NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
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 September
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 September 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. Operating
results for the nine months ended September 30, 2021 are not necessarily indicative of the final results that may be expected for the
year ending December 31, 2021.
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 subsidiaries PBI BioSeq,
Inc and PBI Agrochem 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
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
Primary geographical markets
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
North America
|
|
$
|
351
|
|
|
$
|
387
|
|
|
$
|
1,036
|
|
|
$
|
694
|
|
Europe
|
|
|
57
|
|
|
|
2
|
|
|
|
244
|
|
|
|
6
|
|
Asia
|
|
|
110
|
|
|
|
145
|
|
|
|
407
|
|
|
|
356
|
|
|
|
$
|
518
|
|
|
$
|
534
|
|
|
$
|
1,687
|
|
|
$
|
1,056
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
Major products/services lines
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Hardware
|
|
$
|
276
|
|
|
$
|
313
|
|
|
$
|
989
|
|
|
$
|
569
|
|
Consumables
|
|
|
45
|
|
|
|
49
|
|
|
|
191
|
|
|
|
156
|
|
Contract research services
|
|
|
100
|
|
|
|
84
|
|
|
|
242
|
|
|
|
128
|
|
Sample preparation accessories
|
|
|
39
|
|
|
|
40
|
|
|
|
108
|
|
|
|
98
|
|
Technical support/extended service contracts
|
|
|
26
|
|
|
|
33
|
|
|
|
84
|
|
|
|
69
|
|
Shipping and handling
|
|
|
11
|
|
|
|
11
|
|
|
|
46
|
|
|
|
26
|
|
Other
|
|
|
21
|
|
|
|
4
|
|
|
|
27
|
|
|
|
10
|
|
|
|
$
|
518
|
|
|
$
|
534
|
|
|
$
|
1,687
|
|
|
$
|
1,056
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
Timing of revenue recognition
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Products transferred at a point in time
|
|
$
|
392
|
|
|
$
|
417
|
|
|
$
|
1,361
|
|
|
$
|
859
|
|
Services transferred over time
|
|
|
126
|
|
|
|
117
|
|
|
|
326
|
|
|
|
197
|
|
|
|
$
|
518
|
|
|
$
|
534
|
|
|
$
|
1,687
|
|
|
$
|
1,056
|
|
Contract
balances
Schedule of Contract Balances
In thousands of US dollars ($)
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Receivables, which are included in ‘Accounts Receivable’
|
|
$
|
539
|
|
|
$
|
131
|
|
Contract liabilities (deferred revenue)
|
|
|
53
|
|
|
|
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
|
|
$
|
44
|
|
$
|
9
|
|
$
|
53
|
|
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 nine months ended September
30, 2021 and 2020.
Schedule of Customer Concentration Risk Percentage
|
|
For the Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Top Five Customers
|
|
|
56
|
%
|
|
|
59
|
%
|
Federal Agencies
|
|
|
3
|
%
|
|
|
2
|
%
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Top Five Customers
|
|
|
42
|
%
|
|
|
36
|
%
|
Federal Agencies
|
|
|
6
|
%
|
|
|
3
|
%
|
The
following table illustrates the level of concentration as a percentage of net accounts receivable balance as of September 30, 2021 and
December 31, 2020. The Top Five Customers category may include federal agency receivable balances if applicable.
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
Top Five Customers
|
|
|
63
|
%
|
|
|
89
|
%
|
Federal Agencies
|
|
|
2
|
%
|
|
|
10
|
%
|
Product
Supply
In
recent years we utilized a contract assembler for our Barocycler® 2320EXT. They provided us with precision manufacturing
services that included management support services to meet our specific application and operational requirements. Among the services
provided to us were:
|
●
|
CNC
Machining
|
|
|
|
|
●
|
Contract
Assembly & Kitting
|
|
|
|
|
●
|
Component
and Subassembly Design
|
|
|
|
|
●
|
Inventory
Management
|
|
|
|
|
●
|
ISO
certification
|
Beginning
in July 2021, we brought the assembly of our Barocycler 2320EXT instruments in-house. This became necessary when our independent contract
assembler (CBM Industries) informed us that they were about to need 100% of their assembly space for one of their customers, who was
in fact one of the largest life science instrument manufacturers in the U.S. We worked with our notified body to gain approval to use
both the CE and CSA marks on the instrument, which we received during Q3 2021. Until further notice, we expect to continue to assemble
our Barocycler 2320EXT instrument at our Easton MA location.
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 September 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 September 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 $112,550.
We recorded $404,451
as an unrealized loss during the nine months
ended September 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 nine months ended September 30, 2021 and 2020:
Schedule
of Computation of Loss Per Share
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(6,199,176
|
)
|
|
$
|
(3,675,718
|
)
|
|
$
|
(18,387,204
|
)
|
|
$
|
(12,919,941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock shares outstanding
|
|
|
7,561,728
|
|
|
|
3,612,958
|
|
|
|
6,083,017
|
|
|
|
3,059,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share – basic and diluted
|
|
$
|
(0.82
|
)
|
|
$
|
(1.02
|
)
|
|
$
|
(3.02
|
)
|
|
$
|
(4.22
|
)
|
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 September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Stock options
|
|
|
1,342,490
|
|
|
|
1,392,370
|
|
Convertible debt
|
|
|
5,330,318
|
|
|
|
4,610,868
|
|
Common stock warrants
|
|
|
16,265,570
|
|
|
|
13,831,497
|
|
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
|
|
|
8,649,000
|
|
|
|
7,983,000
|
|
|
|
|
32,087,170
|
|
|
|
28,317,527
|
|
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 $95,248
and $66,542
for the three months ended September 30, 2021
and 2020, respectively. The Company recognized stock-based compensation expense of $219,943
and $373,652
for the nine months ended September 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 Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Cost of sales
|
|
$
|
8,664
|
|
|
$
|
5,164
|
|
|
$
|
18,824
|
|
|
$
|
18,227
|
|
Research and development
|
|
|
43,031
|
|
|
|
26,423
|
|
|
|
95,384
|
|
|
|
91,386
|
|
Selling and marketing
|
|
|
7,168
|
|
|
|
6,428
|
|
|
|
17,650
|
|
|
|
26,722
|
|
General and administrative
|
|
|
36,385
|
|
|
|
28,527
|
|
|
|
88,085
|
|
|
|
237,317
|
|
Total stock-based compensation expense
|
|
$
|
95,248
|
|
|
$
|
66,542
|
|
|
$
|
219,943
|
|
|
$
|
373,652
|
|
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. The carrying amount of long-term debt approximates fair value due to interest rates that approximate
prevailing market rates.
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 September 30, 2021:
Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis
|
|
|
|
|
Fair value measurements at
September 30, 2021 using:
|
|
|
|
September 30,
2021
|
|
|
Quoted
prices in
active
markets
(Level 1)
|
|
|
Significant
other
observable
inputs
(Level 2)
|
|
|
Significant
unobservable
inputs
(Level 3)
|
|
Equity Securities
|
|
$
|
112,550
|
|
|
$
|
112,550
|
|
|
|
-
|
|
|
|
-
|
|
Total Financial Assets
|
|
$
|
112,550
|
|
|
$
|
112,550
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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 September 30, 2021:
Schedule of Future Minimum Rental Payments Required Under Operating Leases
|
|
|
2021
|
|
2021
|
|
$
|
42,696
|
|
2022
|
|
|
87,383
|
|
2023
|
|
|
87,383
|
|
Total minimum payments required
|
|
$
|
217,462
|
|
Target
Discovery, Inc.
In
the nine months ended September 30, 2021, the Company incurred $44,600
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 nine months ended September 30, 2021, the Company issued convertible notes for a total of $5,857,375 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 the Company’s up-listing to NASDAQ or NYSE or 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 $1,954,744 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 $1,231,528 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 September 30,
2021.
The
specific terms of the convertible notes and outstanding balances as of September 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
|
|
January
3, 2019 (1) (4)
|
|
|
|
6
months
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
2,500
|
|
|
|
24
|
%
|
|
$
|
7.50
|
|
|
$
|
2,500
|
|
|
$
|
-
|
|
June
4, 2019 (1)(2)
|
|
|
|
9
months
|
|
$
|
500,000
|
|
|
$
|
302,484
|
|
|
$
|
-
|
|
|
|
8
|
%
|
|
$
|
2.50
|
|
|
$
|
40,500
|
|
|
$
|
70,631
|
|
July
19, 2019 (1)(2)
|
|
|
|
12
months
|
|
$
|
115,000
|
|
|
$
|
115,000
|
|
|
$
|
-
|
|
|
|
4
|
%
|
|
$
|
2.50
|
|
|
$
|
5,750
|
|
|
$
|
15,460
|
|
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
|
|
|
$
|
-
|
|
11/15/2019
(1)
|
|
|
|
12
months
|
|
$
|
385,000
|
|
|
$
|
320,000
|
|
|
$
|
35,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
35,000
|
|
|
$
|
90,917
|
|
1/2/2020
(1)
|
|
|
|
12
months
|
|
$
|
330,000
|
|
|
$
|
330,000
|
|
|
$
|
30,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
30,000
|
|
|
$
|
91,606
|
|
1/24/2020
(1)
|
|
|
|
12
months
|
|
$
|
247,500
|
|
|
$
|
247,500
|
|
|
$
|
22,500
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
22,500
|
|
|
$
|
89,707
|
|
1/29/2020
(1)
|
|
|
|
12
months
|
|
$
|
363,000
|
|
|
$
|
363,000
|
|
|
$
|
33,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
33,000
|
|
|
$
|
297,000
|
|
2/12/2020
(1)
|
|
|
|
12
months
|
|
$
|
275,000
|
|
|
$
|
275,000
|
|
|
$
|
25,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
25,000
|
|
|
$
|
225,000
|
|
2/19/2020
(1)
|
|
|
|
12
months
|
|
$
|
165,000
|
|
|
$
|
165,000
|
|
|
$
|
15,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
15,000
|
|
|
$
|
135,000
|
|
3/11/2020
(1)
|
|
|
|
12
months
|
|
$
|
330,000
|
|
|
$
|
330,000
|
|
|
$
|
30,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
30,000
|
|
|
$
|
232,810
|
|
3/13/2020
(1)
|
|
|
|
12
months
|
|
$
|
165,000
|
|
|
$
|
165,000
|
|
|
$
|
15,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
15,000
|
|
|
$
|
60,705
|
|
3/26/2020
(1)
|
|
|
|
12
months
|
|
$
|
111,100
|
|
|
$
|
111,100
|
|
|
$
|
10,100
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
10,100
|
|
|
$
|
90,900
|
|
4/8/2020
(1)
|
|
|
|
12
months
|
|
$
|
276,100
|
|
|
$
|
276,100
|
|
|
$
|
25,100
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
25,000
|
|
|
$
|
221,654
|
|
4/17/2020
(1)
|
|
|
|
12
months
|
|
$
|
143,750
|
|
|
$
|
143,750
|
|
|
$
|
18,750
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
-
|
|
|
$
|
96,208
|
|
4/30/2020
(1)
|
|
|
|
12
months
|
|
$
|
546,250
|
|
|
$
|
546,250
|
|
|
$
|
71,250
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
47,500
|
|
|
$
|
427,500
|
|
5/6/2020
(1)
|
|
|
|
12
months
|
|
$
|
460,000
|
|
|
$
|
460,000
|
|
|
$
|
60,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
40,000
|
|
|
$
|
360,000
|
|
5/18/2020
(1)
|
|
|
|
12
months
|
|
$
|
546,250
|
|
|
$
|
221,250
|
|
|
$
|
46,250
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
35,500
|
|
|
$
|
439,500
|
|
6/2/2020
(1)
|
|
|
|
12
months
|
|
$
|
902,750
|
|
|
$
|
652,750
|
|
|
$
|
92,750
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
58,900
|
|
|
$
|
708,500
|
|
6/12/2020
(1)
|
|
|
|
12
months
|
|
$
|
57,500
|
|
|
$
|
57,500
|
|
|
$
|
7,500
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
5,000
|
|
|
$
|
45,000
|
|
6/22/2020
(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 (1)
|
|
|
|
12
months
|
|
$
|
391,000
|
|
|
$
|
391,000
|
|
|
$
|
51,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
34,000
|
|
|
$
|
231,043
|
|
September
21, 2020 (1)
(5)
|
|
|
|
12
months
|
|
$
|
345,000
|
|
|
$
|
345,000
|
|
|
$
|
45,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
30,000
|
|
|
$
|
66,375
|
|
September
23, 2020 (1)
(5)
|
|
|
|
12
months
|
|
$
|
115,000
|
|
|
$
|
115,000
|
|
|
$
|
15,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
10,000
|
|
|
$
|
20,500
|
|
September
25, 2020 (1)
(5)
|
|
|
|
12
months
|
|
$
|
115,000
|
|
|
$
|
115,000
|
|
|
$
|
15,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
-
|
|
|
$
|
19,125
|
|
December
3, 2020 (1)
|
|
|
|
12
months
|
|
$
|
299,000
|
|
|
$
|
299,000
|
|
|
$
|
39,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
26,000
|
|
|
$
|
197,882
|
|
October
22, 2020 (1)
(5)
|
|
|
|
12
months
|
|
$
|
115,000
|
|
|
$
|
115,000
|
|
|
$
|
15,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
10,000
|
|
|
$
|
18,875
|
|
January
5, 2021 (1)
|
|
|
|
6 months
|
|
$
|
575,000
|
|
|
$
|
475,000
|
|
|
$
|
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
|
|
|
$
|
30,000
|
|
|
$
|
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
|
|
July
3, 2021
|
|
|
|
12
months
|
|
$
|
115,000
|
|
|
$
|
115,000
|
|
|
$
|
15,000
|
|
|
|
10
|
%
|
|
$
|
2.50
|
|
|
$
|
10,000
|
|
|
$
|
90,000
|
|
July
1, 2021
|
|
|
|
6
months
|
|
$
|
260,000
|
|
|
$
|
260,000
|
|
|
$
|
10,000
|
|
|
|
12
|
%
|
|
$
|
2.50
|
|
|
$
|
-
|
|
|
$
|
89,640
|
|
July
6, 2021
|
|
|
|
6
months
|
|
$
|
125,000
|
|
|
$
|
125,000
|
|
|
$
|
-
|
|
|
|
12
|
%
|
|
$
|
2.50
|
|
|
$
|
-
|
|
|
$
|
42,031
|
|
July
6, 2021
|
|
|
|
6
months
|
|
$
|
125,000
|
|
|
$
|
125,000
|
|
|
$
|
-
|
|
|
|
12
|
%
|
|
$
|
2.50
|
|
|
$
|
-
|
|
|
$
|
42,031
|
|
July
15, 2021
|
|
|
|
6
months
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
5,000
|
|
|
|
12
|
%
|
|
|
(7
|
)
|
|
$
|
-
|
|
|
$
|
57,716
|
|
July
16, 2021
|
|
|
|
6
months
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
2,000
|
|
|
|
12
|
%
|
|
$
|
3.00
|
|
|
$
|
-
|
|
|
$
|
40,806
|
|
July
16, 2021 (3)
|
|
|
|
6
months
|
|
$
|
306,250
|
|
|
$
|
306,250
|
|
|
$
|
56,250
|
|
|
|
(3
|
)
|
|
|
(8
|
)
|
|
$
|
22,500
|
|
|
$
|
227,500
|
|
July
16, 2021 (3)
|
|
|
|
6
months
|
|
$
|
306,250
|
|
|
$
|
306,250
|
|
|
$
|
56,250
|
|
|
|
(3
|
)
|
|
|
(8
|
)
|
|
$
|
12,500
|
|
|
$
|
237,500
|
|
July
16, 2021 (3)
|
|
|
|
6
months
|
|
$
|
122,500
|
|
|
$
|
122,500
|
|
|
$
|
22,500
|
|
|
|
(3
|
)
|
|
|
(8
|
)
|
|
$
|
5,000
|
|
|
$
|
95,000
|
|
August
31, 2021
|
|
|
|
6
months
|
|
$
|
189,750
|
|
|
$
|
189,750
|
|
|
$
|
24,750
|
|
|
|
10
|
%
|
|
|
(9
|
)
|
|
$
|
16,500
|
|
|
$
|
148,500
|
|
Sept.
8, 2021
|
|
|
|
8 months
|
|
$
|
78,000
|
|
|
$
|
78,000
|
|
|
$
|
3,000
|
|
|
|
12
|
%
|
|
|
(7
|
)
|
|
$
|
-
|
|
|
$
|
40,449
|
|
Sept.
10, 2021
|
|
|
|
8
months
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
4,000
|
|
|
|
12
|
%
|
|
|
(7
|
)
|
|
$
|
-
|
|
|
$
|
43,520
|
|
Sept.
15, 2021
|
|
|
|
8
months
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
|
$
|
12,500
|
|
|
|
12
|
%
|
|
|
(7
|
)
|
|
$
|
-
|
|
|
$
|
108,801
|
|
Sept.
16, 2021
|
|
|
|
8 months
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
|
$
|
12,500
|
|
|
|
12
|
%
|
|
|
(7
|
)
|
|
$
|
-
|
|
|
$
|
112,337
|
|
Sept.
24, 2021
|
|
|
|
8 months
|
|
$
|
125,000
|
|
|
$
|
125,000
|
|
|
$
|
6,250
|
|
|
|
12
|
%
|
|
$
|
(7
|
)
|
|
$
|
-
|
|
|
$
|
61,876
|
|
Sept.
15, 2021
|
|
|
|
6
months
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
|
$
|
37,500
|
|
|
|
12
|
%
|
|
$
|
(7
|
)
|
|
$
|
30,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,452,462
|
|
|
$
|
1,667,225
|
|
|
|
|
|
|
|
|
|
|
$
|
1,019,000
|
|
|
$
|
9,324,513
|
|
|
(1)
|
The
Note is past due. The Company and the lender are negotiating in good faith to extend the loan.
|
|
(2)
|
In
recent quarters the Company and lenders have entered into Standstill and
Forbearance Agreements (as described below).
|
|
(3)
|
Note
is secured by the assets of the Company’s subsidiary, PBI Agrochem, Inc. and interest rate is 18.4% OID.
|
|
(4)
|
During
the year ended December 31, 2020 the Company entered into a Rate Modification Agreement with this lender. In this
agreement the lender 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.
|
|
(7)
|
Notes are convertible before
maturity at $2.50
per share or mandatorily convertible when the Company up-lists to the NASDAQ at the lower of $2.50 or the up-list price.
|
|
(8)
|
Notes can be converted at the lesser of $2.50 per share
or 25% discount to the opening price of the Company’s first day of trading on either Nasdaq or NYSE. In addition, if the Company
fails to pay the Note in cash on maturity date, the conversion price will be adjusted to the lesser of original conversion price
or the product of the VWAP of the common stock for the 5 trading dates immediately prior to the maturity date multiplied by 0.75.
|
|
(9)
|
Conversion price of this note is $2.50 and will be adjusted
to, upon an Event of Default, the lower of (i) the conversion price or (ii) a 25% discount to the 5-day average VWAP of the stock
prior to default. Additionally, if an up-list to a national exchange occurs while this note is outstanding, the conversion price
shall be changed to the lower of (i) the conversion price or (ii) a 25% discount to the up-list price.
|
As
of September 30, 2021 one lender holds approximately $9.4
million of the $14.5
million convertible notes outstanding.
For
the nine months ended September 30, 2021, the Company recognized amortization expense related to the debt discounts indicated above of
$5,260,151.
The unamortized debt discounts as of September 30, 2021 related to
the convertible debentures and other convertible notes amounted to $2,692,163.
Standstill
and Forbearance Agreements
The
Company has entered into Standstill and Forbearance Agreements with lenders who hold variable-rate 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 $469,000 and until April 16, 2021 for convertible notes with a principal balance of $1.1
million. During the third quarter of 2021,
the Company settled three lenders (five Notes) with total principal of $827,500, leaving
two final lenders (five Notes) with total principal of $741,500 outstanding.
For the nine months ended September 30, 2021, the Company incurred interest, penalties, and fees of approximately $1.25
million in connection with Standstill
and Forbearance Agreements.
Convertible
Loan Modifications and Extinguishments
We
refinanced certain convertible loans during the nine months ended September 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 nine months ended September 30, 2021 we recorded losses
on extinguishment of liabilities of approximately $1.9
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
|
|
|
5,857,375
|
|
Deferred financing cost
|
|
|
(802,875
|
)
|
Beneficial conversion feature on convertible note
|
|
|
(1,231,528
|
)
|
Debt discount from shares and warrants issued with debt
|
|
|
(1,954,744
|
)
|
Payments
|
|
|
(1,608,295
|
)
|
Conversion of debt into equity
|
|
|
(1,305,455
|
)
|
Accretion of interest and amortization of debt discount to interest expense
|
|
|
5,260,151
|
|
Balance at September 30,
|
|
|
11,760,299
|
|
Less: current portion
|
|
|
11,760,299
|
|
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 September 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. During the quarter ended September 30, 2021 the Company issued 17 shares of Series AA preferred stock and 17,000 warrants to acquire common stock (five year
term and $3.50 exercise price) to the investor
to settle principal and interest on this loan. See Note 6.
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%
- 14%
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 September 30, 2021:
Schedule of Merchant Agreements
Inception Date
|
|
Purchase
Price
|
|
|
Purchased
Amount
|
|
|
Outstanding
Balance
|
|
|
Daily
Payment
Rate
|
|
|
Deferred
Finance
Fees
|
|
March 26, 2021
|
|
|
240,000
|
|
|
|
330,960
|
|
|
|
20,775
|
|
|
|
2,364
|
|
|
|
-
|
|
May 3, 2021
|
|
|
200,000
|
|
|
|
275,800
|
|
|
|
51,470
|
|
|
|
1,970
|
|
|
|
5,000
|
|
June 2, 2021
|
|
|
135,000
|
|
|
|
186,165
|
|
|
|
61,657
|
|
|
|
1,400
|
|
|
|
1,350
|
|
July 6, 2021
|
|
|
125,000
|
|
|
|
166,250
|
|
|
|
76,416
|
|
|
|
1,279
|
|
|
|
2,500
|
|
|
|
$
|
700,000
|
|
|
$
|
959,175
|
|
|
$
|
210,318
|
|
|
$
|
7,013
|
|
|
$
|
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
During
the nine months ended September 30, 2021, we received short-term non-convertible loans of $194,600
from related parties, which bear interest
ranging from 10%
to 15%
and are due upon demand. In this time, we repaid 2021 and prior loans for $256,600
in cash and issued 69.5 shares of Series
AA preferred stock and 69,450 warrants to acquire common stock (five year term and $3.50 exercise price) to settle $66,000 principal
and $107,625 interest. See Note 6.
Long
term debt
During
the nine months ended September 30, 2021, the Company borrowed $367,038
through a COVID-19 Payroll Protection Program
(or “PPP”) that was sponsored by the United States and administered by the Small Business Administration (the “SBA”). The
PPP loan has a 1%
interest rate and a five-year
term. During this period, a prior PPP loan to the Company, 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 also entered into another COVID-19 government loan in 2020, the Economic Injury Disaster Loan (or
“EIDL”). 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.
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 September 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 nine months ended September 30, 2021, the Company entered into Securities Purchase Agreements with accredited investors pursuant
to which the Company sold an aggregate of 406
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
$1,015,000.
We issued to the investors warrants to purchase an aggregate 406,000
shares of common stock with an exercise price
of $3.50
per share. The Company did not incur any placement
agent fees for these transactions.
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 September 30, 2021, options
to acquire 1,342,490 shares were outstanding under the Plan.
As
of September 30, 2021, total unrecognized compensation cost related to the unvested stock-based awards was $178,801,
which is expected to be recognized over weighted average period of
1.43
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 September 30, 2021, based on the September 30, 2021 closing stock price of $2.50,
was $1,897,066.
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
|
|
|
|
2,164,366
|
|
|
|
3.59
|
|
|
|
2,188,366
|
|
|
|
-
|
|
Exercised
|
|
|
(21,411
|
)
|
|
|
0.69
|
|
|
|
(187,500
|
)
|
|
|
3.50
|
|
|
|
(208,911
|
)
|
|
|
-
|
|
Expired/forfeited
|
|
|
(16,000
|
)
|
|
|
0.69
|
|
|
|
(145,998
|
)
|
|
$
|
3.50
|
|
|
|
(161,998
|
)
|
|
|
-
|
|
Balance outstanding, September 30, 2021
|
|
|
1,342,490
|
|
|
$
|
0.72
|
|
|
|
16,265,570
|
|
|
$
|
3.50
|
|
|
|
17,608,060
|
|
|
|
17,313,673
|
|
In
the nine months ended September 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 September 30, 2021, the 1,342,490
stock options outstanding have a $0.72
weighted average exercise price and 7.96
years weighted average remaining term. Of
these options, 1,048,103
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 the nine-month period
ended September 30,2021 the Company is obligated to issue 1,244,286 shares of common stock for the loans listed in the above table, 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. See Note 7.
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 nine months ended
September 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 nine months ended September 30, 2021, we issued 2,431,182 shares
of common stock with a fair value of approximately $5.6 million
to lenders for interest paid-in-kind, 248,200 shares
with a fair value of $579,512 for
services rendered, 1,035,996 shares
with a fair value of $2,589,990 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 347,650 shares
with a fair value of $551,198 for new
convertible debt issuances and 36,290 shares
of common stock for a non-cash warrant exercise. During this
period, we also issued 1,558,266 warrants
(three to five-year
term at a $3.50 to
$5.00 exercise
price) to acquire common stock at a fair value of $2.0 million
to lenders in conjunction with signing of new convertible loans and interest paid-in-kind (including the 400,000 warrants
issued.disclosed above). In this period we also issued 200 shares
of Series AA preferred stock and 200,100 warrants
to acquire common stock (five year
term and $3.50 exercise
price) for settlement of liabilities, including accrued expense, accrued compensation to employees and non-convertible debt and
related interest. The relative fair value of these warrants is $245,635.
The Company also recognized a $23,004 loss
on settlement of liabilities, which is included in losses on extinguishment of liabilities on the consolidated statement of
operations.
During
the nine months ended September 30, 2020, we issued to Series AA holders 87,518
shares of common stock for dividends totaling
of $221,374
issued in stock in lieu of cash. During
this period we also issued 1,202,118
shares of restricted common stock at a
fair value of $2.8
million to accredited investors and consultants.
709,788
of the shares with a fair value of $1.8
million were issued for conversions of
debt principal and interest; 315,830
of the shares with a fair value of $616,900
were issued for debt extensions, settlements
and interest payments; 66,500
shares with a fair value of $127,855
were issued to settle an accrued liability;
85,000 shares with a fair value of $147,775 were issued with new convertible debt issuances; and 25,000
shares with a fair value of $87,963
were issued for services rendered. During
this period, we also issued 4,168,531 warrants (three-year or five-year term at a $3.50 exercise price) to acquire common stock at a
fair value of $5.6 million to lenders in conjunction with signing of new convertible loans and debt extensions and settlement. In this
period we also converted $110,000 of debt into 44 shares of Series AA preferred stock and 44,000 warrants to acquire common stock (five-year
term and $3.50 exercise price). The relative fair value of warrants is $38,783.
From October 1, 2021
through November 11, 2021 the Company received two fixed rate convertible loans for a total of $379,500. The Company issued 52,000
shares of common stock as fees paid to the lender. The loans have a fixed conversion rate of $2.50,
carry an annual interest rate of 10%,
and a twelve-month term.
In this period the Company
also partially repaid a convertible loan dated September 23, 2021 for $100,000,
issued 160,000
shares of common stock (together with another 15,000
shares of common stock for a conversion fee) to convert a loan dated January 6, 2021 and issued 13,000
shares of common stock to extend the maturity date of a loan dated July 21, 2021 to February 15, 2022. In this
time the Company also borrowed $15,000
from a related party, repaid a related party $23,000,
issued 85,000
shares of common stock for professional services contracts (six-to-eight month terms) and issued 100,000 shares of common
stock to a lender as interest paid-in-kind.