2,664,641 and 2,549,620 shares
issued and outstanding on March 31, 2020 and December 31, 2019,
respectively |
|
|
26,646 |
|
|
|
25,496 |
|
Warrants to acquire common stock |
|
|
24,413,330 |
|
|
|
22,599,177 |
|
Additional paid-in capital |
|
|
45,119,747 |
|
|
|
44,261,105 |
|
Accumulated
deficit |
|
|
(83,220,748 |
) |
|
|
(78,942,277 |
) |
Total
stockholders’ deficit |
|
|
(13,659,933 |
) |
|
|
(12,055,407 |
) |
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
$ |
1,825,094 |
|
|
$ |
1,816,034 |
|
The
accompanying notes are an integral part of these unaudited
consolidated financial statements
PRESSURE
BIOSCIENCES, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(UNAUDITED)
|
|
For
the Three Months Ended |
|
|
|
March 31, |
|
|
|
2020 |
|
|
2019 |
|
Revenue: |
|
|
|
|
|
|
|
|
Products, services, other |
|
$ |
253,873 |
|
|
$ |
510,240 |
|
Total revenue |
|
|
253,873 |
|
|
|
510,240 |
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
Cost of products and services |
|
|
175,146 |
|
|
|
309,712 |
|
Research and development |
|
|
265,690 |
|
|
|
264,704 |
|
Selling and marketing |
|
|
189,116 |
|
|
|
188,215 |
|
General and
administrative |
|
|
1,019,010 |
|
|
|
1,144,421 |
|
Total
operating costs and expenses |
|
|
1,648,962 |
|
|
|
1,907,052 |
|
|
|
|
|
|
|
|
|
|
Operating
loss |
|
|
(1,395,089 |
) |
|
|
(1,396,812 |
) |
|
|
|
|
|
|
|
|
|
Other (expense) income: |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(1,571,800 |
) |
|
|
(512,706 |
) |
Unrealized gain on investment in
equity securities |
|
|
149,371 |
|
|
|
- |
|
(Loss) on extinguishment of
liabilities |
|
|
(1,136,367 |
) |
|
|
(40,810 |
) |
Other
expense |
|
|
- |
|
|
|
(104,845 |
) |
Total
other expense |
|
|
(2,558,796 |
) |
|
|
(658,361 |
) |
Net loss |
|
$ |
(3,953,885 |
) |
|
$ |
(2,055,173 |
) |
Deemed dividends on beneficial
conversion feature |
|
|
- |
|
|
|
(1,060,199 |
) |
Preferred stock
dividends |
|
|
(324,586 |
) |
|
|
(355,610 |
) |
Net loss
attributable to common shareholders |
|
$ |
(4,278,471 |
) |
|
$ |
(3,470,982 |
) |
|
|
|
|
|
|
|
|
|
Net loss per share attributable to
common stockholders - basic and diluted |
|
$ |
(1.62 |
) |
|
$ |
(2.01 |
) |
|
|
|
|
|
|
|
|
|
Weighted average common stock shares
outstanding used in the basic and diluted net loss per share
calculation |
|
|
2,648,039 |
|
|
|
1,723,557 |
|
The
accompanying notes are an integral part of these unaudited
consolidated financial statements
PRESSURE
BIOSCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(UNAUDITED)
|
|
For the
Three Months Ended March 31, |
|
|
|
2020 |
|
|
2019 |
|
CASH FLOWS FROM
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(3,953,885 |
) |
|
$ |
(2,055,173 |
) |
Adjustments to
reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
Non-cash lease
expense |
|
|
17,408 |
|
|
|
13,593 |
|
Common stock issued
for interest and extension fees |
|
|
60,560 |
|
|
|
- |
|
Depreciation and
amortization |
|
|
45,000 |
|
|
|
23,590 |
|
Accretion of interest
and amortization of debt discount |
|
|
878,242 |
|
|
|
103,933 |
|
Loss on extinguishment
of accrued liabilities and debt |
|
|
635,000 |
|
|
|
40,810 |
|
Stock-based
compensation expense |
|
|
241,769 |
|
|
|
245,392 |
|
Shares issued for
services |
|
|
- |
|
|
|
168,000 |
|
Gain on investment in
equity securities |
|
|
(149,371 |
) |
|
|
- |
|
Changes in operating
assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
108,472 |
|
|
|
31,668 |
|
Inventories |
|
|
(38,074 |
) |
|
|
12,346 |
|
Prepaid expenses and
other assets |
|
|
9,699 |
|
|
|
(12,606 |
) |
Accounts
payable |
|
|
54,463 |
|
|
|
(184,438 |
) |
Accrued employee
compensation |
|
|
(35,885 |
) |
|
|
(61,952 |
) |
Operating lease
liability |
|
|
(17,408 |
) |
|
|
(13,593 |
) |
Deferred revenue and
other accrued expenses |
|
|
779,371 |
|
|
|
70,506 |
|
Net cash used in
operating activities |
|
|
(1,364,639 |
) |
|
|
(1,617,924 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchases of property
plant and equipment |
|
|
- |
|
|
|
(12,615 |
) |
Net cash used in
investing activities |
|
|
- |
|
|
|
(12,615 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net proceeds from
preferred stock |
|
|
- |
|
|
|
1,260,000 |
|
Net proceeds from
convertible debt |
|
|
1,865,500 |
|
|
|
1,490,368 |
|
Net proceeds from
non-convertible debt – third party |
|
|
463,500 |
|
|
|
644,000 |
|
Net proceeds from
non-convertible debt – related party |
|
|
8,500 |
|
|
|
- |
|
Principal payments on
convertible debt |
|
|
(520,500 |
) |
|
|
(1,040,185 |
) |
Principal payments on
non-convertible debt |
|
|
(450,167 |
) |
|
|
(557,048 |
) |
Net cash provided by
financing activities |
|
|
1,366,833 |
|
|
|
1,797,135 |
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH
AND CASH EQUIVALENTS |
|
|
2,194 |
|
|
|
166,596 |
|
CASH AND CASH
EQUIVALENTS AT BEGINNING OF PERIOD |
|
|
29,625 |
|
|
|
103,118 |
|
CASH AND CASH
EQUIVALENTS AT END OF PERIOD |
|
$ |
31,819 |
|
|
$ |
269,714 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
INFORMATION |
|
|
|
|
|
|
|
|
Interest paid in
cash |
|
$ |
219,224 |
|
|
$ |
299,192 |
|
NON CASH
TRANSACTIONS: |
|
|
|
|
|
|
|
|
Interest added to principal |
|
|
132,314 |
|
|
|
- |
|
Common stock issued to
settle accrued liabilities |
|
|
127,855 |
|
|
|
- |
|
Common stock issued on
debt settlement |
|
|
25,000 |
|
|
|
- |
|
Common stock issued
with debt |
|
|
- |
|
|
|
50,733 |
|
Discount from warrants
issued with debt |
|
|
1,205,010 |
|
|
|
- |
|
Discount due to
beneficial conversion feature |
|
|
404,608 |
|
|
|
- |
|
Preferred stock
dividend |
|
|
324,586 |
|
|
|
355,610 |
|
Deemed
dividend-beneficial conversion feature |
|
|
- |
|
|
|
1,060,199 |
|
The
accompanying notes are an integral part of these unaudited
consolidated financial statements
PRESSURE
BIOSCIENCES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ DEFICIT
(UNAUDITED)
|
|
Series D
Preferred Stock |
|
|
Series G
Preferred Stock |
|
|
Series H
Preferred Stock |
|
|
Series H(2)
Preferred Stock |
|
|
Series J
Preferred Stock |
|
|
Series K
Preferred Stock |
|
|
Series AA
Preferred Stock |
|
|
Common
Stock |
|
|
Stock |
|
|
Additional Paid-In |
|
|
Accumulated |
|
|
Total Stockholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Warrants |
|
|
Capital |
|
|
Deficit |
|
|
Deficit |
|
BALANCE, December 31,
2019 |
|
|
300 |
|
|
$ |
3 |
|
|
|
80,570 |
|
|
$ |
806 |
|
|
|
10,000 |
|
|
$ |
100 |
|
|
|
21 |
|
|
$ |
- |
|
|
|
3,458 |
|
|
$ |
35 |
|
|
|
6,880 |
|
|
$ |
68 |
|
|
|
7,939 |
|
|
$ |
80 |
|
|
|
2,549,620 |
|
|
$ |
25,496 |
|
|
$ |
22,599,177 |
|
|
$ |
44,261,105 |
|
|
$ |
(78,942,277 |
) |
|
$ |
(12,055,407 |
) |
Stock-based compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
241,769 |
|
|
|
- |
|
|
|
241,769 |
|
Series AA Preferred Stock
dividend |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(324,586 |
) |
|
|
(324,586 |
) |
Issuance of common stock to settle
accrued liabilities |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
66,500 |
|
|
$ |
665 |
|
|
|
- |
|
|
|
127,190 |
|
|
|
- |
|
|
|
127,855 |
|
Common stock issued or debt
settlement |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,000 |
|
|
$ |
100 |
|
|
|
- |
|
|
|
24,900 |
|
|
|
- |
|
|
|
25,000 |
|
Issuance of common stock for debt
extension and interest paid-in-kind |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
38,521 |
|
|
$ |
385 |
|
|
|
- |
|
|
|
60,175 |
|
|
|
- |
|
|
|
60,560 |
|
Beneficial conversion feature on
debt |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
404,608 |
|
|
|
- |
|
|
|
404,608 |
|
Warrants issued with debt |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,205,010 |
|
|
|
- |
|
|
|
- |
|
|
|
1,205,010 |
|
Warrants issued for debt
extension |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
609,143 |
|
|
|
- |
|
|
|
- |
|
|
|
609,143 |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,953,885 |
) |
|
|
(3,953,885 |
) |
BALANCE, March 31, 2020 |
|
|
300 |
|
|
$ |
3 |
|
|
|
80,570 |
|
|
$ |
806 |
|
|
|
10,000 |
|
|
$ |
100 |
|
|
|
21 |
|
|
$ |
- |
|
|
|
3,458 |
|
|
$ |
35 |
|
|
|
6,880 |
|
|
$ |
68 |
|
|
|
7,939 |
|
|
$ |
80 |
|
|
|
2,664,641 |
|
|
$ |
26,646 |
|
|
$ |
24,413,330 |
|
|
$ |
45,119,747 |
|
|
$ |
(83,220,748 |
) |
|
|
(13,659,933 |
) |
|
|
Series
D Preferred Stock |
|
|
Series
G Preferred Stock |
|
|
Series
H Preferred Stock |
|
|
Series
H(2)Preferred Stock |
|
|
Series
J Preferred Stock |
|
|
Series
K Preferred Stock |
|
|
Series
AA Preferred Stock |
|
|
Common
Stock |
|
|
Stock |
|
|
Additional
Paid-In |
|
|
Accumulated |
|
|
Total
Stockholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Warrants |
|
|
Capital |
|
|
Deficit |
|
|
Deficit |
|
BALANCE,
December 31, 2018 |
|
|
300 |
|
|
$ |
3 |
|
|
|
80,570 |
|
|
$ |
806 |
|
|
|
10,000 |
|
|
$ |
100 |
|
|
|
21 |
|
|
$ |
- |
|
|
|
3,458 |
|
|
$ |
35 |
|
|
|
6,880 |
|
|
|
68 |
|
|
|
6,499 |
|
|
$ |
65 |
|
|
|
1,684,182 |
|
|
$ |
16,842 |
|
|
$ |
19,807,247 |
|
|
$ |
39,777,301 |
|
|
$ |
(65,727,538 |
) |
|
$ |
(6,125,071 |
) |
Stock-based
compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
245,392 |
|
|
|
- |
|
|
|
245,392 |
|
Series
AA Preferred Stock dividend |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
(355,610 |
) |
|
|
(355,610 |
) |
Issuance
of shares for services |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
50,000 |
|
|
|
500 |
|
|
|
|
|
|
|
167,500 |
|
|
|
- |
|
|
|
168,000 |
|
Beneficial
conversion feature on Series AA convertible preferred
stock |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,060,199 |
|
|
|
- |
|
|
|
1,060,199 |
|
Deemed
dividend-beneficial conversion feature |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,060,199 |
) |
|
|
- |
|
|
|
(1,060,199 |
) |
Preferred
Stock offering |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
560 |
|
|
|
6 |
|
|
|
- |
|
|
|
- |
|
|
|
738,528 |
|
|
|
661,466 |
|
|
|
- |
|
|
|
1,400,000 |
|
Offering
costs for issuance of preferred stock |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
160,764 |
|
|
|
(300,764 |
) |
|
|
- |
|
|
|
(140,000 |
) |
Common
Stock issued for debt extension |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,350 |
|
|
|
164 |
|
|
|
- |
|
|
|
38,824 |
|
|
|
- |
|
|
|
38,988 |
|
Stock
issued with debt |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
17,958 |
|
|
|
180 |
|
|
|
- |
|
|
|
50,553 |
|
|
|
- |
|
|
|
50,733 |
|
Net
loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,055,173 |
) |
|
|
(2,055,173 |
) |
BALANCE,
March 31, 2019 |
|
|
300 |
|
|
$ |
3 |
|
|
|
80,570 |
|
|
$ |
806 |
|
|
|
10,000 |
|
|
$ |
100 |
|
|
|
21 |
|
|
$ |
- |
|
|
|
3,458 |
|
|
$ |
35 |
|
|
|
6,880 |
|
|
$ |
68 |
|
|
|
7,059 |
|
|
$ |
71 |
|
|
|
1,768,490 |
|
|
$ |
17,686 |
|
|
$ |
20,706,539 |
|
|
$ |
40,640,272 |
|
|
$ |
(68,138,321 |
) |
|
$ |
(6,772,741 |
) |
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, 2020
(UNAUDITED)
Pressure
Biosciences, Inc. (“we”, “our”, “the Company”) develops and sells
innovative, broadly enabling, pressure-based platform solutions for
the worldwide life sciences industry. Our solutions are based on
the unique properties of both constant (i.e., static) and
alternating (i.e., pressure cycling technology, or “PCT”)
hydrostatic pressure. PCT is a patented enabling technology
platform that uses alternating cycles of hydrostatic pressure
between ambient and ultra-high levels to safely and reproducibly
control bio-molecular interactions (e.g., cell lysis, biomolecule
extraction). Our primary focus is in the development of PCT-based
products for biomarker and target discovery, drug design and
development, biotherapeutics characterization and quality control,
soil & plant biology, forensics, and counter-bioterror
applications. Additionally, major new market opportunities have
emerged in the use of our pressure-based technologies in the
following areas: (1) the use of our recently acquired, patented
technology from BaroFold, Inc. (the “BaroFold” technology) to allow
entry into the bio-pharma contract services sector, and (2) the use
of our recently-patented, scalable, high-efficiency, pressure-based
Ultra Shear Technology (“UST”) platform to (i) create stable
nanoemulsions of otherwise immiscible fluids (e.g., oils and water)
and to (ii) prepare higher quality, homogenized, extended
shelf-life or room temperature stable low-acid liquid foods that
cannot be effectively preserved using existing non-thermal
technologies.
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, 2020, 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 Notes 5 and 6. In addition we raised cash
through debt and equity financing after March 31, 2020 as described
in Note 7. We have financing efforts in place to continue to raise
cash through debt and equity offerings. 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. These financial statements do not
include any adjustments that might result from this
uncertainty.
|
3) |
Summary of Significant
Accounting Policies |
Basis
of Presentation
The
unaudited interim financial statements of Pressure BioSciences,
Inc. and its consolidated subsidiaries (collectively, the
“Company”) included herein have been prepared by the Company in
accordance with the instructions to Form 10-Q and the rules and
regulations of the U.S. Securities and Exchange Commission. Under
these rules and regulations, some information and footnote
disclosures normally included in financial statements prepared
under accounting principles generally accepted in the United States
of America have been shortened or omitted. Management believes that
all adjustments necessary for a fair statement of the financial
position and the results of operations for the periods shown have
been made. All adjustments are normal and recurring. These
financial statements should be read together with the Company’s
audited financial statements included in its Form 10-K for the
fiscal year ended December 31, 2019. Certain comparative amounts
for the prior fiscal year period have been reclassified to conform
to the financial statement presentation as of and for the period
ended March 31, 2020.
Use
of Estimates
The
Company’s consolidated financial statements and accompanying notes
are prepared in accordance with accounting principles generally
accepted in the United States of America, which require the use of
estimates, judgements and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the periods presented. Global concerns about the COVID-19 pandemic
have adversely affected, and we expect will continue to adversely
affect, our business, financial condition and results of operations
including the estimates and assumptions made by management.
Significant estimates and assumptions include valuations of
share-based awards, investments in equity securities and intangible
asset impairment. Actual results could differ from the estimates,
and such differences may be material to the Company’s consolidated
financial statements.
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.
Recent
Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13, Measurement of Credit
Losses on Financial Instruments. The standard is effective for the
Company for interim and annual periods beginning after December 15,
2022. The Company is evaluating the impact of this standard on its
Consolidated Financial Statements.
In
December 2019, the FASB, issued ASU 2019-12, Simplifying the
Accounting for Income Taxes. The standard is effective for the
Company for interim and annual periods beginning after December 15,
2020 for the Company and for annual periods beginning after
December 15, 2021 and interim periods beginning after December 15,
2022. The Company is evaluating the impact of this standard on its
Consolidated Financial Statements.
Revenue
Recognition
We
recognize revenue in accordance with FASB ASC 606, Revenue from
Contracts with Customers, and ASC 340-40, Other Assets and
Deferred Costs—Contracts with Customers. Revenue is measured
based on a consideration specified in a contract with a customer,
and excludes any sales incentives and amounts collected on behalf
of third parties. We enter into sales contracts that may consist of
multiple distinct performance obligations where certain performance
obligations of the sales contract are not delivered in one
reporting period. We measure and allocate revenue according to ASC
606-10.
We
identify a performance obligation as distinct if both the following
criteria are true: the customer can benefit from the good or
service either on its own or together with other resources that are
readily available to the customer and the entity’s promise to
transfer the good or service to the customer is separately
identifiable from other promises in the contract. Determining the
standalone selling price (“SSP”) and allocation of consideration
from a contract to the individual performance obligations, and the
appropriate timing of revenue recognition, is the result of
significant qualitative and quantitative judgments. Management
considers a variety of factors such as historical sales, usage
rates, costs, and expected margin, which may vary over time
depending upon the unique facts and circumstances related to each
performance obligation in making these estimates. While changes in
the allocation of the SSP between performance obligations will not
affect the amount of total revenue recognized for a particular
contract, any material changes could impact the timing of revenue
recognition, which would have a material effect on our financial
position and result of operations. This is because the contract
consideration is allocated to each performance obligation,
delivered or undelivered, at the inception of the contract based on
the SSP of each distinct performance obligation.
Taxes
assessed by a governmental authority that are both imposed on and
concurrent with a specific revenue-producing transaction, that are
collected by the Company from a customer, are excluded from
revenue.
Shipping
and handling costs associated with outbound freight after control
over a product has transferred to a customer are accounted for as a
fulfillment cost and are in included in cost of revenues as
consistent with treatment in prior periods.
Our
current Barocycler® instruments require a basic level of
instrumentation expertise to set-up for initial operation. To
support a favorable first experience for our customers, upon
customer request, and for an additional fee, will send a highly
trained technical representative to the customer site to install
Barocycler®s that we sell, lease, or rent through our domestic
sales force. The installation process includes uncrating and
setting up the instrument, followed by introductory user training.
Our sales arrangements do not provide our customers with a right of
return. Any shipping costs billed to customers are recognized as
revenue.
The
majority of our instrument and consumable contracts contain pricing
that is based on the market price for the product at the time of
delivery. Our obligations to deliver product volumes are typically
satisfied and revenue is recognized when control of the product
transfers to our customers. Concurrent with the transfer of
control, we typically receive the right to payment for the shipped
product and the customer has significant risks and rewards of
ownership of the product. Payment terms require customers to pay
shortly after delivery and do not contain significant financing
components.
We
apply ASC 845, “Accounting for Non-Monetary Transactions”, to
account for products and services sold through non-cash
transactions based on the fair values of the products and services
involved, where such values can be determined. Non-cash exchanges
would require revenue to be recognized at recorded cost or carrying
value of the assets or services sold if any of the following
conditions apply:
|
a) |
The
fair value of the asset or service involved is not
determinable. |
|
|
|
|
b) |
The
transaction is an exchange of a product or property held for sale
in the ordinary course of business for a product or property to be
sold in the same line of business to facilitate sales to customers
other than the parties to the exchange. |
|
|
|
|
c) |
The
transaction lacks commercial substance. |
|
We
currently record revenue for its non-cash transactions at recorded
cost or carrying value of the assets or services sold. |
In
accordance with FASB ASC 842, Leases, we account for our
lease agreements under the operating method. The new standard
provides a number of optional practical expedients in transition.
We elected the ‘package of practical expedients’ for our instrument
leases, which permits us not to reassess under the new standard our
prior conclusions about lease identification, lease classification
and initial direct costs.
We
record revenue over the life of the lease term and we record
depreciation expense on a straight-line basis over the
thirty-six-month estimated useful life of the Barocycler®
instrument. The depreciation expense associated with assets under
lease agreement is included in the “Cost of PCT products and
services” line item in our accompanying consolidated statements of
operations. Many of our lease and rental agreements allow the
lessee to purchase the instrument at any point during the term of
the agreement with partial or full credit for payments previously
made. We pay all maintenance costs associated with the instrument
during the term of the leases.
Revenue
from government grants is recorded when expenses are incurred under
the grant in accordance with the terms of the grant
award.
Deferred
revenue represents amounts received from grants and service
contracts for which the related revenues have not been recognized
because one or more of the revenue recognition criteria have not
been met. Revenue from service contracts is recorded ratably over
the length of the contract.
Disaggregation
of revenue
In
the following table, revenue is disaggregated by primary
geographical market, major product line, and timing of revenue
recognition.
In thousands of US dollars ($) |
|
|
|
|
|
|
Primary geographical markets |
|
March 31, 2020 |
|
|
March 31, 2019 |
|
North America |
|
$ |
144 |
|
|
$ |
224 |
|
Europe |
|
|
1 |
|
|
|
40 |
|
Asia |
|
|
109 |
|
|
|
246 |
|
|
|
$ |
254 |
|
|
$ |
510 |
|
Major
products/services lines |
|
March 31,
2020 |
|
|
March 31,
2019 |
|
Instruments |
|
$ |
130 |
|
|
$ |
138 |
|
Consumables |
|
|
56 |
|
|
|
62 |
|
Others |
|
|
68 |
|
|
|
310 |
|
|
|
$ |
254 |
|
|
$ |
510 |
|
Timing of revenue recognition |
|
March 31, 2020 |
|
|
March 31, 2019 |
|
Products transferred at a point in time |
|
$ |
225 |
|
|
$ |
501 |
|
Services transferred over time |
|
|
29 |
|
|
|
9 |
|
|
|
$ |
254 |
|
|
$ |
510 |
|
Contract
balances
In thousands of US dollars ($) |
|
March 31, 2020 |
|
|
December 31, 2019 |
|
Receivables, which are
included in ‘Accounts Receivable’ |
|
|
121 |
|
|
|
229 |
|
Contract liabilities (deferred
revenue) |
|
|
70 |
|
|
|
41 |
|
Transaction
price allocated to the remaining performance
obligations
The
following table includes estimated revenue expected to be
recognized in the future related to performance obligations that
are unsatisfied (or partially unsatisfied) at the end of the
reporting period.
In
thousands of US dollars ($) |
|
2020 |
|
|
2021 |
|
|
Total |
|
Extended warranty
service |
|
|
28 |
|
|
|
42 |
|
|
|
70 |
|
All
consideration from contracts with customers is included in the
amounts presented above.
Contract
Costs
The
Company recognizes the incremental costs of obtaining contracts as
an expense when incurred if the amortization period of the assets
that the Company otherwise would have recognized is one year or
less. These costs are included in selling, general, and
administrative expenses. The costs to obtain a contract are
recorded immediately in the period when the revenue is recognized
either upon shipment or installation. The costs to obtain a service
contract are considered immaterial when spread over the life of the
contract so the Company records the costs immediately upon
billing.
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, 2020 and 2019. The Top Five Customers category may include
federal agency revenues if applicable.
|
|
For the Three Months
Ended |
|
|
|
March
31, |
|
|
|
2020 |
|
|
2019 |
|
Top Five Customers |
|
|
68 |
% |
|
|
73 |
% |
Federal Agencies |
|
|
6 |
% |
|
|
18 |
% |
The
following table illustrates the level of concentration as a
percentage of net accounts receivable balance as of March 31, 2020
and December 31, 2019. The Top Five Customers category may include
federal agency receivable balances if applicable.
|
|
March 31,
2020 |
|
|
December 31,
2019 |
|
Top Five Customers |
|
|
77 |
% |
|
|
83 |
% |
Federal Agencies |
|
|
4 |
% |
|
|
17 |
% |
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 and maintain 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
outsourced manufacturing relationships such as that with CBM and
outsource manufacturing of the entire Barocycler® product line,
future instruments, and other products to CBM.
Investment
in Equity Securities
As of
March 31, 2020, we held 100,250 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 321 “Investments —Equity
Securities.” ASC 321 requires equity investments with readily
determinable fair values to be measured at fair value with changes
in fair value recognized in net income. As of March 31, 2020, our
consolidated balance sheet reflected the fair value of our
investment in Everest to be approximately $166,014. We recorded
$149,371 as an unrealized gain during the three months ended March
31, 2020 for changes in Everest market value.
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, 2020 and 2019:
|
|
For the Three Months
Ended |
|
|
|
March
31, |
|
|
|
2020 |
|
|
2019 |
|
Numerator: |
|
|
|
|
|
|
Net loss attributable to
common shareholders |
|
$ |
(4,278,471 |
) |
|
$ |
(3,470,982 |
) |
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted loss
per share: |
|
|
|
|
|
|
|
|
Weighted average common stock shares outstanding |
|
|
2,648,039 |
|
|
|
1,723,557 |
|
|
|
|
|
|
|
|
|
|
Loss per common share – basic and
diluted |
|
$ |
(1.62 |
) |
|
$ |
(2.01 |
) |
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 and H2 Convertible Preferred Stock, Series J Convertible
Preferred Stock, Series K Convertible Preferred Stock and Series AA
Convertible Preferred Stock are presented below as if they were
converted into common shares according to the conversion
terms.
|
|
As of March
31, |
|
|
|
2020 |
|
|
2019 |
|
Stock options |
|
|
1,393,551 |
|
|
|
366,734 |
|
Convertible debt |
|
|
3,125,633 |
|
|
|
471,015 |
|
Common stock warrants |
|
|
11,295,764 |
|
|
|
8,380,875 |
|
Convertible
preferred stock: |
|
|
|
|
|
|
|
|
Series D Convertible Preferred |
|
|
25,000 |
|
|
|
25,000 |
|
Series G Convertible Preferred |
|
|
26,857 |
|
|
|
26,857 |
|
Series H Convertible Preferred |
|
|
33,334 |
|
|
|
33,334 |
|
Series H2 Convertible Preferred |
|
|
70,000 |
|
|
|
70,000 |
|
Series J Convertible Preferred |
|
|
115,267 |
|
|
|
115,267 |
|
Series K Convertible Preferred |
|
|
229,334 |
|
|
|
229,334 |
|
Series AA
Convertible Preferred |
|
|
7,939,000 |
|
|
|
7,059,822 |
|
|
|
|
24,253,740 |
|
|
|
16,778,238 |
|
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 $241,769 and
$245,392 for the three months ended March 31, 2020 and 2019,
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, |
|
|
|
2020 |
|
|
2019 |
|
Cost of sales |
|
$ |
7,956 |
|
|
$ |
8,316 |
|
Research and development |
|
|
38,826 |
|
|
|
34,624 |
|
Selling and marketing |
|
|
13,936 |
|
|
|
22,119 |
|
General and
administrative |
|
|
181,051 |
|
|
|
180,333 |
|
Total
stock-based compensation expense |
|
$ |
241,769 |
|
|
$ |
245,392 |
|
Fair
Value of Financial Instruments
Due
to their short maturities, the carrying amounts for cash and cash
equivalents, accounts receivable, accounts payable, accrued
expenses and debt approximate their fair value. Long-term
liabilities include only deferred revenue with a carrying value
that approximates 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. A slight change in an unobservable input like
volatility could have a significant impact on fair value
measurement.
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 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, 2020:
|
|
|
|
|
Fair
value measurements at
March 31, 2020 using: |
|
|
|
31-Mar-20 |
|
|
Quoted
prices in active markets (Level 1) |
|
|
Significant
other observable inputs
(Level 2) |
|
|
Significant
unobservable
inputs
(Level 3) |
|
Equity
Securities |
|
|
166,014 |
|
|
|
166,014 |
|
|
|
- |
|
|
|
- |
|
Total
Financial Assets |
|
$ |
166,014 |
|
|
$ |
166,014 |
|
|
$ |
- |
|
|
$ |
- |
|
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, 2019:
|
|
|
|
|
Fair
value measurements at
December 31, 2019 using: |
|
|
|
|
31-Dec-19 |
|
|
|
Quoted
prices in
active markets
(Level 1) |
|
|
|
Significant
other observable
inputs
(Level 2) |
|
|
|
Significant
unobservable
inputs
(Level 3) |
|
Equity
Securities |
|
|
16,643 |
|
|
|
16,643 |
|
|
|
- |
|
|
|
- |
|
Total
Financial Assets |
|
$ |
16,643 |
|
|
$ |
16,643 |
|
|
$ |
- |
|
|
$ |
- |
|
|
4) |
Commitments and Contingencies |
Operating
Leases
The
Company accounts for its leases under ASC 842. The Company has elected
to apply the short-term lease exception to leases of one year or
less. Consequently, as a result of adoption of ASC 842, we
recognized an operating liability of $136,385 on our Medford lease
with a corresponding Right-Of-Use (“ROU”) asset of the same amount
based on present value of the minimum rental payments of the lease.
As of March 31, 2020 the Company carries a ROU asset and operating
lease liability of $59,178.
Our
corporate office is currently located at 14 Norfolk Avenue, South
Easton, Massachusetts 02375. We are currently paying $6,950 per
month, on a lease extension, signed on December 31, 2019, that
expires December 31, 2020, for our corporate office. We expanded
our space to include offices, warehouse and a loading dock on the
first floor starting May 1, 2017 with a monthly rent increase
already reflected in the current payments.
We
extended our lease for our space in Medford, MA to December 30,
2020. The lease requires monthly payments of $7,130 subject to
annual cost of living increases. The lease shall be automatically
extended for an additional three years unless either party
terminates at least six months prior to the expiration of the
current lease term.
Following is a schedule by years of future minimum rental payments
required under operating leases with initial or remaining
non-cancelable lease terms as of March 31, 2020:
2020 |
|
$ |
126,720 |
|
Thereafter |
|
|
- |
|
Total Minimum
Payments Required |
|
$ |
126,720 |
|
|
5) |
Convertible Debt and Other Debt |
Convertible Debt
On
various dates during the quarter ended March 31, 2020, the Company
issued convertible notes for net proceeds of approximately $1.9
million which contained varied terms and conditions as follows: a)
12 month maturity date; b) interest rate of 10%; c) convertible to
the Company’s common stock at issuance at a fixed rate of $2.50.
These notes were issued with warrants to purchase common stock that
were fair valued at issuance date. The aggregate relative fair
value of $995,615 of the warrants issued with the notes was
recorded as a debt discount to be amortized over the term of the
notes. We then computed the effective conversion price of the
notes, and recorded a $404,608 beneficial conversion feature as a
debt discount to be amortized over the term of the notes. We also
evaluated the convertible notes for derivative liability treatment
and determined that the notes did not quality for derivative
accounting treatment at March 31, 2020.
The
specific terms of the convertible notes and outstanding balances as
of March 31, 2020 are listed in the tables below.
Inception
Date |
|
Term |
|
Loan
Amount |
|
|
Outstanding
balance with OID |
|
|
Original
Issue Discount (OID) |
|
|
Interest
Rate |
|
|
Conversion
Price |
|
|
Deferred
Finance Fees |
|
|
Discount
for conversion feature and warrants/shares |
|
February
15, 2018 (2) |
|
6
months |
|
$ |
100,000 |
|
|
$ |
115,000 |
|
|
$ |
- |
|
|
|
5 |
% |
|
|
(3) (6) 2.5 |
|
|
$ |
9,000 |
|
|
$ |
17,738 |
|
May
17, 2018 |
|
12
months |
|
$ |
380,000 |
|
|
$ |
166,703 |
|
|
$ |
15,200 |
|
|
|
8 |
% |
|
|
(3)
2.5 |
|
|
$ |
15,200 |
|
|
$ |
332,407 |
|
May
30, 2018 (1) |
|
2
months |
|
$ |
150,000 |
|
|
$ |
75,000 |
|
|
$ |
- |
|
|
|
4 |
% |
|
|
7.5 |
|
|
$ |
- |
|
|
$ |
6,870 |
|
June
8, 2018 (1) |
|
6
months |
|
$ |
50,000 |
|
|
$ |
50,000 |
|
|
$ |
2,500 |
|
|
|
2 |
% |
|
|
(6)
7.5 |
|
|
$ |
2,500 |
|
|
$ |
3,271 |
|
June
12, 2018 |
|
6
months |
|
$ |
100,000 |
|
|
$ |
100,000 |
|
|
$ |
- |
|
|
|
2.5 |
% |
|
|
(3)
(6) 7.5 |
|
|
$ |
5,000 |
|
|
$ |
- |
|
June
16, 2018 |
|
9
months |
|
$ |
130,000 |
|
|
$ |
79,000 |
|
|
$ |
- |
|
|
|
5 |
% |
|
|
(3)
2.5 |
|
|
$ |
- |
|
|
$ |
- |
|
June
16, 2018 |
|
6
months |
|
$ |
110,000 |
|
|
$ |
79,000 |
|
|
$ |
- |
|
|
|
5 |
% |
|
|
(3)
2.5 |
|
|
$ |
- |
|
|
$ |
- |
|
June
26, 2018 (2) |
|
3
months |
|
$ |
150,000 |
|
|
$ |
86,250 |
|
|
$ |
- |
|
|
|
5 |
% |
|
|
(3)
(6) 2.5 |
|
|
$ |
- |
|
|
$ |
30,862 |
|
June
28, 2018 |
|
6
months |
|
$ |
50,000 |
|
|
$ |
50,000 |
|
|
$ |
- |
|
|
|
2.5 |
% |
|
|
(3)
(6) 7.5 |
|
|
$ |
- |
|
|
$ |
10,518 |
|
July
17, 2018 (2) |
|
3
months |
|
$ |
100,000 |
|
|
$ |
105,000 |
|
|
$ |
15,000 |
|
|
|
5 |
% |
|
|
(3)
(6) 2.5 |
|
|
$ |
- |
|
|
$ |
52,897 |
|
July
19, 2018 |
|
12
months |
|
$ |
184,685 |
|
|
$ |
150,000 |
|
|
$ |
34,685 |
|
|
|
10 |
% |
|
|
(3)
2.5 |
|
|
$ |
- |
|
|
$ |
- |
|
October
19, 2018 (1) |
|
6
months |
|
$ |
100,000 |
|
|
$ |
100,000 |
|
|
$ |
- |
|
|
|
5 |
% |
|
|
7.5 |
|
|
$ |
- |
|
|
$ |
- |
|
November
13, 2018 (2) |
|
6
months |
|
$ |
200,000 |
|
|
$ |
220,000 |
|
|
$ |
- |
|
|
|
5 |
% |
|
|
(3)
(6) 2.5 |
|
|
$ |
- |
|
|
$ |
168,634 |
|
January
2, 2019 |
|
12
months |
|
$ |
125,000 |
|
|
$ |
97,000 |
|
|
$ |
- |
|
|
|
4 |
% |
|
|
(3)
2.5 |
|
|
$ |
6,250 |
|
|
$ |
89,120 |
|
January
3, 2019 |
|
6
months |
|
$ |
50,000 |
|
|
$ |
50,000 |
|
|
$ |
2,500 |
|
|
|
24 |
% |
|
|
(6) 7.5 |
|
|
$ |
2,500 |
|
|
$ |
- |
|
February
21, 2019 |
|
12
months |
|
$ |
215,000 |
|
|
$ |
215,000 |
|
|
$ |
- |
|
|
|
4 |
% |
|
|
(3)
2.5 |
|
|
$ |
15,000 |
|
|
$ |
107,709 |
|
February
22, 2019 |
|
9
months |
|
$ |
115,563 |
|
|
$ |
115,562 |
|
|
$ |
8,063 |
|
|
|
7 |
% |
|
|
(3)
2.5 |
|
|
$ |
2,500 |
|
|
$ |
- |
|
March
18, 2019 (1) |
|
6
months |
|
$ |
100,000 |
|
|
$ |
100,000 |
|
|
$ |
- |
|
|
|
4 |
% |
|
|
7.5 |
|
|
$ |
- |
|
|
$ |
10,762 |
|
June
4, 2019 |
|
9
months |
|
$ |
500,000 |
|
|
$ |
500,000 |
|
|
$ |
- |
|
|
|
8 |
% |
|
|
(3)
2.5 |
|
|
$ |
40,500 |
|
|
$ |
70,631 |
|
May
28, 2019 |
|
12
months |
|
$ |
115,500 |
|
|
$ |
115,500 |
|
|
$ |
5,500 |
|
|
|
8 |
% |
|
|
(3)
2.5 |
|
|
$ |
- |
|
|
$ |
33,531 |
|
April
30, 2019 |
|
12
months |
|
$ |
105,000 |
|
|
$ |
105,000 |
|
|
$ |
- |
|
|
|
4 |
% |
|
|
(3)
2.5 |
|
|
$ |
5,000 |
|
|
$ |
3,286 |
|
June
19, 2019 |
|
12
months |
|
$ |
105,000 |
|
|
$ |
105,000 |
|
|
$ |
- |
|
|
|
4 |
% |
|
|
(3)
2.5 |
|
|
$ |
5,000 |
|
|
$ |
2,646 |
|
April
9, 2019 |
|
12
months |
|
$ |
118,800 |
|
|
$ |
88,800 |
|
|
$ |
8,800 |
|
|
|
4 |
% |
|
|
(3)
2.5 |
|
|
$ |
3,000 |
|
|
$ |
- |
|
April
10, 2019 (2) |
|
3
months |
|
$ |
75,000 |
|
|
$ |
86,250 |
|
|
$ |
- |
|
|
|
5 |
% |
|
|
(3)
(6) 2.5 |
|
|
$ |
- |
|
|
$ |
61,091 |
|
May
20, 2019 |
|
3
months |
|
$ |
100,000 |
|
|
$ |
100,000 |
|
|
$ |
- |
|
|
|
5 |
% |
|
|
(3)
(6) 2.5 |
|
|
$ |
- |
|
|
$ |
13,439 |
|
June
7, 2019 |
|
6
months |
|
$ |
125,000 |
|
|
$ |
125,000 |
|
|
$ |
- |
|
|
|
5 |
% |
|
|
(3)
(6) 7.5 |
|
|
$ |
- |
|
|
$ |
18,254 |
|
July
1, 2019 |
|
12
months |
|
$ |
107,500 |
|
|
$ |
107,500 |
|
|
$ |
- |
|
|
|
4 |
% |
|
|
(3)
2.5 |
|
|
$ |
7,500 |
|
|
$ |
85,791 |
|
July
8, 2019 (5) |
|
12
months |
|
$ |
65,000 |
|
|
$ |
65,000 |
|
|
$ |
- |
|
|
|
5 |
% |
|
|
(3)
2.5 |
|
|
$ |
8,500 |
|
|
$ |
4,376 |
|
July
29, 2019 |
|
6
months |
|
$ |
250,000 |
|
|
$ |
250,000 |
|
|
$ |
- |
|
|
|
4 |
% |
|
|
(3)
2.5 |
|
|
$ |
- |
|
|
$ |
36,835 |
|
July
19, 2019 |
|
12
months |
|
$ |
115,000 |
|
|
$ |
115,000 |
|
|
$ |
- |
|
|
|
4 |
% |
|
|
(3)
2.5 |
|
|
$ |
5,750 |
|
|
$ |
15,460 |
|
July
19, 2019 |
|
12
months |
|
$ |
130,000 |
|
|
$ |
130,000 |
|
|
$ |
- |
|
|
|
6 |
% |
|
|
(3)
2.5 |
|
|
$ |
6,500 |
|
|
$ |
- |
|
August
6, 2019 |
|
12
months |
|
$ |
108,000 |
|
|
$ |
108,000 |
|
|
$ |
- |
|
|
|
4 |
% |
|
|
(3)
2.5 |
|
|
$ |
11,000 |
|
|
$ |
- |
|
August
14, 2019 (1) |
|
6
months |
|
$ |
50,000 |
|
|
$ |
50,000 |
|
|
$ |
- |
|
|
|
2 |
% |
|
|
(6)
7.5 |
|
|
$ |
- |
|
|
$ |
- |
|
September
11, 2019 (5) |
|
12
months |
|
$ |
50,000 |
|
|
$ |
50,000 |
|
|
$ |
- |
|
|
|
5 |
% |
|
|
(3)
2.5 |
|
|
$ |
6,500 |
|
|
$ |
3,823 |
|
September
27, 2019 |
|
12
months |
|
$ |
78,750 |
|
|
$ |
78,750 |
|
|
$ |
- |
|
|
|
4 |
% |
|
|
(3)
2.5 |
|
|
$ |
3,750 |
|
|
$ |
13,759 |
|
October
24, 2019 |
|
12
months |
|
$ |
103,000 |
|
|
$ |
103,000 |
|
|
$ |
- |
|
|
|
8 |
% |
|
|
(4)
2.5 |
|
|
$ |
3,000 |
|
|
$ |
- |
|
October
24, 2019 |
|
12
months |
|
$ |
78,750 |
|
|
$ |
78,750 |
|
|
$ |
- |
|
|
|
4 |
% |
|
|
(3)
2.5 |
|
|
$ |
3,750 |
|
|
$ |
- |
|
October
25, 2019 |
|
12
months |
|
$ |
105,000 |
|
|
$ |
105,000 |
|
|
$ |
- |
|
|
|
8 |
% |
|
|
2.5 |
|
|
$ |
5,000 |
|
|
$ |
- |
|
October
30, 2019 |
|
12
months |
|
$ |
250,000 |
|
|
$ |
250,000 |
|
|
$ |
- |
|
|
|
8 |
% |
|
|
2.5 |
|
|
$ |
12,500 |
|
|
$ |
5,964 |
|
November
1, 2019 |
|
12
months |
|
$ |
270,000 |
|
|
$ |
270,000 |
|
|
$ |
- |
|
|
|
6 |
% |
|
|
(3)
2.5 |
|
|
$ |
13,500 |
|
|
$ |
- |
|
October
8, 2019 |
|
6
months |
|
$ |
100,000 |
|
|
$ |
100,000 |
|
|
$ |
- |
|
|
|
4 |
% |
|
|
7.5 |
|
|
$ |
- |
|
|
$ |
5,725 |
|
November
15, 2019 |
|
12
months |
|
$ |
385,000 |
|
|
$ |
385,000 |
|
|
$ |
35,000 |
|
|
|
10 |
% |
|
|
2.5 |
|
|
$ |
35,000 |
|
|
$ |
90,917 |
|
December
4, 2019 |
|
12
months |
|
$ |
495,000 |
|
|
$ |
495,000 |
|
|
$ |
45,000 |
|
|
|
10 |
% |
|
|
2.5 |
|
|
$ |
45,000 |
|
|
$ |
56,387 |
|
December
20, 2019 |
|
12
months |
|
$ |
275,000 |
|
|
$ |
275,000 |
|
|
$ |
25,000 |
|
|
|
10 |
% |
|
|
2.5 |
|
|
$ |
25,000 |
|
|
$ |
40,601 |
|
January
2, 2020 |
|
12
months |
|
$ |
330,000 |
|
|
$ |
330,000 |
|
|
$ |
30,000 |
|
|
|
10 |
% |
|
|
2.5 |
|
|
$ |
30,000 |
|
|
$ |
91,606 |
|
January
23, 2020 |
|
12
months |
|
$ |
247,500 |
|
|
$ |
247,500 |
|
|
$ |
22,500 |
|
|
|
10 |
% |
|
|
2.5 |
|
|
$ |
22,500 |
|
|
$ |
89,707 |
|
January
29, 2020 |
|
12
months |
|
$ |
363,000 |
|
|
$ |
363,000 |
|
|
$ |
33,000 |
|
|
|
10 |
% |
|
|
2.5 |
|
|
$ |
33,000 |
|
|
$ |
297,000 |
|
February
12, 2020 |
|
12
months |
|
$ |
275,000 |
|
|
$ |
275,000 |
|
|
$ |
25,000 |
|
|
|
10 |
% |
|
|
2.5 |
|
|
$ |
25,000 |
|
|
$ |
225,000 |
|
February
19, 2020 |
|
12
months |
|
$ |
165,000 |
|
|
$ |
165,000 |
|
|
$ |
15,000 |
|
|
|
10 |
% |
|
|
2.5 |
|
|
$ |
15,000 |
|
|
$ |
135,000 |
|
March
5, 2020 |
|
12
months |
|
$ |
115,000 |
|
|
$ |
115,000 |
|
|
$ |
15,000 |
|
|
|
10 |
% |
|
|
2.5 |
|
|
$ |
15,000 |
|
|
$ |
46,231 |
|
March
11, 2020 |
|
12
months |
|
$ |
330,000 |
|
|
$ |
330,000 |
|
|
$ |
30,000 |
|
|
|
10 |
% |
|
|
2.5 |
|
|
$ |
30,000 |
|
|
$ |
232,810 |
|
March
13, 2020 |
|
12
months |
|
$ |
165,000 |
|
|
$ |
165,000 |
|
|
$ |
15,000 |
|
|
|
10 |
% |
|
|
2.5 |
|
|
$ |
15,000 |
|
|
$ |
60,705 |
|
March
13, 2020 |
|
12
months |
|
$ |
28,750 |
|
|
$ |
28,750 |
|
|
$ |
3,750 |
|
|
|
10 |
% |
|
|
2.5 |
|
|
|
- |
|
|
$ |
7,825 |
|
March
13, 2020 |
|
12
months |
|
$ |
125,000 |
|
|
$ |
125,000 |
|
|
$ |
18,750 |
|
|
|
10 |
% |
|
|
2.5 |
|
|
$ |
12,500 |
|
|
$ |
29,737 |
|
March
26, 2020 |
|
12
months |
|
$ |
111,100 |
|
|
$ |
111,100 |
|
|
$ |
10,100 |
|
|
|
10 |
% |
|
|
2.5 |
|
|
$ |
10,100 |
|
|
$ |
90,900 |
|
|
|
|
|
|
|
|
|
$ |
8,450,415 |
|
|
$ |
415,348 |
|
|
|
|
|
|
|
|
|
|
$ |
511,800 |
|
|
$ |
2,699,825 |
|
|
(1) |
The Note is past due. The Company and the lender are negotiating in
good faith to extend the loan. |
|
(2) |
Interest was capitalized and added to the outstanding
principal. |
|
(3) |
As of March 31, 2020 lender entered into a Standstill and
Forbearance agreement (as described below). Loan is convertible at
$2.50 until the expiration of the agreement. |
|
(4) |
Note is not convertible at March 31, 2020. |
|
(5) |
The Company’s Chief Executive Officer signed a Confession of
Judgement with lenders representing his personal
guarantee. |
|
(6) |
During the
quarter ended March 31, 2020 the Company entered into Rate
Modification Agreements with these lenders. In these agreements
five lenders agreed to reduce their interest rate and were granted
the right to convert loans using a variable conversion price if
other variable rate lenders converted at a variable rate. |
For
the quarter ended March 31, 2020, the Company recognized
amortization expense related to the debt discounts indicated above
of $565,985. The unamortized debt discounts as of March 31, 2020
related to the convertible debentures and other convertible notes
amounted to $1,843,315.
Standstill
and Forbearance Agreements
On
December 13, 2019, the Company entered into Standstill and
Forbearance Agreements with lenders who hold convertible promissory
notes with a total principal of $2,267,066. Pursuant to the
Standstill and Forbearance Agreements, the lenders agreed to not
convert any portion of their notes into shares of common stock at a
variable rate until either January 30th or January
31st of 2020, and to waive, through January
30th or January 31st of 2020, all of the
Company’s defaults under their notes including, but not limited to,
the late filing of the Company’s Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 2019.
On
January 31, 2020 and again on March 3, 2020 the Company extended
these Standstill and Forbearance Agreements until April 6, 2020.
For the three months ended March 31, 2020, the Company incurred
fees of approximately $556,000 to extend the agreements. (See Note
7 - Subsequent Events)
Convertible Loan Modifications and
Extinguishments
We
refinanced certain convertible loans during the quarter ended March
31, 2020 at substantially the same terms for extensions ranging
over a period of three to six months. We amortized any remaining
unamortized debt discount as of the modification date over the
remaining, extended term of the new loans. We applied ASC 470 of
modification accounting to the debt instruments which were modified
during the quarter or those settled with new notes issued
concurrently for the same amounts but different maturity dates. The
terms such as the interest rate, prepayment penalties, and default
rates will be the same over the new extensions. According to ASC
470, an exchange of debt instruments between or a modification of a
debt instrument by a debtor and a creditor in a nontroubled debt
situation is deemed to have been accomplished with debt instruments
that are substantially different if the present value of the cash
flows under the terms of the new debt instrument is at least 10
percent different from the present value of the remaining cash
flows under the terms of the original instrument. If the terms of a
debt instrument are changed or modified and the cash flow effect on
a present value basis is less than 10 percent, the debt instruments
are not considered to be substantially different and will be
accounted for as modifications.
The
cash flows of new debt exceeded 10% of the remaining cash flows of
the original debt on several loans. We recorded losses on
extinguishment of liabilities of $1,136,367 by calculating the
difference of the fair value of the new debt and the carrying value
of the old debt. The reported loss on extinguishment of liabilities
includes $635,000 of non-cash expenses for warrants issued and
amortization of debt discount.
The
following table provides a summary of the changes in convertible
debt, net of unamortized discounts, during 2020:
|
|
2020 |
|
Balance
at January 1, |
|
$ |
6,121,338 |
|
Issuance
of convertible debt, face value |
|
|
2,255,350 |
|
Deferred
financing cost |
|
|
(389,850 |
) |
Beneficial conversion feature on
convertible note |
|
|
(404,608 |
) |
Debt
discount from warrants issued with debt |
|
|
(995,615 |
) |
Payments |
|
|
(520,500 |
) |
Conversion of debt into equity |
|
|
(25,000
|
) |
Accretion
of interest and amortization of debt discount to interest
expense |
|
|
565,985 |
|
Balance
at March 31, |
|
|
6,607,100 |
|
Less:
current portion |
|
|
6,607,100 |
|
Convertible
debt, long-term portion |
|
$ |
– |
|
Other Notes
On
September 9, 2019 and February 28, 2020 we received a total of
$966,500 unsecured non-convertible loans from a private investor
with a one-month term. During the three months ended March 31, 2020
the Company received net proceeds of $463,500, issued 150,000
warrants to purchase common stock (five year term and $3.50
exercise price), and repaid $275,000. The relative fair value of
$185,660 of the warrants issued with the note was recorded as a
debt discount to be amortized over the term of the notes. As of
March 31, 2020 the Company owes $691,500 on these notes which are
past due. The Company and the investor are negotiating in good
faith to extend the loans.
On
October 1, 2019, the Company and the holder of the $170,000
non-convertible loan issued in May 2017 agreed to extend the term
of the loan to December 31, 2019. The Company agreed to issue 1,200
shares of its common stock per month while the note remains
outstanding. The note will continue to earn 10% annual interest.
The loan is currently past due and the Company and the investor are
negotiating in good faith to extend the loan.
On
October 11, 2019 we received a non-convertible loan with a one
month term and a 2% interest charge for $25,000 from a private
investor. The loan is past due and the Company and the investor are
negotiating in good faith to extend the loan.
For the quarter ended March 31, 2020 the Company recognized
amortization expense related to debt discounts attributable to
Other Notes of $312,257.
Merchant Agreements
We
have signed various Merchant Agreements which are secured by second
position rights to all customer receipts until the loan has been
repaid in full and subject to interest rates of 6% - 76%. As
illustrated in the following table, under the terms of these
agreements, we received the disclosed Purchase Price and agreed to
repay the disclosed Purchase Amount, which is collected by the
Merchant lenders at the disclosed Daily Payment Rate. The following
table shows our Merchant Agreements as of March 31,
2020:
Inception Date |
|
Purchase Price |
|
|
Purchased Amount |
|
|
Outstanding Balance |
|
|
Daily Payment rate |
|
|
Deferred
Finance Fees |
|
August 5, 2019 |
|
$ |
600,000 |
|
|
$ |
816,000 |
|
|
$ |
384,621 |
|
|
$ |
4,533 |
|
|
$ |
6,000 |
|
August 19, 2019 |
|
|
350,000 |
|
|
|
479,500 |
|
|
|
273,510 |
|
|
|
2,664 |
|
|
|
3,000 |
|
August 23, 2019 |
|
|
175,000 |
|
|
|
239,750 |
|
|
|
117,597 |
|
|
|
1,410 |
|
|
|
1,750 |
|
September 19, 2019 |
|
|
275,000 |
|
|
|
384,275 |
|
|
|
263,855 |
|
|
|
2,138 |
|
|
|
5,000 |
|
|
|
$ |
1,400,000 |
|
|
$ |
1,919,525 |
|
|
$ |
1,039,583 |
|
|
$ |
10,745 |
|
|
$ |
15,750 |
|
The
following table shows our Merchant Agreements as of December 31,
2019:
Inception
Date |
|
Purchase
Price
|
|
|
Purchased
Amount |
|
|
Outstanding
Balance |
|
|
Daily
Payment Rate
|
|
|
Deferred
Finance Fees
|
|
August
5, 2019 |
|
$ |
600,000 |
|
|
$ |
816,000 |
|
|
$ |
421,024 |
|
|
|
4,533 |
|
|
$ |
6,000 |
|
August
19, 2019 |
|
|
350,000 |
|
|
|
479,500 |
|
|
|
272,315 |
|
|
|
2,664 |
|
|
|
3,000 |
|
August
23, 2019 |
|
|
175,000 |
|
|
|
239,750 |
|
|
|
132,284 |
|
|
|
1,410 |
|
|
|
1,750 |
|
September
19, 2019 |
|
|
275,000 |
|
|
|
384,275 |
|
|
|
256,812 |
|
|
|
2,138 |
|
|
|
5,000 |
|
|
|
$ |
1,400,000 |
|
|
$ |
1,919,525 |
|
|
$ |
1,082,435 |
|
|
$ |
10,745 |
|
|
$ |
15,750 |
|
We
have accounted for the Merchant Agreements as loans under ASC 860
because while we provided rights to current and future receipts, we
still had control over the receipts. The difference between the
Purchase Amount and the Purchase Price is imputed interest that is
recorded as interest expense when paid each day.
On
November 15, 2019 the Company and its Merchant lenders agreed to a
temporary reduction in the Daily Payment Rate from $10,745 to
$2,500. On January 31, 2020 and then subsequently on March 2, 2020
the Company and its Merchant lenders agreed to extend the term of
the reduction of its Daily Payment Rate to March 2, 2020 and
April 6, 2020, respectively. The Company issued 307,500 warrants
(valued at $609,143) to lenders as compensation for these
agreements. The warrants have a three year life and a $3.50
exercise Price. During the three months ended March 31, 2020,
$132,314 of interest was capitalized into principal (and recorded
as interest expense). (See Note 7 - Subsequent Events)
The
Company’s Chief Executive Officer is personally guaranteeing
$1,039,583 of loans outstanding as of March 31, 2020 under our
Merchant Agreements.
Related Party Notes
In
June 2018, we received a non-convertible loan of $15,000 from a
private investor. The loan includes a one-year term and 15%
guaranteed interest. This loan remains outstanding at March 31,
2020 and is currently past due.
As of
March 31, 2020 we also hold $75,000 of short-term non-convertible
loans from related parties. These notes bear interest ranging from
0% to 15% interest and are due upon demand.
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”) |
|
|
|
|
12) |
10,000
shares have been designated as Series AA Convertible Preferred
Stock (“Series AA”) |
As of
March 31, 2020, 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, 2019 for the pertinent disclosures
of preferred stock.
Stock Options and
Warrants
At
the Company’s December 12, 2013 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,
2020, options to acquire 1,393,551 shares were outstanding under
the 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, 2020, total unrecognized compensation cost related to the
unvested stock-based awards was $650,726, which is expected to be
recognized over weighted average period of 1.74 years. The
aggregate intrinsic value associated with the options outstanding
and exercisable and the aggregate intrinsic value associated with
the warrants outstanding and exercisable as of March 31, 2020,
based on the March 31, 2020 closing stock price of $2.20, was
$494,653.
The
following tables summarize information concerning options and
warrants outstanding and exercisable:
|
|
Stock
Options |
|
|
Warrants |
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
|
|
|
Shares |
|
|
price per
share |
|
|
Shares |
|
|
price per
share |
|
|
Shares |
|
|
Total
Exercisable |
|
Balance outstanding,
January 1, 2019 |
|
|
366,734 |
|
|
$ |
3.39 |
|
|
|
7,764,821 |
|
|
$ |
3.50 |
|
|
|
8,131,555 |
|
|
|
7,792,570 |
|
Granted |
|
|
1,447,420 |
|
|
$ |
0.81 |
|
|
|
2,153,214 |
|
|
|
3.50 |
|
|
|
3,600,634 |
|
|
|
|
|
Exercised |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Expired |
|
|
- |
|
|
$ |
- |
|
|
|
(25,001 |
) |
|
|
14.82 |
|
|
|
(25,001 |
) |
|
|
|
|
Forfeited |
|
|
(417,852 |
) |
|
$ |
3.39 |
|
|
|
- |
|
|
|
- |
|
|
|
(417,852 |
) |
|
|
|
|
Balance outstanding, December 31,
2019 |
|
|
1,396,302 |
|
|
$ |
0.71 |
|
|
|
9,893,034 |
|
|
$ |
3.52 |
|
|
|
11,289,336 |
|
|
|
10,148,543 |
|
Granted |
|
|
- |
|
|
|
- |
|
|
|
1,402,730 |
|
|
|
3.50 |
|
|
|
1,402,730 |
|
|
|
|
|
Exercised |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Expired |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Forfeited |
|
|
(2,751 |
) |
|
|
3.40 |
|
|
|
- |
|
|
|
- |
|
|
|
(2,751 |
) |
|
|
|
|
Balance outstanding, March 31,
2020 |
|
|
1,393,551 |
|
|
$ |
0.69 |
|
|
|
11,295,764 |
|
|
$ |
3.50 |
|
|
|
12,689,315 |
|
|
|
11,633,349 |
|
As of March 31, 2020, the 1,393,551 stock options outstanding have
a $0.69 Exercise Price and 9.45 weighted average remaining term. Of
these options, 337,585 are currently exercisable.
Common Stock and Warrant Issuances
On
various dates in the quarter ended March 31, 2020 the Company
issued a total of 115,021 shares of restricted common stock at a
fair value of approximately $213,415 to accredited investors and
consultants. 66,500 of the shares with a fair value of $127,855
were issued to settle accrued liabilities to consultants, 38,521 of
the shares with a fair value of $60,560 were issued for debt
extension and interest payments and 10,000 shares with a fair value
of $25,000 were issued for debt settlement. During the quarter
ended March 31, 2020, the Company also issued 1,095,230 warrants to
acquire common stock at a fair value of $1,205,010 in conjunction
with the signing of new convertible loans and 307,500 warrants to
acquire common stock at a fair value of $609,143 to lenders for
debt extension.
On various dates in the three months ended March 31, 2019, the
Company issued a total of 34,308 shares of common stock at a fair
value of $89,721 in connection with issuance of new loans and
extension of loan to existing noteholders and 50,000 shares with a
fair value of $168,000 were issued for services rendered.
On
April 29, 2020 the Company signed a binding letter of intent to
acquire Cannaworx, Inc. (USA). The planned acquisition is subject
to certain closing conditions, including completion of all due
diligence and acquisition financing.
From
April 1, 2020 through June 27, 2020 the Company issued loans
convertible into common stock at $2.50/share for $2.94 million. The
loans carry 10% interest rates and one-year terms. To secure these
loans, the Company issued warrants exercisable into 1,175,340
common shares (five-year life and a $3.50 exercise price). The
Company also issued 30,000 shares of common stock to two lenders
for loans issued during the quarter ended March 31,2020.
Additionally, the Company issued two loans for $575,000 to its
pending merger partner, Cannaworx who agreed to repay the loans
directly to the lender, on the Company’s behalf. The Cannaworx
loans have one-year terms and interest (12% for a $325,000 note and
18% for a $250,000 note) is only payable upon an event of default.
During the same period the Company also paid off seven convertible
loans totaling $885,707. These loans were issued July 8, 2019,
September 11, 2019, October 24, 2019, October 30, 2019, March 5,
2020, March 13, 2020 and March 13, 2020.
From
April 1, 2020 through June 27, 2020, the Company also borrowed
$377,039 under government programs sponsored for the COVID-19
crisis (principally $367,039 from the Payroll Protection Program or
“PPP”). PPP loans have a two- year term and bear interest at 1% per
annum. Under the PPP, the Company can be granted forgiveness for
all or a portion of these loans based on the Company’s spending on
payroll, mortgage interest, rent and utilities. Additionally, the
Company sold $120,000 of Series AA Convertible Preferred Stock with
warrants exercisable into 48,000 common shares (10-year life and a
$3.50 exercise price) and issued a $110,000 loan which is
convertible into Series AA Convertible Preferred Stock (one year
term and 10% interest rate). The Company also issued 314,706 shares
of common stock to settle $786,766 of convertible loan principal
and 96,041 shares of common stock to settle $240,102 of convertible
loan interest and fees. Finally, in this period the Company agreed
to pay $100,000 and issued 25,000 shares of common stock to a
vendor for services rendered.
On
April 6, 2020 the Company entered into a extension of the
Standstill and Forbearance Agreements with lenders who hold
convertible notes with a total principal of approximately $2.9
million through April 30, 2020. During the second quarter, the
Company incurred fees of approximately $275,000 in connection with
the extension.
On
April 6, 2020, the Company and its Merchant lenders agreed to
extend the term of the reduction to $2,500 of its Daily Payment
Rate to its Merchant lenders to April 30, 2020. The Company issued
187,500 warrants to the Merchant lenders as compensation for this
agreement. The warrants have a three-year life and a $3.50 exercise
price. After April 30, 2020 the Company and its lenders agreed to
increase the Daily Payment Rate to $7,670.
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 will have sufficient liquidity to finance normal
operations for the foreseeable future; |
|
● |
the
options we may pursue in light of our financial
condition; |
|
● |
the
potential applications for Ultra Shear Technology
(UST); |
|
● |
the
potential applications of the BaroFold high-pressure protein
refolding and disaggregation technology |
|
● |
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; |
|
● |
the
expected increase in the number of pressure cycling technology
(“PCT”) and constant pressure (“CP”) based units that
we believe will be installed and the expected increase in revenues
from the sale of consumable products, extended service contracts,
and biopharma contract services; |
|
● |
our
belief that PCT has achieved initial market acceptance in the mass
spectrometry and other markets; |
|
● |
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,
biopharma contract services and ultra shear technology; |
|
● |
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 and protein characterization in
biomarker discovery, forensics, and histology, as well as 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 and
services; |
|
● |
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 and
services. |
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, 2019 and in this Report. We qualify all of our
forward-looking statements by these cautionary
statements.
OVERVIEW:
We
are a leader in the development and sale of innovative, broadly
enabling, pressure-based platform solutions for the worldwide life
sciences industry. Our solutions are based on the unique properties
of both constant (i.e., static) and alternating (i.e., pressure
cycling technology, or “PCT”) hydrostatic pressure. PCT is a
patented enabling technology platform that uses alternating cycles
of hydrostatic pressure between ambient and ultra-high levels to
safely and reproducibly control bio-molecular interactions (e.g.,
cell lysis, biomolecule extraction). Our primary focus has been in
the development of PCT-based products for biomarker and target
discovery, drug design and development, biotherapeutics
characterization and quality control, soil & plant biology,
forensics, and counter-bioterror applications. Additionally, major
new market opportunities have emerged in the use of our
pressure-based technologies in the following areas: (1) the use of
our recently acquired, patented technology from BaroFold, Inc. (the
“BaroFold” technology platform) to allow entry into the bio-pharma
contract services sector, and (2) the use of our recently-patented,
scalable, high-efficiency, pressure-based Ultra Shear Technology
(“UST”) platform to (i) create stable nanoemulsions of otherwise
immiscible fluids (e.g., oils and water) and to (ii) prepare higher
quality, homogenized, extended shelf-life or room temperature
stable low-acid liquid foods that cannot be acceptably preserved
using existing non-thermal technologies.
On
April 29, 2020, we signed a binding letter of intent to merge with
Cannaworx, Inc. (USA), and their portfolio of products and
intellectual property (the “Cannaworx LOI” and “Cannaworx merger”).
Cannaworx founders Bobby Ghalili, DMD and Adrienne Denese, MD, PhD
bring extensive medical expertise and product innovation into the
newly combined public company. Post-merger, Cannaworx products will
utilize our proprietary UST platform.
Subsequently,
we announced two letters of intent by Cannaworx which we will
assume in the Cannaworx merger. On April 30, 2020 we announced a
signed Cannaworx agreement to acquire SkinScience Labs, Inc or
“SSL” (the SSL LOI). SSL is the parent company of Dr. Denese’s skin
care and anti-aging product lines. Subsequently, on May 7, 2020 we
announced a signed Cannaworx agreement to acquire Five Leaf Labs or
“FFL” (the FLL LOI). FLL is based in Louisiana and will expand the
Cannaworx sales and distribution network to over 50 sales
representatives in 21 states.
The
Cannaworx LOI and SSL LOI are subject to certain closing
conditions, including completion of all due diligence and
acquisition financing. The FLL LOI is subject to the completion of
all due diligence.
On
May 7, 2020 we also announced that, if the mergers are completed,
Jim Morrison would be appointed as the new CEO of the rebranded
public company and that following the completion of the Cannaworx
merger we would change our name to “Availa Bio”.
Developments
and Accomplishments:
We
reported the following accomplishments during the first quarter,
April and May 2020:
On
May 14, 2020, Pressure BioSciences announced the launch of
FDA-registered hand sanitizer as first product developed through
pending merger partners.
On
May 7, 2020, former L’Oreal President Jim Morrison, one of the top
brand strategists in the personal care space worldwide, was
announced as the person who would become CEO of Availa Bio upon
merger completion.
On
May 5, 2020, PBI announced plans to change name to Availa Bio
following completion of the Cannaworx and SkinScience Labs
merger.
On
April 30, 2020, PBI announced plans to acquire SkinScience Labs and
their profitable and award-winning Dr. Denese Skin Care and
Anti-Aging Lines.
On
April 29, 2020, PBI announced plans to acquire Cannaworx, Inc. and
their portfolio of innovative consumer products.
On
April 16, 2020, PBI and RedShiftBio demonstrate potential of
combining proprietary technologies to enable new tool for
development and production of biotherapeutics.
On
March 12, 2020, PBI announced that it is nearing a complete sellout
on its pre-launch offering of game-changing UST Platform for
processing CBD Oil into water-soluble nanoemulsions.
On
February 27, 2020, PBI launched new era in preparation of
water-soluble nanoemulsions for CBD and other valuable oils with
opening of UST Demonstration Laboratory.
On
January 30, 2020, PBI announced acceleration of UST Platform
rollout for water-soluble CBD with planned release of additional
BaroShear product – a benchtop, R&D scale, BaroShear ‘Mini”
instrument.
On
January 24, 2020, PBI announced significant new order and near
sellout on revolutionary nanoemulsification system for
water-soluble CBD oil. Company said that additional orders are
expected shortly.
On
January 17, 2020, PBI reported the Company’s UST Platform was
featured in a leading North American Cannabis Magazine and that the
article highlighted the potential of the UST Platform to play a
significant role in multiple billion-dollar markets, such as CBD,
nutraceuticals, cosmetics, biopharmaceuticals, and
food/beverage.
On
January 9, 2020, PBI reported that the number of published
scientific papers in 2019 citing the advantages of the Company’s
PCT Platform remained strong, with over 20 journal articles for the
second straight year.
Results
of Operations
Quarter ended March 31,
2020 (“Q1 2019”) as compared with March 31, 2019 (“Q1
2019”)
Products,
Services, and Other Revenue
We
recognized total revenue of $253,873 for Q1 2020 compared to
$510,240 for Q1 2019, a decrease of $256,367 or 50%. This decrease
was primarily attributable to a $228,199 decrease in Scientific
Services revenue which was primarily attributable to the negative
impact that the COVID-19 pandemic had on our operations and on the
operations of our customers.
Cost
of Products and Services
The
cost of products and services was $175,146 for the three months
ended March 31, 2020 compared to $309,712 for the comparable period
in 2019. Gross profit margin on products and services decreased to
31% for Q1 2020 compared to 39% for the prior year period. The
current period margin was affected by the reduction in
higher-margin Scientific Services revenue.
Research
and Development
Research
and development expenditures were $265,690 during the three months
ended March 31, 2020 as compared to $264,704 in the same period in
2019, an increase of $986 or 0.4%.
Selling
and Marketing
Selling
and marketing expenses were $189,116 for the three months ended
March 31, 2020 from $188,215 for the comparable period in 2019, an
increase of $901.
General
and Administrative
General
and administrative costs totaled $1,019,010 for Q1 2020 compared to
$1,144,421 for the comparable period in 2019. This decrease
was principally related to lower investor relations and stock based
compensation expenses.
Operating
Loss
Operating
loss was $1,395,089 for the three months ended March 31, 2020
compared to $1,396,812 for the comparable period in 2019. This
decrease was principally attributable to lower operating
costs and expenses, which offset the $256,367 decrease in
revenues.
Interest Expense, net
Interest
expense was $1,571,800 for the three months ended March 31, 2020
compared to interest expense of $512,706 for the three months ended
March 31, 2019. The increase in interest expense is directly
attributable to the increase in convertible and other debt.
(Loss) on extinguishment of liabilities
In connection with payments of interest in common stock and debt
extensions, we recognized losses of $1,136,367 in the quarter ended
March 31, 2020 and losses of $40,810 in the quarter ended March 31,
2019. This increase was related to extension fees incurred and
warrants issued for the recent amendments to Standstill and
Forbearance Agreements and merchant loan extension.
Net Loss
During the quarter ended March 31, 2020 we recorded net loss
attributable to common shareholders $4,278,471 or ($1.62) per
share, as compared with $3,470,982 or ($2.01) per share during the
quarter ended March 31, 2019. The decrease in the loss per share
was attributable a 54% increase in weighted shares outstanding.
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, 2020, 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 Notes 4 and 5 of
the accompanying consolidated financial statements, we received
$2.3 million in net proceeds from loans in the first three months
of 2020. 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. If 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, 2020
was $1,364,639 as compared to $1,617,924 for the three months ended
March 31, 2019.
Net
cash used in investing activities for the three months ended March
31, 2020 was $0 as compared to $12,615 for the three months ended
March 31, 2019.
Net
cash provided by financing activities for the three months ended
March 31, 2020 was $1,366,833 as compared to $1,797,135 for the
same period in the prior year. The cash flow from financing
activities of the three months ended March 31, 2019 included
$1,260,000 of proceeds from the sale of preferred stock which did
not recur in 2020. This decrease was offset by a increase in net
convertible debt borrowings.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
This
Item 3 is not applicable to us as a smaller reporting company and
has been omitted.
ITEM 4. CONTROLS AND
PROCEDURES
We
maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our Securities
Exchange Act of 1934 filings are recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules
and forms, and that such information is accumulated and
communicated to our management, including our President and Chief
Executive Officer (Principal Executive Officer) and Chief Financial
Officer (Principal Financial Officer), as appropriate, to allow
timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management
recognized that controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, as ours are designed to
do, and management was necessarily required to apply its judgment
in evaluating the cost-benefit relationship of possible controls
and procedures.
As of
March 31, 2020, we carried out an evaluation, under the supervision
and with the participation of our management, including our
Principal Executive Officer and Principal Financial Officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934. Based upon
that evaluation, our Principal Executive Officer and Principal
Financial Officer concluded that our disclosure controls and
procedures were not effective.
Our
conclusion that our disclosure controls and procedures were not
effective as of March 31, 2020 is due to the continued presence of
the material weaknesses in our internal control over financial
reporting identified in our Annual Report on Form 10-K for the year
ended December 31, 2019. These material weaknesses are the
following:
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● |
We
identified a lack of sufficient segregation of duties.
Specifically, this material weakness is such that the design over
these areas relies primarily on detective controls and could be
strengthened by adding preventative controls to properly safeguard
Company assets. |
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● |
Management
has identified a lack of sufficient personnel in the accounting
function due to our limited resources with appropriate skills,
training and experience to perform the review processes to ensure
the complete and proper application of generally accepted
accounting principles, particularly as it relates to valuation of
warrants and other complex debt /equity transactions. Specifically,
this material weakness resulted in audit adjustments to the annual
consolidated financial statements and revisions to related
disclosures, valuation of warrants and other equity
transactions. |
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|
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● |
Limited
policies and procedures that cover recording and reporting of
financial transactions. |
|
|
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|
● |
Lack
of multiple levels of review over the financial reporting
process |
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We
continue to plan to remediate those material weaknesses as
follows: |
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|
● |
Improve
the effectiveness of the accounting group by augmenting our
existing resources with additional consultants or employees to
assist in the analysis and recording of complex accounting
transactions, and to simultaneously achieve desired organizational
structuring for improved segregation of duties. We plan to mitigate
this identified deficiency by hiring an independent consultant once
we generate significantly more revenue or raise significant
additional working capital. |
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|
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● |
Improve
expert review and achieve desired segregation procedures by
strengthening cross approval of various functions including
quarterly internal audit procedures where appropriate. |
During
the period covered by this Report, we implemented and performed
additional substantive procedures, such as supervisory review of
work papers and consistent use of financial models used in equity
valuations, to ensure our consolidated financial statements as of
and for the three-month period ended March 31, 2020, are fairly
stated in all material respects in accordance with GAAP. We have
not, however, been able to fully remediate the material weaknesses
due to our limited financial resources. Our remediation efforts are
largely dependent upon our securing additional financing to cover
the costs of implementing the changes required. If we are
unsuccessful in securing such funds, remediation efforts may be
adversely affected in a material manner.
Except
as described above, there have been no changes in our internal
controls over financial reporting that occurred during the period
ended March 31, 2020 that have materially affected, or are
reasonably likely to materially affect, our internal controls over
financial reporting.
PART II. OTHER
INFORMATION
Item 1. Legal
Proceedings
We
are not currently involved in any litigation that we believe could
have a material adverse effect on our financial condition or
results of operations. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or,
to the knowledge of the executive officers of our company or any of
our subsidiaries, threatened against or affecting our company, our
common stock, any of our subsidiaries or of our companies or our
subsidiaries’ officers or directors in their capacities as such, in
which an adverse decision could have a material adverse
effect.
Item 1A. Risk Factors
Factors
that could cause or contribute to differences in our future
financial and operating results include those discussed in the risk
factors set forth in Item 1 of our Annual Report on Form 10-K for
the year ended December 31, 2019. The risks described in our Form
10-K and this Report are not the only risks that we face.
Additional risks not presently known to us or that we do not
currently consider significant may also have an adverse effect on
the Company. If any of the risks actually occur, our business,
results of operations, cash flows or financial condition could
suffer.
There
have been no material changes to the risk factors set forth in Item
1A of our Annual Report on Form 10-K for the year ended December
31, 2019 other than the following:
We face risks related to Novel Coronavirus (COVID-19) which could
significantly disrupt our research and development, operations,
sales, and financial results.
Our
business will be adversely impacted by the effects of the Novel
Coronavirus (COVID-19). In addition to global macroeconomic
effects, the Novel Coronavirus (COVID-19) outbreak and any other
related adverse public health developments will cause disruption to
our operations and sales activities. Our third-party manufacturers,
third-party distributors, and our customers have been and will be
disrupted by worker absenteeism, quarantines and restrictions on
employees’ ability to work, office and factory closures,
disruptions to ports and other shipping infrastructure, border
closures, or other travel or health-related restrictions. Depending
on the magnitude of such effects on our activities or the
operations of our third-party manufacturers and third-party
distributors, the supply of our products will be delayed, which
could adversely affect our business, operations and customer
relationships. In addition, the Novel Coronavirus (COVID-19) or
other disease outbreak will in the short-run and may over the
longer term adversely affect the economies and financial markets of
many countries, resulting in an economic downturn that will affect
demand for our products and services and impact our operating
results. There can be no assurance that any decrease in sales
resulting from the Novel Coronavirus (COVID-19) will be offset by
increased sales in subsequent periods. Although the magnitude of
the impact of the Novel Coronavirus (COVID-19) outbreak on our
business and operations remains uncertain, the continued spread of
the Novel Coronavirus (COVID-19) or the occurrence of other
epidemics and the imposition of related public health measures and
travel and business restrictions will adversely impact our
business, financial condition, operating results and cash flows. In
addition, we have experienced and will experience disruptions to
our business operations resulting from quarantines,
self-isolations, or other movement and restrictions on the ability
of our employees to perform their jobs that may impact our ability
to develop and design our products and services in a timely manner
or meet required milestones or customer commitments.
Our obligations to the holder of our Senior Secured Convertible
Promissory Notes (the “Notes”) are collateralized by a security
interest in all of our assets, so if we default on those
obligations, the holder of the Notes could foreclose on our assets.
In addition, the existence of these security interests may
adversely affect our financial flexibility.
On
December 18, 2019, the Company issued a Note to one holder in the
principal amount of $275,000. Through May 31, 2020, we have issued
other Notes to the same holder such that the current gross amount
owed to the holder is approximately $6,000,000. Our obligations
under the Notes and the transaction documents relating to the Notes
are secured by a security interest in all of our assets. As a
result, if we default under our obligations under the Notes or the
transaction documents, the holders of the Notes, acting through
their appointed agent, could foreclose on their security interests
and liquidate some or all of these assets, which could harm our
business, financial condition and results of operations and could
require us to reduce or cease operations. In addition, the pledge
of these assets and other restrictions may limit our flexibility in
raising capital for other purposes. Because all of our assets are
pledged under these financing arrangements, our ability to incur
additional secured indebtedness or to sell or dispose of assets to
raise capital may be impaired, which could have an adverse effect
on our financial flexibility.
The
holders of our Common Stock could suffer substantial dilution due
to our corporate financing practices.
The
holders of our common stock could suffer substantial dilution due
to our corporate financing practices which, in the past few years
has included private placements. As of March 31, 2020, we had
2,664,641 shares outstanding. As of March 31, 2020, if all of the
outstanding shares of Series D Convertible Preferred Stock, Series
G Convertible Preferred Stock, Series H Convertible Preferred
Stock, Series H2 Convertible Preferred Stock, Series J Convertible
Preferred Stock, Series K Convertible Preferred Stock and Series AA
Convertible Preferred Stock were converted into shares of common
stock and all outstanding options and warrants to purchase shares
of common stock were exercised and all fixed rate convertible notes
and debentures were converted, each as of March 31, 2020, an
additional 24,253,740 shares of common stock would be issued and
outstanding. The full cash exercise of the options and warrants
would result in approximately $34.9 million in cash proceeds to the
Company. This additional issuance of shares of common stock would
cause immediate and substantial dilution to our existing
stockholders and could cause a significant reduction in the market
price of our common stock.
The issuance of shares of our common stock to Cannaworx, Inc.
stockholders, and SkinScience Labs stockholders in the proposed
mergers will substantially dilute the voting power of our current
stockholders.
If
the merger with Cannaworx is completed, pre-merger Cannaworx
securityholders are expected to own approximately 50% of the
combined company, on a fully-diluted basis. If the merger with
SkinScience Labs is completed, pre-merger SkinScience Labs
securityholders are expected to own approximately 25% of the
combined company, on a fully-diluted basis. Accordingly, the
issuance of shares of our common stock to Cannaworx and/or
SkinScience stockholders in the merger(s) will reduce significantly
the relative voting power of each share of common stock held by our
current stockholders. Consequently, our stockholders as a group
will have significantly less influence over the management and
policies of the combined company after the merger(s) than prior to
the merger(s). These estimates are subject to adjustment pending
the signing of definitive transaction documentation in one or both
of the proposed mergers.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
Except
where noted, all the securities discussed in this Part II, Item 2
were issued in reliance on the exemption under Section 4(a)(2) of
the Securities Act.
On
various dates in the quarter ended March 31, 2020 the Company
issued a total of 115,021 shares of restricted common stock at a
fair value of approximately $213,415 to accredited investors and
consultants. 66,5