NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2021
(UNAUDITED)
|
1)
|
Business
Overview, Liquidity and Management Plans
|
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 control bio-molecular interactions
(e.g., cell lysis, biomolecule extraction) safely and reproducibly. Our primary focus has historically 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 technology expertise in two new platform technology areas: (1) the use of our recently acquired, patented technology
from BaroFold, Inc. for gently controlled disaggregation and refolding of biotherapeutic proteins (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) for greatly improved cost-effectiveness, high bioavailability, safer and improved sensory experience in products spanning pharmaceuticals,
nutraceuticals, cosmeceuticals, personal care products, agrochemicals, food/beverage and many industrial products 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 losses from operations
and negative cash flows from operations with respect to our pressure cycling technology business since our inception. As of June 30,
2021, 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 debt and equity capital in the past and as described
in Notes 5 and 6. In addition we raised debt and equity capital after June 30, 2021 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, 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.
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, we will send a highly trained technical
representative to the customer site to install Barocyclers® 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.
Revenue
from scientific services customers is recognized upon completion of each stage of service as defined in service agreements.
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
recognize revenue for non-cash transactions at recorded cost or carrying value of the assets or services sold.
We
account for lease agreements of our instruments in accordance with ASC 842, Leases. 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.
Deferred
revenue represents amounts received from 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.
Schedule
of Disaggregation of Revenue
In
thousands of US dollars ($)
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
Primary
geographical markets
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
North
America
|
|
$
|
477
|
|
|
$
|
162
|
|
|
$
|
685
|
|
|
$
|
307
|
|
Europe
|
|
|
103
|
|
|
|
3
|
|
|
|
187
|
|
|
|
4
|
|
Asia
|
|
|
29
|
|
|
|
103
|
|
|
|
297
|
|
|
|
211
|
|
Revenue
|
|
$
|
609
|
|
|
$
|
268
|
|
|
$
|
1,169
|
|
|
$
|
522
|
|
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
Major
products/services lines
|
|
|
2021
|
|
|
|
2020
|
|
|
|
2021
|
|
|
|
2020
|
|
Hardware
|
|
$
|
336
|
|
|
$
|
122
|
|
|
$
|
713
|
|
|
$
|
217
|
|
Consumables
|
|
|
44
|
|
|
|
51
|
|
|
|
146
|
|
|
|
107
|
|
Contract
research services
|
|
|
136
|
|
|
|
34
|
|
|
|
142
|
|
|
|
44
|
|
Sample
preparation accessories
|
|
|
40
|
|
|
|
33
|
|
|
|
69
|
|
|
|
58
|
|
Technical
support/extended service contracts
|
|
|
34
|
|
|
|
17
|
|
|
|
58
|
|
|
|
36
|
|
Shipping
and handling
|
|
|
16
|
|
|
|
6
|
|
|
|
35
|
|
|
|
15
|
|
Other
|
|
|
3
|
|
|
|
5
|
|
|
|
6
|
|
|
|
45
|
|
Revenue
|
|
$
|
609
|
|
|
$
|
268
|
|
|
$
|
1,169
|
|
|
$
|
522
|
|
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
Timing
of revenue recognition
|
|
|
2021
|
|
|
|
2020
|
|
|
|
2021
|
|
|
|
2020
|
|
Products
transferred at a point in time
|
|
$
|
440
|
|
|
$
|
217
|
|
|
$
|
969
|
|
|
$
|
442
|
|
Services
transferred over time
|
|
|
169
|
|
|
|
51
|
|
|
|
200
|
|
|
|
80
|
|
Revenue
|
|
$
|
609
|
|
|
$
|
268
|
|
|
$
|
1,169
|
|
|
$
|
522
|
|
Contract
balances
Schedule
of Contract Balances
In
thousands of US dollars ($)
|
|
June
30, 2021
|
|
|
December
31, 2020
|
|
Receivables,
which are included in ‘Accounts Receivable’
|
|
$
|
630
|
|
|
$
|
131
|
|
Contract
liabilities (deferred revenue)
|
|
|
57
|
|
|
|
67
|
|
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.
Schedule
of Future Related to Performance Obligations
In
thousands of US dollars ($)
|
|
2021
|
|
|
2022
|
|
|
Total
|
|
Extended
warranty service
|
|
$
|
49
|
|
|
|
8
|
|
|
$
|
57
|
|
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 and six months ended
June 30, 2021 and 2020.
Schedule
of Customer Concentration Risk Percentage
|
|
For
the Three Months Ended
|
|
|
|
June
30,
|
|
|
|
2021
|
|
|
2020
|
|
Top
Five Customers
|
|
|
50
|
%
|
|
|
71
|
%
|
Federal
Agencies
|
|
|
14
|
%
|
|
|
2
|
%
|
|
|
For
the Six Months Ended
|
|
|
|
June
30,
|
|
|
|
2021
|
|
|
2020
|
|
Top
Five Customers
|
|
|
50
|
%
|
|
|
70
|
%
|
Federal
Agencies
|
|
|
8
|
%
|
|
|
4
|
%
|
The
following table illustrates the level of concentration as a percentage of net accounts receivable balance as of June 30, 2021 and December
31, 2020. The Top Five Customers category may include federal agency receivable balances if applicable.
|
|
June
30, 2021
|
|
|
December
31, 2020
|
|
Top
Five Customers
|
|
|
56
|
%
|
|
|
89
|
%
|
Federal
Agencies
|
|
|
11
|
%
|
|
|
10
|
%
|
Product
Supply
We
utilize a contract assembler for our Barocycler® 2320EXT. They provide us with precision manufacturing services that include management
support services to meet our specific application and operational requirements. Among the services provided to us are:
|
●
|
CNC
Machining
|
|
|
|
|
●
|
Contract
Assembly & Kitting
|
|
|
|
|
●
|
Component
and Subassembly Design
|
|
|
|
|
●
|
Inventory
Management
|
|
|
|
|
●
|
ISO
certification
|
At
this time, we believe that outsourcing contract assembly of our Barocycler® 2320EXT is the most cost-effective method for us to obtain
ISO Certified, CE and CSA Marked instruments. The Company also continues to evaluate
the potential economic benefits of bringing instrument assembly in-house.
We
currently manufacture and assemble the Barocycler®, HUB440, HUB880, the SHREDDER SG3, and most of our consumables at our South Easton,
MA facility. We will regularly reassess the tradeoffs between in-house assembly versus the benefits of outsourced relationships for of
the entire Barocycler® product line, and future instruments.
Investment
in Equity Securities
As
of June 30, 2021, we held 100,250
shares of common stock of Nexity Global SA, (a
Polish publicly traded company).
We
account for this investment in accordance with ASC 320 “Investments — Debt and Equity Securities”. ASC 320 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 June 30, 2021, our consolidated balance sheet reflected the fair value, determined on a recurring basis based on Level 1 inputs of
our investment in Nexity, to be $274,621.
We recorded $242,380
as an unrealized loss during the six
months ended June 30, 2021 for changes in 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 and six months ended June 30, 2021 and 2020:
Schedule
of Computation of Loss Per Share
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
For
the Three Months Ended
|
|
|
For
the Six Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common stockholders
|
|
$
|
(5,149,342
|
)
|
|
$
|
(4,965,752
|
)
|
|
$
|
(12,188,028
|
)
|
|
$
|
(9,244,223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common stock shares outstanding
|
|
|
5,748,711
|
|
|
|
2,914,659
|
|
|
|
5,312,172
|
|
|
|
2,765,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share – basic and diluted
|
|
$
|
(0.90
|
)
|
|
$
|
(1.70
|
)
|
|
$
|
(2.29
|
)
|
|
$
|
(3.34
|
)
|
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.
Schedule
of Anti-dilutive Securities Excluded from Computation of Earnings Per Share
|
|
As
of June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Stock
options
|
|
|
1,350,046
|
|
|
|
1,392,370
|
|
Convertible
debt
|
|
|
5,083,187
|
|
|
|
3,905,867
|
|
Common
stock warrants
|
|
|
15,703,807
|
|
|
|
12,761,126
|
|
Convertible
preferred stock:
|
|
|
|
|
|
|
|
|
Series
D Convertible Preferred Stock
|
|
|
25,000
|
|
|
|
25,000
|
|
Series
G Convertible Preferred Stock
|
|
|
26,857
|
|
|
|
26,857
|
|
Series
H Convertible Preferred Stock
|
|
|
33,334
|
|
|
|
33,334
|
|
Series
H2 Convertible Preferred Stock
|
|
|
70,000
|
|
|
|
70,000
|
|
Series
J Convertible Preferred Stock
|
|
|
115,267
|
|
|
|
115,267
|
|
Series
K Convertible Preferred Stock
|
|
|
229,334
|
|
|
|
229,334
|
|
Series
AA Convertible Preferred Stock
|
|
|
8,083,000
|
|
|
|
7,939,000
|
|
|
|
|
30,719,832
|
|
|
|
26,498,155
|
|
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 $63,458
and $65,341
for the three months ended June 30, 2021 and
2020, respectively. The Company recognized stock-based compensation expense of $124,695
and $307,110
for the six months ended June 30, 2021 and 2020,
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:
Schedule
of Stock Based Compensation Expense
|
|
For
the Three Months Ended
|
|
|
For
the Six Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Cost
of sales
|
|
$
|
5,107
|
|
|
$
|
5,107
|
|
|
$
|
10,160
|
|
|
$
|
13,063
|
|
Research
and development
|
|
|
26,491
|
|
|
|
26,137
|
|
|
|
52,353
|
|
|
|
64,963
|
|
Selling
and marketing
|
|
|
5,887
|
|
|
|
6,358
|
|
|
|
10,482
|
|
|
|
20,294
|
|
General
and administrative
|
|
|
25,973
|
|
|
|
27,739
|
|
|
|
51,700
|
|
|
|
208,790
|
|
Total
stock-based compensation expense
|
|
$
|
63,458
|
|
|
$
|
65,341
|
|
|
$
|
124,695
|
|
|
$
|
307,110
|
|
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 debt and 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 June 30, 2021:
Schedule
of Assets and Liabilities Measured at Fair Value on Recurring Basis
|
|
|
|
|
Fair
value measurements at
June
30, 2021 using:
|
|
|
|
June
30, 2021
|
|
|
Quoted
prices
in
active
markets
(Level
1)
|
|
|
Significant
other
observable
inputs
(Level
2)
|
|
|
Significant
unobservable
inputs
(Level
3)
|
|
Equity
Securities
|
|
$
|
274,621
|
|
|
$
|
274,621
|
|
|
|
-
|
|
|
|
-
|
|
Total
Financial Assets
|
|
$
|
274,621
|
|
|
$
|
274,621
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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, 2020:
|
|
|
|
|
Fair
value measurements at
December
31, 2020 using:
|
|
|
|
December
31, 2020
|
|
|
Quoted
prices
in
active
markets
(Level
1)
|
|
|
Significant
other
observable
inputs
(Level
2)
|
|
|
Significant
unobservable
inputs
(Level
3)
|
|
Equity
Securities
|
|
|
517,001
|
|
|
|
517,001
|
|
|
|
-
|
|
|
|
-
|
|
Total
Financial Assets
|
|
$
|
517,001
|
|
|
$
|
517,001
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
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.
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
30, 2020, that expires December
31, 2021, 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 (the “Medford Lease”) from December 30, 2020 to December 30, 2023. The lease
requires monthly payments of $7,282 subject
to annual cost of living increases. The lease shall
be automatically extended for additional three years unless either party terminates at least six months prior to the expiration of the
current lease term.
The
Company accounted for the lease extension of our Medford Lease as a lease modification under ASC 842. At the effective date of modification,
the Company recorded an adjustment to the right-of-use asset and lease liability in the amount of $221,432
based on the net present value of lease payments
discounted using an estimated borrowing rate of 12%.
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 June 30, 2021:
Schedule
of Future Minimum Rental Payments Required Under Operating Leases
|
|
|
|
|
|
2021
|
|
|
$
|
85,391
|
|
2022
|
|
|
|
87,383
|
|
2023
|
|
|
|
87,383
|
|
Total
minimum payments required
|
|
|
$
|
260,157
|
|
Target Discovery, Inc.
In the six months ended June 30, 2021, the Company incurred $34,400 in
fees with Target Discovery, Inc. for the use of their facilities and other services.
|
5)
|
Convertible
Debt and Other Debt
|
Convertible
Debt
On
various dates during the six months ended June 30, 2021, the Company issued convertible notes for a total of $3,104,625
which contained varied terms and conditions as
follows: a) 6-12
month maturity date; b) interest rates of 10-18%;
c) convertible to the Company’s common stock at issuance at a fixed rate of $2.50
or at variable conversion rates upon an event
of default. These notes were issued with either shares of common stock
or warrants to purchase common stock that were fair valued at issuance date. The aggregate relative fair value of the shares of common
stock and warrants issued with the notes of $1,181,719
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 $566,847
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 qualify for derivative accounting treatment at June 30, 2021.
The
specific terms of the convertible notes and outstanding balances as of June 30, 2021 are listed in the tables below.
Schedule
of Convertible Debts and Outstanding Balances
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
17, 2018 (1)
(2)
|
|
|
12
months
|
|
|
$
|
380,000
|
|
|
$
|
166,703
|
|
|
$
|
15,200
|
|
|
|
8
|
%
|
|
$
|
2.50
|
|
|
$
|
15,200
|
|
|
$
|
332,407
|
|
June
8, 2018 (1) (4)
|
(1)
|
|
6
months
|
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
2,500
|
|
|
|
2
|
%
|
|
$
|
7.50
|
|
|
$
|
2,500
|
|
|
$
|
3,271
|
|
October
19, 2018 (1)
|
|
|
6
months
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
-
|
|
|
|
5
|
%
|
|
$
|
7.50
|
|
|
$
|
-
|
|
|
$
|
-
|
|
November
13, 2018 (1) (3) (4)
|
|
|
6
months
|
|
|
$
|
200,000
|
|
|
$
|
78,508
|
|
|
$
|
-
|
|
|
|
5
|
%
|
|
$
|
2.50
|
|
|
$
|
-
|
|
|
$
|
168,634
|
|
January
3, 2019 (1) (4)
|
|
|
6
months
|
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
2,500
|
|
|
|
24
|
%
|
|
$
|
7.50
|
|
|
$
|
2,500
|
|
|
$
|
-
|
|
February
21, 2019 (1) (2)
|
|
|
12
months
|
|
|
$
|
215,000
|
|
|
$
|
215,000
|
|
|
$
|
-
|
|
|
|
4
|
%
|
|
$
|
2.50
|
|
|
$
|
15,000
|
|
|
$
|
107,709
|
|
March
18, 2019 (1)
|
|
|
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
-
|
|
|
|
4
|
%
|
|
$
|
7.50
|
|
|
$
|
-
|
|
|
$
|
10,762
|
|
June
4, 2019 (1) (2)
|
|
|
9
months
|
|
|
$
|
500,000
|
|
|
$
|
302,484
|
|
|
$
|
-
|
|
|
|
8
|
%
|
|
$
|
2.50
|
|
|
$
|
40,500
|
|
|
$
|
70,631
|
|
June
19, 2019 (1) (2)
|
|
|
12
months
|
|
|
$
|
105,000
|
|
|
$
|
105,000
|
|
|
$
|
-
|
|
|
|
4
|
%
|
|
$
|
2.50
|
|
|
$
|
5,000
|
|
|
$
|
2,646
|
|
June
7, 2019 (1) (4)
|
|
|
6
months
|
|
|
$
|
125,000
|
|
|
$
|
6,746
|
|
|
$
|
-
|
|
|
|
5
|
%
|
|
$
|
7.50
|
|
|
$
|
-
|
|
|
$
|
18,254
|
|
July
1, 2019 (1)
(2)
|
|
|
12
months
|
|
|
$
|
107,500
|
|
|
$
|
107,500
|
|
|
$
|
-
|
|
|
|
4
|
%
|
|
$
|
2.50
|
|
|
$
|
7,500
|
|
|
$
|
85,791
|
|
July
19, 2019 (1) (2)
|
|
|
12
months
|
|
|
$
|
115,000
|
|
|
$
|
115,000
|
|
|
$
|
-
|
|
|
|
4
|
%
|
|
$
|
2.50
|
|
|
$
|
5,750
|
|
|
$
|
15,460
|
|
July
19, 2019 (1) (2)
|
|
|
12
months
|
|
|
$
|
130,000
|
|
|
$
|
130,000
|
|
|
$
|
-
|
|
|
|
6
|
%
|
|
$
|
2.50
|
|
|
$
|
6,500
|
|
|
$
|
-
|
|
September
27, 2019 (1) (2)
|
|
|
12
months
|
|
|
$
|
78,750
|
|
|
$
|
78,750
|
|
|
$
|
-
|
|
|
|
4
|
%
|
|
$
|
2.50
|
|
|
$
|
3,750
|
|
|
$
|
13,759
|
|
October
24, 2019 (1)
(2)
|
|
|
12
months
|
|
|
$
|
78,750
|
|
|
$
|
78,750
|
|
|
$
|
-
|
|
|
|
4
|
%
|
|
$
|
2.50
|
|
|
$
|
3,750
|
|
|
$
|
-
|
|
November
1, 2019 (1)
(2)
|
|
|
12
months
|
|
|
$
|
270,000
|
|
|
$
|
270,000
|
|
|
$
|
-
|
|
|
|
6
|
%
|
|
$
|
2.50
|
|
|
$
|
13,500
|
|
|
$
|
-
|
|
November
15, 2019 (1)
|
|
|
12
months
|
|
|
$
|
385,000
|
|
|
$
|
320,000
|
|
|
$
|
35,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
35,000
|
|
|
$
|
90,917
|
|
January
2, 2020 (1)
|
|
|
12
months
|
|
|
$
|
330,000
|
|
|
$
|
330,000
|
|
|
$
|
30,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
30,000
|
|
|
$
|
91,606
|
|
January
24, 2020 (1)
|
|
|
12
months
|
|
|
$
|
247,500
|
|
|
$
|
247,500
|
|
|
$
|
22,500
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
22,500
|
|
|
$
|
89,707
|
|
January
29, 2020 (1)
|
|
|
12
months
|
|
|
$
|
363,000
|
|
|
$
|
363,000
|
|
|
$
|
33,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
33,000
|
|
|
$
|
297,000
|
|
February
12, 2020 (1)
|
|
|
12
months
|
|
|
$
|
275,000
|
|
|
$
|
275,000
|
|
|
$
|
25,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
25,000
|
|
|
$
|
225,000
|
|
February
19, 2020 (1)
|
|
|
12
months
|
|
|
$
|
165,000
|
|
|
$
|
165,000
|
|
|
$
|
15,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
15,000
|
|
|
$
|
135,000
|
|
March
11, 2020 (1)
|
|
|
12
months
|
|
|
$
|
330,000
|
|
|
$
|
330,000
|
|
|
$
|
30,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
30,000
|
|
|
$
|
232,810
|
|
March
13, 2020 (1)
|
|
|
12
months
|
|
|
$
|
165,000
|
|
|
$
|
165,000
|
|
|
$
|
15,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
15,000
|
|
|
$
|
60,705
|
|
March
26, 2020 (1)
|
|
|
12
months
|
|
|
$
|
111,100
|
|
|
$
|
111,100
|
|
|
$
|
10,100
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
10,100
|
|
|
$
|
90,900
|
|
April
8, 2020 (1)
|
|
|
12
months
|
|
|
$
|
276,100
|
|
|
$
|
276,100
|
|
|
$
|
25,100
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
25,000
|
|
|
$
|
221,654
|
|
April
17, 2020 (1)
|
|
|
12
months
|
|
|
$
|
143,750
|
|
|
$
|
143,750
|
|
|
$
|
18,750
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
-
|
|
|
$
|
96,208
|
|
April
30, 2020 (1)
|
|
|
12
months
|
|
|
$
|
546,250
|
|
|
$
|
546,250
|
|
|
$
|
71,250
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
47,500
|
|
|
$
|
427,500
|
|
May
6, 2020 (1)
|
|
|
12
months
|
|
|
$
|
460,000
|
|
|
$
|
460,000
|
|
|
$
|
60,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
40,000
|
|
|
$
|
360,000
|
|
May
18, 2020 (1)
|
|
|
12
months
|
|
|
$
|
546,250
|
|
|
$
|
221,250
|
|
|
$
|
46,250
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
35,500
|
|
|
$
|
439,500
|
|
June
2, 2020 (1)
|
|
|
12
months
|
|
|
$
|
902,750
|
|
|
$
|
652,750
|
|
|
$
|
92,750
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
58,900
|
|
|
$
|
708,500
|
|
June
12, 2020 (1)
|
|
|
12
months
|
|
|
$
|
57,500
|
|
|
$
|
57,500
|
|
|
$
|
7,500
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
5,000
|
|
|
$
|
45,000
|
|
June
22, 2020 (1)
|
|
|
12
months
|
|
|
$
|
138,000
|
|
|
$
|
138,000
|
|
|
$
|
18,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
12,000
|
|
|
$
|
108,000
|
|
July
7, 2020 (1)
|
|
|
12
months
|
|
|
$
|
586,500
|
|
|
$
|
586,500
|
|
|
$
|
76,500
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
51,000
|
|
|
$
|
400,234
|
|
July
17, 2020 (1)
|
|
|
12
months
|
|
|
$
|
362,250
|
|
|
$
|
362,250
|
|
|
$
|
47,250
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
31,500
|
|
|
$
|
185,698
|
|
July
29, 2020 (1)
|
|
|
12
months
|
|
|
$
|
345,000
|
|
|
$
|
345,000
|
|
|
$
|
45,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
30,000
|
|
|
$
|
241,245
|
|
July
21, 2020 (1)
(5)
|
|
|
12
months
|
|
|
$
|
115,000
|
|
|
$
|
115,000
|
|
|
$
|
15,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
10,000
|
|
|
$
|
24,875
|
|
August
14, 2020 (1)
|
|
|
12
months
|
|
|
$
|
762,450
|
|
|
$
|
462,450
|
|
|
$
|
69,450
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
66,300
|
|
|
$
|
580,124
|
|
September
10, 2020
|
|
|
12
months
|
|
|
$
|
391,000
|
|
|
$
|
391,000
|
|
|
$
|
51,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
34,000
|
|
|
$
|
231,043
|
|
September
21, 2020 (5)
|
|
|
12
months
|
|
|
$
|
345,000
|
|
|
$
|
345,000
|
|
|
$
|
45,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
30,000
|
|
|
$
|
66,375
|
|
September
23, 2020 (5)
|
|
|
12
months
|
|
|
$
|
115,000
|
|
|
$
|
115,000
|
|
|
$
|
15,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
10,000
|
|
|
$
|
20,500
|
|
September
25, 2020 (5)
|
|
|
12
months
|
|
|
$
|
115,000
|
|
|
$
|
115,000
|
|
|
$
|
15,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
-
|
|
|
$
|
19,125
|
|
December
3, 2020
|
|
|
12
months
|
|
|
$
|
299,000
|
|
|
$
|
299,000
|
|
|
$
|
39,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
26,000
|
|
|
$
|
197,882
|
|
October
22, 2020 (5)
|
|
|
12
months
|
|
|
$
|
115,000
|
|
|
$
|
115,000
|
|
|
$
|
15,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
10,000
|
|
|
$
|
18,875
|
|
December
23, 2020 (1) (5)
|
|
|
6
months
|
|
|
$
|
1,000,000
|
|
|
$
|
150,000
|
|
|
$
|
100,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
-
|
|
|
$
|
833,536
|
|
January
5, 2021 (1)
|
|
|
6
months
|
|
|
$
|
575,000
|
|
|
$
|
575,000
|
|
|
$
|
75,000
|
|
|
|
18
|
%
|
|
$
|
2.50
|
|
|
$
|
-
|
|
|
$
|
-
|
|
February
17, 2021
|
|
|
12
months
|
|
|
$
|
230,000
|
|
|
$
|
230,000
|
|
|
$
|
30,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
20,000
|
|
|
$
|
180,000
|
|
March
23, 2021
|
|
|
12
months
|
|
|
$
|
55,000
|
|
|
$
|
55,000
|
|
|
$
|
5,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
-
|
|
|
$
|
36,431
|
|
May
24, 2021
|
|
|
6
months
|
|
|
$
|
54,625
|
|
|
$
|
54,625
|
|
|
$
|
7,125
|
|
|
|
12
|
%
|
|
$
|
2.50
|
|
|
$
|
-
|
|
|
$
|
-
|
|
May
6, 2021
|
|
|
12
months
|
|
|
$
|
402,500
|
|
|
$
|
402,500
|
|
|
$
|
52,500
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
35,000
|
|
|
$
|
312,551
|
|
June
17, 2021
|
|
|
12
months
|
|
|
$
|
230,000
|
|
|
$
|
230,000
|
|
|
$
|
30,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
20,000
|
|
|
$
|
144,760
|
|
June
25, 2021
|
|
|
12
months
|
|
|
$
|
977,500
|
|
|
$
|
977,500
|
|
|
$
|
127,500
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
-
|
|
|
$
|
773,802
|
|
May
20, 2021
|
|
|
12
months
|
|
|
$
|
180,000
|
|
|
$
|
180,000
|
|
|
$
|
30,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
15,000
|
|
|
$
|
25,824
|
|
June
3, 2021
|
|
|
12
months
|
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
1,500
|
|
|
|
12
|
%
|
|
$
|
2.50
|
|
|
$
|
-
|
|
|
$
|
7,948
|
|
June
28, 2021
|
|
|
12
months
|
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
|
$
|
35,000
|
|
|
|
12
|
%
|
|
|
(6)
|
|
|
$
|
22,750
|
|
|
$
|
267,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,262,466
|
|
|
$
|
1,502,225
|
|
|
|
|
|
|
|
|
|
|
$
|
972,500
|
|
|
$
|
9,117,409
|
|
|
(1)
|
The
Note is past due. The Company and the lender are negotiating in good faith to extend the loan.
|
|
(2)
|
The
Company and lender have agreed to the extension of the Standstill
and Forbearance agreements (as described below).
|
|
(3)
|
Interest
was capitalized and added to outstanding principal.
|
|
(4)
|
During
the year ended December 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 more
than one other variable rate lender converted at a variable rate.
|
|
(5)
|
The
Company has agreed to issue shares of its common stock to lenders if their notes are not repaid by a defined date.
|
|
(6)
|
Loan
is not convertible until 180 days from the date of issuance of the Note and following an Event
of Default will be convertible at the lesser of $2.50 per share or 90% of the lowest trading price over the previous 20 days. The loan
is guaranteed by the Company’s Chief Executive Officer, but the lender may only enforce this guarantee after certain conditions
have been met, specifically after (i) the occurrence of an Event of Default (as defined in the Note), (ii) the failure of the Company
to cure the Default in 10 business days, and (iii) a failure by the Company to issue, or cause to be issued, shares of its common stock
upon submission by the lender of a notice of conversion.
|
As
of June 30, 2021 one lender holds approximately $9.1
million of the $13.3
million convertible notes outstanding.
For
the six months ended June 30, 2021, the Company recognized amortization expense related to the debt discounts indicated above of $3,864,956.
The unamortized debt discounts as of June 30, 2021 related to the convertible
debentures and other convertible notes amounted to $2,353,152.
Standstill
and Forbearance Agreements
The
Company has entered into Standstill and Forbearance Agreements with lenders who hold convertible notes with a total principal as of June
30, 2021 of $1.57
million. 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 March
31, 2021 for convertible notes with a principal balance of $469
thousand and until April 16, 2021 for convertible
notes with a principal balance of $1.1
million. For the six months ended June
30, 2021, the Company incurred fees of approximately $1.0
million
in connection with these agreements. After June 30, 2021 the Company settled $827,500
of these loans (see Note 7).
Convertible
Loan Modifications and Extinguishments
We
refinanced certain convertible loans during the three months ended June 30, 2021 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. During the six months ended June 30, 2021 we recorded losses on extinguishment
of liabilities of approximately $1.6
million by calculating the difference of the
fair value of the new debt and the carrying value of the old debt.
The
following table provides a summary of the changes in convertible debt, net of unamortized discounts, during 2021:
Summary
of Changes in Convertible Debt and Revolving Note Payable, Net of Unamortized Discounts
|
|
2021
|
|
Balance
at January 1,
|
|
$
|
7,545,670
|
|
Issuance
of convertible debt, face value
|
|
|
3,104,625
|
|
Deferred
financing cost
|
|
|
(506,375
|
)
|
Beneficial
conversion feature on convertible note
|
|
|
(566,847
|
)
|
Debt
discount from shares and warrants issued with debt
|
|
|
(1,181,719
|
)
|
Payments
|
|
|
(1,200,996
|
)
|
Conversion
of debt into equity
|
|
|
(150,000
|
)
|
Accretion
of interest and amortization of debt discount to interest expense
|
|
|
3,864,956
|
|
Balance
at June 30,
|
|
|
10,909,314
|
|
Less:
current portion
|
|
|
10,909,314
|
|
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 year ended December 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 June 30, 2021,
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.
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 9.3%
- 11.5%
per month. 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 Company’s Chief Executive Officer is personally guaranteeing the performance
of the merchant loans.
The
following table shows our Merchant Agreements as of June 30, 2021:
Schedule
of Merchant Agreements
Inception
Date
|
|
Purchase
Price
|
|
|
Purchased
Amount
|
|
|
Outstanding
Balance
|
|
|
Daily
Payment
Rate
|
|
|
Deferred
Finance
Fees
|
|
February
4, 2021
|
|
|
125,000
|
|
|
|
165,000
|
|
|
|
55,281
|
|
|
|
1,032
|
|
|
|
-
|
|
March
11, 2021
|
|
|
125,000
|
|
|
|
167,500
|
|
|
|
40,559
|
|
|
|
1,396
|
|
|
|
2,500
|
|
March
26, 2021
|
|
|
240,000
|
|
|
|
330,960
|
|
|
|
129,952
|
|
|
|
2,364
|
|
|
|
-
|
|
May
3, 2021
|
|
|
200,000
|
|
|
|
275,800
|
|
|
|
141,458
|
|
|
|
1,970
|
|
|
|
5,000
|
|
June 2, 2021
|
|
|
135,000
|
|
|
|
186,165
|
|
|
|
115,677
|
|
|
|
1,400
|
|
|
|
1,350
|
|
|
|
$
|
825,000
|
|
|
$
|
1,125,425
|
|
|
$
|
482,927
|
|
|
$
|
8,162
|
|
|
$
|
8,850
|
|
The
following table shows our Merchant Agreements as of December 31, 2020:
Inception
Date
|
|
Purchase
Price
|
|
|
Purchased
Amount
|
|
|
Outstanding
Balance
|
|
|
Daily
Payment
Rate
|
|
|
Deferred
Finance
Fees
|
|
November
5, 2020
|
|
$
|
200,000
|
|
|
$
|
275,800
|
|
|
$
|
163,955
|
|
|
|
1,724
|
|
|
$
|
-
|
|
November
19, 2020
|
|
|
100,000
|
|
|
|
137,900
|
|
|
|
85,013
|
|
|
|
985
|
|
|
|
-
|
|
|
|
$
|
300,000
|
|
|
$
|
413,700
|
|
|
$
|
248,968
|
|
|
$
|
2,709
|
|
|
$
|
-
|
|
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.
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 June 30, 2021 and is currently past due.
During
the six months ended June 30, 2021, we received short-term non-convertible loans of $171,600
from related parties and repaid $153,000
of related party loans. These notes bear interest
ranging from 10%
to 15%
and are due upon demand.
Long
term debt
During
the six months ended June 30, 2021, the Company borrowed $367,038
through a COVID-19 program that was sponsored
by the United States and administered by the Small Business Administration (the “SBA”). The most notable programs were the
Payroll Protection Program (or “PPP”) and the Economic Injury Disaster Loan program (or “EIDL”). PPP loan has
a 1%
interest rate and a five-year
term. During this period, the Company’s first PPP loan borrowed in 2020 ($367,039)
was forgiven by the SBA. This gain was reported in losses on extinguishment of liabilities on the consolidated statements of operations.
The
Company’s EIDL loan, $150,000,
accrues interest at 3.75%
and requires monthly payments of $731
for principal and interest beginning in June
2021. The balance of the principal will be due in 30
years. In connection with the EIDL loan the Company
entered into a security agreement with the SBA, whereby the Company granted the SBA a security interest in all of the Company’s
right, title and interest in all of the Company’s assets.
6) Stockholders’ Deficit
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 June 30, 2021, 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, 2020 for the pertinent disclosures of preferred
stock.
During
the six months ended June 30, 2021, the Company entered into Securities Purchase Agreements with accredited investors pursuant to which
the Company sold an aggregate of 40
shares of Series AA Convertible Preferred Stock,
each preferred share convertible into 1,000
shares of the Company’s common stock, par
value $0.01
per share, for an aggregate Purchase price of
$100,000.
We issued to the investors warrants to purchase an aggregate 40,000
shares of common stock with an exercise price
of $3.50
per share. The Company did not incur any placement
agent fees for this transaction.
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 June 30, 2021, options to acquire 1,350,046
shares were outstanding under the Plan.
As
of June 30, 2021, total unrecognized compensation cost related to the unvested stock-based awards was $218,339,
which is expected to be recognized over weighted average period of 1.62
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 June 30, 2021, based on the June 30, 2021 closing stock price of $2.17,
was $1,472,943.
The
following table summarizes information concerning options and warrants outstanding and exercisable:
Schedule
of 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, December 31, 2020
|
|
|
|
1,355,901
|
|
|
$
|
0.69
|
|
|
|
14,434,702
|
|
|
$
|
3.50
|
|
|
|
15,790,603
|
|
|
|
15,302,830
|
|
Granted
|
|
|
|
24,000
|
|
|
|
2.17
|
|
|
|
1,374,600
|
|
|
|
3.61
|
|
|
|
1,398,600
|
|
|
|
-
|
|
Exercised
|
|
|
|
(21,411
|
)
|
|
|
0.69
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(21,411
|
)
|
|
|
-
|
|
Expired/forfeited
|
|
|
|
(8,444
|
)
|
|
|
0.69
|
|
|
|
(105,495
|
)
|
|
$
|
3.50
|
|
|
|
(113,939
|
)
|
|
|
-
|
|
Balance
outstanding, June 30, 2021
|
|
|
|
1,350,046
|
|
|
$
|
0.72
|
|
|
|
15,703,807
|
|
|
$
|
3.50
|
|
|
|
17,053,853
|
|
|
|
16,699,039
|
|
In
the six months ended June 30, 2021 the Company issued 24,000
stock options to an employee ($49,135
fair value, $2.17
exercise price, three-year
vesting term and ten-year
expiration term). As of June 30, 2021, the 1,350,046
stock options outstanding have a $0.72
weighted average exercise price and 8.22
years weighted average remaining term. Of
these options, 995,232
are currently exercisable.
Common
Stock and Warrant Issuances
As
profiled in the following table, for five loans we are obligated to issue common stock if not paid by defined dates.
Schedule
of Loans Obligated to Issue Shares
|
|
|
Loan
Issuance
|
|
Loan
|
|
|
Shares
|
|
|
Defined
|
|
|
Defined
|
|
Loan
|
|
|
Date
|
|
Principal
|
|
|
Issuable
|
|
|
Date
|
|
|
Frequency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
1
|
|
|
July
21, 2020
|
|
$
|
115,000
|
|
|
|
5,000
|
|
|
|
September
30, 2020
|
|
|
|
Monthly
|
|
Loan
2
|
|
|
September
21, 2020
|
|
$
|
345,000
|
|
|
|
12,500
|
|
|
|
November
16, 2020
|
|
|
|
Weekly
|
|
Loan
3
|
|
|
September
23, 2020
|
|
$
|
115,000
|
|
|
|
12,500
|
|
|
|
December
1, 2020
|
|
|
|
Weekly
|
|
Loan
4
|
|
|
September
25, 2020
|
|
$
|
115,000
|
|
|
|
12,500
|
|
|
|
December
1, 2020
|
|
|
|
Weekly
|
|
Loan
5
|
|
|
October
22, 2020
|
|
$
|
115,000
|
|
|
|
12,500
|
|
|
|
December
1, 2020
|
|
|
|
Weekly
|
|
For
our loan dated December 23, 2020, we are obligated to
issue 100,000 warrants if the loan is not repaid before January 23, 2021 and an additional 10,000 shares of common stock and 100,000
warrants if the loan is not repaid before February 23, 2021. We are also obligated to issue 10,000
shares of common stock and 200,000
warrants if the loan is not repaid before March 23, 2021. During the six months ended June 30, 2021 the Company issued 400,000
warrants to this lender ($3.50 exercise price and
five-year term) with a fair value of $600,298. The Company is also obligated to issue
10,000 shares of common stock to this lender every 31 days up to the loan’s maturity date on June 23, 2021.
During
the six months ended June 30, 2021, we issued 1,642,982
shares of common stock with a fair value of approximately
$3.5
million to lenders for interest paid-in-kind, 112,400
shares with a fair value of $238,512
for services rendered, 139,700
shares with a fair value of $349,250
for conversions of debt principal and interest,
21,411
shares for stock option exercises (at an exercise price of
$0.69
per share), 56,067
shares with a fair value of $114,298
for dividends paid-in-kind and 120,000
shares with a fair value of $112,877
for Common Stock issued with debt.
During this period, we also issued 1,374,600
warrants (three
to five-year
term at a $3.50
to $5.00
exercise price) to acquire common stock at a fair
value of $1.7
million to lenders in conjunction with signing
of new convertible loans and interest paid-in-kind.
During
the six months ended June 30, 2020, we issued to Series AA holders 64,388
shares of common stock for dividends totaling
of $176,748
issued in stock in lieu of cash. During this
period the Company also issued 593,277
shares of restricted common stock at a fair value
of $1,693,251
to accredited investors and consultants. 420,746
of the shares with a fair value of $1,317,649
were issued for conversions of debt principal
and interest; 81,031
of the shares with a fair value of $159,784
were issued for debt extensions and interest
payments; 66,500
shares with a fair value of $127,855
were issued to settle an accrued liability; and
25,000
shares with a fair value of $87,963
were issued for services rendered.
7) Subsequent Events
From
July 1, 2021 through August 10, 2021 the Company received seven new fixed rate convertible loans for a total of $1.5 million.
The Company issued 125,000 shares
of common stock and 161,000 warrants
(3-year
and 5-year
lives and $3.50 strike
price) as fees paid to lenders. These loans have fixed conversion rates of $2.50-$3.00
(one has a variable conversion rate), carry annual interest rates ranging from 10% to 12%,
and terms ranging from six to twelve months. One of the loans (for $735,000) is secured by the assets of PBI Agrochem, Inc., a newly incorporated subsidiary of
the Company.
In
this time period, the Company retired loans with a principal amount of $973,408
(dated June 8, 2018, November 13, 2018, February 21, 2019, June 19, 2019, July 1, 2019, July 19, 2019, and November 1, 2019) for
$167,954
and 763,420
shares of common stock (settling principal, interest and fees) and reduced
the principal of another loan with a $100,000 cash payment. After this activity, the Company had $741,687
of principal outstanding with two lenders subject to the standstill and forbearance agreements, which expired March 31, 2021 (see
Note 5).
The Company is obligated to issue 665,000 shares of common stock to certain lenders for the quarter ended
June 30, 2021, but has not issued the shares. The Company and the lenders are negotiating in good faith
to resolve these loans and expect to reach a settlement in the coming month.
During
this period, the Company also received $900,000 from
the sale of Series AA shares (issuing 360,000 warrants
with a five-year
term and strike price of $3.50),
and repaid $103,600 of
related party loans.
In
this time period, the Company also entered into a Merchant Cash lender agreement (collecting $66,677)
and repaid an existing Merchant Cash lender for $62,832.
Under this agreement, the Company pays $1,278
each business day to the lender. During this period, the
Company also borrowed and repaid a $300,000 line-of-credit from a second lender.