NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
1) Business Overview, Liquidity and Management Plans
Pressure
Biosciences, Inc. (“we”, “our”, “the Company”) develops and sells innovative, broadly enabling, high
pressure-based platform technologies and related consumables for the worldwide life sciences, agriculture, food and beverage, and other
key industries. Our solutions are based on the unique properties of both constant (i.e., static) and alternating (i.e., pressure cycling
technology, or “PCT”) hydrostatic pressure. PCT is a patented enabling technology platform that uses alternating cycles of
hydrostatic pressure between ambient and ultra-high levels to safely and reproducibly control bio-molecular interactions (e.g., cell
lysis, biomolecule extraction). Historically, our primary focus has been in the development of PCT-based products for biomarker and target
discovery, drug design and development, biotherapeutics characterization and quality control, soil & plant biology, forensics, and
counter-bioterror applications. In more recent years, major new market opportunities have emerged in the use of our pressure-based technologies
in the following areas: (1) the use of our recently acquired, patented technology from BaroFold, Inc. (the “BaroFold” technology)
to allow entry into the bio-pharma contract services sector, and (2) the use of our recently-patented, scalable, high-efficiency, pressure-based
Ultra Shear Technology (“UST”) platform to (i) create stable nanoemulsions of otherwise immiscible fluids (e.g., oils and
water) and to (ii) prepare higher quality, homogenized, extended shelf-life or room temperature stable low-acid liquid foods that cannot
be effectively preserved using existing non-thermal technologies.
On
February 8, 2021, PBI announced plans to acquire the assets of a global eco-friendly agrochemical supplier. On April 14, 2021, PBI finalized
terms and executed a new letter of intent to purchase the assets of the agrochemical supplier. This opportunity is attractive as it has
the potential of readily producing significant revenue, as well as the potential to apply the UST technology to improve some of the product
line. In July 2021, a newly-formed subsidiary of PBI, PBI Agrochem, leased a warehouse in Carson City, NV, and hired a warehouse manager.
2) Going Concern
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 March 31,
2022, 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 March 31, 2022 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, 2021. Operating results
for the three months ended March 31, 2022 are not necessarily indicative of the final results that may be expected for the year ending
December 31, 2022.
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.
Recent
Accounting Pronouncements
In
August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-06, Accounting for
Convertible Instruments and Contracts in an Entity’s Own Equity, as part of its overall simplification initiative to reduce
costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to
users of financial statements. Among other changes, the new guidance removes the beneficial conversion separation model for
convertible debt. As a result, after adopting the guidance, entities will no longer account for beneficial conversion features in
equity. The guidance is effective for public business entities, other than small reporting companies financial statements starting
January 1, 2022, with early adoption permitted. The Company is a small reporting company and early adopted the new guidance on
January 1, 2022 using the modified retrospective approach and recorded a cumulative effect of adoption equal to a $2,728,243
decrease in additional paid in capital and a $2,255,216
decrease in accumulated deficit. There is no expected material impact to the Company’s statements of operations or cash flows
as the result of the adoption of ASU 2020-06.
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 March
31, | |
Primary geographical markets | |
2022 | | |
2021 | |
North America | |
$ | 318 | | |
$ | 208 | |
Europe | |
| 46 | | |
| 84 | |
Asia | |
| 116 | | |
| 268 | |
| |
$ | 480 | | |
$ | 560 | |
| |
Three
Months Ended March
31, | |
Major products/services lines | |
2022 | | |
2021 | |
Hardware | |
$ | 284 | | |
$ | 377 | |
Consumables | |
| 40 | | |
| 102 | |
Contract research services | |
| 15 | | |
| 6 | |
Sample preparation accessories | |
| 31 | | |
| 29 | |
Agrochem products | |
| 83 | | |
| - | |
Technical support/extended service contracts | |
| 17 | | |
| 24 | |
Shipping and handling | |
| 10 | | |
| 19 | |
Other | |
| - | | |
| 3 | |
| |
$ | 480 | | |
$ | 560 | |
| |
Three
Months Ended March
31, | |
Timing of revenue recognition | |
2022 | | |
2021 | |
Products transferred at a point in time | |
$ | 448 | | |
$ | 538 | |
Services transferred over time | |
| 32 | | |
| 22 | |
| |
$ | 480 | | |
$ | 560 | |
Contract
balances
Schedule of Contract Balances
In thousands of US dollars ($) | |
March
31, 2022 | | |
December
31, 2021 | |
Receivables, which are included in ‘Accounts Receivable’ | |
$ | 292 | | |
$ | 155 | |
Contract liabilities (deferred revenue) | |
| 48 | | |
| 41 | |
Transaction
price allocated to the remaining performance obligations.
The
following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied
(or partially unsatisfied) at the end of the reporting period.
Schedule
of Future Related to Performance Obligations
In thousands of US dollars ($) | |
2022 | | |
2023 | | |
Total | |
Extended warranty service | |
$ | 46 | | |
$ | 3 | | |
$ | 49 | |
All
consideration from contracts with customers is included in the amounts presented above.
Contract
Costs
The
Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets
that the Company otherwise would have recognized is one year or less. These costs are included in selling, general, and administrative
expenses. The costs to obtain a contract are recorded immediately in the period when the revenue is recognized either upon shipment or
installation. The costs to obtain a service contract are considered immaterial when spread over the life of the contract so the Company
records the costs immediately upon billing.
Concentrations
Credit
Risk
Our
financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents, and trade
receivables. We have cash investment policies which, among other things, limit investments to investment-grade securities. We perform
ongoing credit evaluations of our customers, and the risk with respect to trade receivables is further mitigated by the fact that many
of our customers are government institutions, large pharmaceutical and biotechnology companies, and academic laboratories.
The
following table illustrates the level of concentration as a percentage of total revenues during the three months ended March 31, 2022
and 2021.
Schedule of Customer Concentration Risk Percentage
| |
For the Three Months Ended | |
| |
March 31, | |
| |
2022 | | |
2021 | |
Top Five Customers | |
| 73 | % | |
| 88 | % |
Federal Agencies | |
| 0 | % | |
| 1 | % |
The
following table illustrates the level of concentration as a percentage of net accounts receivable balance as of March 31, 2022 and December
31, 2021. The Top Five Customers category may include federal agency receivable balances if applicable.
| |
March 31,
2022 | | |
December 31,
2021 | |
Top Five Customers | |
| 88 | % | |
| 82 | % |
Federal Agencies | |
| 3 | % | |
| 5 | % |
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 South 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 March 31, 2022, 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 March 31, 2022, 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 $79,114. We recorded $19,138 as an unrealized gain during the three months ended March 31, 2022 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 months ended March 31, 2022 and 2021:
Schedule of Computation of Loss Per Share
| |
2022 | | |
2021 | |
| |
For the Three Months Ended | |
| |
March 31, | |
| |
2022 | | |
2021 | |
Numerator: | |
| | |
| |
Net loss attributable to common stockholders | |
$ | (4,671,834 | ) | |
$ | (7,038,686 | ) |
| |
| | | |
| | |
Denominator for basic and diluted loss per share: | |
| | | |
| | |
Weighted average common stock shares outstanding | |
| 9,695,189 | | |
| 4,865,826 | |
| |
| | | |
| | |
Loss per common share – basic and diluted | |
$ | (0.48 | ) | |
$ | (1.45 | ) |
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 March 31, | |
| |
2022 | | |
2021 | |
Stock options | |
| 1,307,822 | | |
| 1,358,490 | |
Convertible debt | |
| 5,668,816 | | |
| 4,757,701 | |
Common stock warrants | |
| 16,350,438 | | |
| 14,901,211 | |
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 | | |
| 8,083,000 | |
| |
| 32,475,868 | | |
| 29,600,194 | |
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 $64,483 and $61,237 for the three months ended March 31, 2022 and 2021, 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 | |
| |
March 31, | |
| |
2022 | | |
2021 | |
Cost of sales | |
$ | 4,349 | | |
$ | 5,053 | |
Research and development | |
| 18,909 | | |
| 25,862 | |
Selling and marketing | |
| 9,050 | | |
| 4,595 | |
General and administrative | |
| 32,175 | | |
| 25,727 | |
Total stock-based compensation expense | |
$ | 64,483 | | |
$ | 61,237 | |
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 March 31, 2022:
Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis
| |
| | |
Fair value measurements at March 31, 2022 using: | |
| |
March 31, 2022 | | |
Quoted prices in active markets (Level 1) | | |
Significant other observable inputs (Level 2) | | |
Significant unobservable inputs (Level 3) | |
Equity Securities | |
$ | 79,114 | | |
$ | 79,114 | | |
| - | | |
| - | |
Total Financial Assets | |
$ | 79,114 | | |
$ | 79,114 | | |
$ | - | | |
$ | - | |
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, 2021:
| |
| | |
Fair value measurements at December 31, 2021 using: | |
| |
December 31, 2021 | | |
Quoted prices in active markets (Level 1) | | |
Significant other observable inputs (Level 2) | | |
Significant unobservable inputs (Level 3) | |
Equity Securities | |
| 59,976 | | |
| 59,976 | | |
| - | | |
| - | |
Total Financial Assets | |
$ | 59,976 | | |
$ | 59,976 | | |
$ | - | | |
$ | - | |
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 31, 2021, that expires December
31, 2022, 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 required 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%.
On
August 9, 2021, we entered into an operating lease agreement for our warehouse space in Sparks, NV (the “Sparks Lease”) for
the period from September 1, 2021 through September 30, 2026. The lease contains escalating payments during the lease period. The lease
can be extended for an additional three years if the Company provides notice at least six months prior to the expiration of the current
lease term.
The
Company accounted for the Sparks Lease as an operating lease under ASC 842. Upon the commencement of the lease, the Company recorded
a right-of-use asset and lease liability in the amount of $239,327 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 in excess of one year as of March 31, 2022:
Schedule of Future Minimum Rental Payments Required Under Operating Leases
| |
| | |
2022 | |
$ | 188,210 | |
2023 | |
| 149,299 | |
2024 | |
| 64,393 | |
2025 | |
| 66,969 | |
2026 | |
| 51,778 | |
Thereafter | |
| - | |
Total | |
$ | 520,649 | |
Battelle
Memorial Institute
In
December 2008, we entered into an exclusive patent license agreement with the Battelle Memorial Institute (“Battelle”).
The licensed technology is the subject of a patent application filed by Battelle in 2008 and relates to a method and a system for improving
the analysis of protein samples, including through an automated system utilizing pressure and a pre-selected agent to obtain a digested
sample in a significantly shorter period of time than current methods, while maintaining the integrity of the sample throughout the preparatory
process. In addition to royalty payments on net sales on “licensed products,” we are obligated to make minimum royalty payments
for each year that we retain the rights outlined in the patent license agreement and we are required to have our first commercial sale
of the licensed products within one year following the issuance of the patent covered by the licensed technology. After re-negotiating
the terms of the contract in 2013, the minimum annual royalty was $1,200 in 2014 and $2,000 in 2015; the minimum royalties were $3,000
in 2016, $4,000 in 2017 and $5,000 in 2018 and each calendar year thereafter during the term of the agreement.
Target
Discovery Inc.
In
March 2010, we signed a strategic product licensing, manufacturing, co-marketing, and collaborative research and development agreement
with Target Discovery Inc. (“TDI”), a related party. Under the terms of the agreement, we have been licensed by TDI
to manufacture and sell a highly innovative line of chemicals used in the preparation of tissues for scientific analysis (“TDI
reagents”). The TDI reagents were designed for use in combination with our pressure cycling technology. The companies believe
that the combination of PCT and the TDI reagents can fill an existing need in life science research for an automated method for rapid
extraction and recovery of intact, functional proteins associated with cell membranes in tissue samples. We did not incur any royalty
obligation under this agreement in 2021 or 2020.
In
April 2012, we signed a non-exclusive license agreement with TDI to grant the non-exclusive use of our pressure cycling technology. We
executed an amendment to this agreement on October 1, 2016 wherein we agreed to pay a monthly fee of $1,400
for the use of a lab bench, shared space
and other utilities, and $2,000
per day for technical support services
as needed. The agreement
requires TDI to pay the Company a minimum royalty fee of $60,000
in 2021 and $60,000
in 2022. For the three months
ended March 31, 2022 and March 31, 2021, the
Company reported $17,700
and $28,200, respectively in TDI
fees.
Severance
and Change of Control Agreements
Each
of Mr. Schumacher, and Drs. Ting, and Lazarev, executive officers of the Company, are entitled to receive a severance payment if terminated
by us without cause. The severance benefits would include a payment in an amount equal to one year of such executive officer’s
annualized base salary compensation plus accrued paid time off. Additionally, the officer will be entitled to receive medical and dental
insurance coverage for one year following the date of termination.
Each
of these executive officers, other than Mr. Schumacher, is entitled to receive a change of control payment in an amount equal to one
year of such executive officer’s annualized base salary compensation, accrued paid time off, and medical and dental coverage, in
the event of their termination upon a change of control of the Company. In the case of Mr. Schumacher, this payment would be equal to
two years of annualized base salary compensation, accrued paid time off, and two years of medical and dental coverage. The severance
payment is meant to induce the aforementioned executives to remain in the employ of the Company, in general; and particularly in the
occurrence of a change in control, as a disincentive to the control change.
5) Convertible Debt and Other Debt
Convertible
Debt
On
various dates during the three months ended March 31, 2022, the Company issued convertible notes for a total of $1,114,738
which contained varied terms and conditions
as follows: a) 5-12
month maturity date; b) interest rates of
12%;
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 $229,916
was recorded 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 March 31, 2022.
The specific terms of the convertible notes and outstanding balances as of March 31, 2022 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 | | |
$ | 98,544 | | |
$ | 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 | | |
$ | - | |
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 (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) | |
12 months | |
$ | 115,000 | | |
$ | 15,000 | | |
$ | 15,000 | | |
| 10 | % | |
$ | 2.50 | | |
$ | 10,000 | | |
$ | 20,500 | |
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 | |
February 17, 2021 (1) | |
12 months | |
$ | 230,000 | | |
$ | 230,000 | | |
$ | 30,000 | | |
| 10 | % | |
$ | 2.50 | | |
$ | 20,000 | | |
$ | 180,000 | |
March 23, 2021 (1) | |
12 months | |
$ | 55,000 | | |
$ | 55,000 | | |
$ | 5,000 | | |
| 10 | % | |
$ | 2.50 | | |
$ | - | | |
$ | 36,431 | |
May
6, 2021 (1) | |
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 | |
June
3, 2021 (1) | |
6 months | |
$ | 50,000 | | |
$ | 50,000 | | |
$ | 1,500 | | |
| 12 | % | |
$ | 2.50 | | |
$ | - | | |
$ | 7,948 | |
March
1, 2022 (13) | |
6 months | |
$ | 700,000 | | |
$ | 700,000 | | |
$ | 84,000 | | |
| 12 | % | |
| (6 | ) | |
$ | - | | |
$ | - | |
July 3, 2021 | |
12 months | |
$ | 115,000 | | |
$ | 115,000 | | |
$ | 15,000 | | |
| 10 | % | |
$ | 2.50 | | |
$ | 10,000 | | |
$ | 90,000 | |
February
1, 2022 (14) | |
6 months | |
$ | 260,000 | | |
$ | 210,000 | | |
$ | 10,000 | | |
| 12 | % | |
$ | (7 | ) | |
$ | 2,000 | | |
$ | - | |
February
4, 2022 (13) | |
8 months | |
$ | 500,000 | | |
$ | 500,000 | | |
$ | 30,000 | | |
| 12 | % | |
$ | (11 | ) | |
$ | - | | |
$ | - | |
July
6, 2021 (1) | |
6 months | |
$ | 130,000 | | |
$ | 130,000 | | |
$ | 10,000 | | |
| 12 | % | |
$ | 2.50 | | |
$ | - | | |
$ | - | |
July
15, 2021 (1) | |
6 months | |
$ | 100,000 | | |
$ | 45,000 | | |
$ | 5,000 | | |
| 12 | % | |
| (7 | ) | |
$ | - | | |
$ | 57,716 | |
January
19, 2022 (14) | |
6 months | |
$ | 52,000 | | |
$ | 52,000 | | |
$ | 2,000 | | |
| 12 | % | |
$ | 2.50 | | |
$ | 2,000 | | |
$ | - | |
January
20, 2022 (3) (14) | |
6 months | |
$ | 352,188 | | |
$ | 352,188 | | |
$ | 45,938 | | |
| (3 | ) | |
| (8 | ) | |
$ | - | | |
$ | - | |
January
20, 2022 (3) (14) | |
6 months | |
$ | 352,188 | | |
$ | 352,188 | | |
$ | 45,938 | | |
| (3 | ) | |
| (8 | ) | |
$ | - | | |
$ | - | |
January
20, 2022 (3) (14) | |
6 months | |
$ | 140,875 | | |
$ | 140,875 | | |
$ | 18,375 | | |
| (3 | ) | |
| (8 | ) | |
$ | - | | |
$ | - | |
August 31, 2021 | |
12 months | |
$ | 189,750 | | |
$ | 189,750 | | |
$ | 24,750 | | |
| 10 | % | |
| (9 | ) | |
$ | 16,500 | | |
$ | 148,500 | |
Sept.
8, 2021 (1) | |
8 months | |
$ | 78,000 | | |
$ | 78,000 | | |
$ | 3,000 | | |
| 12 | % | |
| (7 | ) | |
$ | - | | |
$ | 40,449 | |
Sept.
10, 2021 (1) | |
8 months | |
$ | 100,000 | | |
$ | 100,000 | | |
$ | 4,000 | | |
| 12 | % | |
| (7 | ) | |
$ | - | | |
$ | 43,520 | |
Sept. 15, 2021 (1) | |
6 months | |
$ | 250,000 | | |
$ | 250,000 | | |
$ | 12,500 | | |
| 12 | % | |
| (7 | ) | |
$ | - | | |
$ | 108,801 | |
Sept.
16, 2021 (1) | |
6 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 (1) | |
6 months | |
$ | 250,000 | | |
$ | 250,000 | | |
$ | 37,500 | | |
| 12 | % | |
| (7 | ) | |
$ | 30,000 | | |
$ | - | |
October
21, 2021 (5) | |
12 months | |
$ | 189,750 | | |
$ | 189,750 | | |
$ | 24,750 | | |
| 12 | % | |
$ | 2.50 | | |
$ | 16,500 | | |
$ | 87,332 | |
November
1, 2021 (5) | |
12 months | |
$ | 189,750 | | |
$ | 189,750 | | |
$ | 24,750 | | |
| 12 | % | |
$ | 2.50 | | |
$ | - | | |
$ | 96,991 | |
December 7, 2021 | |
12 months | |
$ | 169,500 | | |
$ | 118,650 | | |
$ | 19,500 | | |
| 12 | % | |
| (10 | ) | |
$ | 3,750 | | |
$ | - | |
March 23,2022 | |
8 months | |
$ | 56,500 | | |
$ | 56,500 | | |
$ | 6,500 | | |
| 12 | % | |
| (12 | ) | |
$ | - | | |
$ | - | |
March
29, 2022 | |
8 months | |
$ | 112,000 | | |
$ | 112,000 | | |
$ | 13,000 | | |
| 12 | % | |
| (12 | ) | |
$ | - | | |
$ | - | |
February 9,2022 | |
12 months | |
$ | 88,987 | | |
$ | 80,112 | | |
$ | 10,237 | | |
| 12 | % | |
| (10 | ) | |
$ | - | | |
$ | - | |
March
30, 2022 | |
12 months | |
$ | 10,000 | | |
$ | 10,000 | | |
$ | - | | |
| 12 | % | |
| 2.50 | | |
$ | - | | |
$ | 38,400 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| |
| | | |
$ | 15,103,691 | | |
$ | 1,703,088 | | |
| | | |
| | | |
$ | 965,500 | | |
$ | 8,460,529 | |
|
(1) |
The
Note is past due. The Company and the lender are negotiating in good faith to extend the loan. |
|
(2) |
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 40.9%
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 lowest trading price of the 20 days prior to conversion. 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. |
|
(10) |
Notes are convertible upon an Event of Default at 75%
multiplied by the lowest trading price for the common stock during the five days prior to the conversion. |
|
(11) |
Loans
can be voluntarily converted before maturity at $2.50
per share. Lender retains the option
upon an Up-list to convert at the lower of $2.50
or the 10% off Up-list price. |
|
(12) |
Notes are convertible at $2.50 per share except that
following an Event of Default the conversion price will be adjusted to 75% multiplied by the lowest trading price for the common
stock during the five days prior to the conversion. |
|
(13) |
During the three months ended March 31, 2022, the Company extended two
loans totaling $475,000 and increased the principal to $1,200,000. The Company issued 60,000 shares of common stock for these extensions
and added principal. |
|
(14) |
During the three months ended
March 31, 2022, the Company extended five loans totaling $1,045,000 and increased the principal to 1,107,251
and issued 149,500
shares of common stock for the extensions. |
As
of March 31, 2022, one lender holds approximately $9.4
million of the $15.1
million convertible notes outstanding.
For
the three months ended March 31, 2022, the Company recognized amortization expense related to the debt discounts indicated above of $794,242.
The unamortized debt discounts as of March 31, 2022
related to the convertible debentures and other convertible notes amounted to $813,478.
Standstill
and Forbearance Agreements
In recent years,
the Company entered into Standstill and Forbearance Agreements with lenders who hold variable-rate convertible notes. Pursuant to these
agreements the lenders agreed to not convert any portion of their notes into shares of common stock at a variable rate. The Company and two lenders ($673,528 outstanding principal at March 31, 2022) are negotiating in good faith to resolve
the remaining loans.
In
connection to these agreements, the Company incurred interest, penalties, and fees of approximately $202,050
in the three months ended March 31, 2022.
Convertible
Loan Modifications and Extinguishments
We
refinanced certain convertible loans during the three months ended March 31, 2022 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 three months ended
March 31, 2022 we recorded losses on extinguishment of liabilities of approximately $0.6 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 2022:
Summary
of Changes in Convertible Debt and Revolving Note Payable, Net of Unamortized Discounts
| |
2022 | |
Balance at January 1, | |
$ | 12,839,813 | |
Early adoption of ASU 2020-06 | |
| 473,027 | |
Issuance of convertible debt, face value | |
| 1,114,738 | |
Deferred financing cost | |
| (308,738 | ) |
Debt discount from shares and warrants issued with debt | |
| (229,916 | ) |
Payments | |
| (324,350 | ) |
Conversion of debt into equity | |
| (68,159 | ) |
Accretion of interest and amortization of debt discount to interest expense | |
| 794,242 | |
Balance at March 31, | |
| 14,290,657 | |
Less: current portion | |
| 14,290,657 | |
Convertible debt, long-term portion | |
$ | – | |
Other
Notes
As of March 31, 2022
the Company owes $691,500 on two notes to a private
investor. During the three months ended March 31, 2022, the Company issued 100,000 warrants (3 year term, $3.50 strike price) to the
lender. The Company and the lender are negotiating in good faith to extend these
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.
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 10.8%
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 (“Guarantor”) is
guaranteeing that the Company will perform its obligations under the Agreement. In no circumstance will Guarantor be asked
or obligated to repay or be liable for the payment of any amount paid by Buyer to Seller, including, but not limited to, the Purchase Price.
The
following table shows our Merchant Agreements as of March 31, 2022:
Schedule
of Merchant Agreements
Inception Date | |
Purchase Price | | |
Purchased Amount | | |
Outstanding
Balance | | |
Payment
frequency | |
Payment
Rate | | |
Deferred Finance Fees | |
February 10, 2022 | |
$ | 120,000 | | |
$ | 157,560 | | |
$ | 67,285 | | |
Weekly | |
| 7,878.00 | | |
$ | 1,200 | |
January 11, 2022 | |
$ | 240,000 | | |
$ | 300,000 | | |
$ | 125,140 | | |
Weekly | |
| 11,112.00 | | |
$ | - | |
December 21, 2021 | |
$ | 400,000 | | |
$ | 520,000 | | |
$ | 268,775 | | |
Weekly | |
| 11,305.00 | | |
$ | 6,000 | |
| |
$ | 760,000 | | |
$ | 977,560 | | |
$ | 461,200 | | |
| |
| | | |
$ | 7,200 | |
The
following table shows our Merchant Agreements as of December 31, 2021:
Inception Date | |
Purchase Price | | |
Purchased Amount | | |
Outstanding Balance | | |
Payment frequency | |
Payment Rate | | |
Deferred
Finance Fees | |
December
21, 2021 | |
$ | 400,000 | | |
$ | 520,000 | | |
$ | 390,120 | | |
Weekly | |
| 11,305.00 | | |
$ | 6,000 | |
July
6, 2021 | |
| 125,000 | | |
| 166,250 | | |
| 8,790 | | |
Daily | |
| 1,279.00 | | |
| 2,500 | |
| |
$ | 525,000 | | |
$ | 686,250 | | |
$ | 398,910 | | |
| |
| | | |
$ | 8,500 | |
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 three months ended
March 31, 2022, we received short-term non-convertible loans of $195,250
from related parties, which bear interest rates
of 12%
and are due upon demand.
Long
term debt
The Company entered into
a 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 December 2022. 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 March 31, 2022, 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, 2021 for the pertinent disclosures of preferred stock.
Stock
Options and Warrants
At
the Company’s December 30, 2021 Special Meeting, the shareholder’s approved the 2021 Equity Incentive Plan (the “2021
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. Consistent with the Company’s existing 2013 Equity Incentive plan (the “2013 plan”), under the 2021
plan, we may award stock options, shares of common stock, and other equity interests in the Company to employees, officers, directors,
consultants, and advisors, and to any other persons the Board of Directors deems appropriate. As of March 31, 2022, options to acquire
1,307,822 shares were outstanding under these Plans.
As
of March 31, 2022, total unrecognized compensation cost related to the unvested stock-based awards was $108,471,
which is expected to be recognized over weighted average period of 0.82
year. The aggregate intrinsic value associated
with the options outstanding and exercisable, and the aggregate intrinsic value associated with the warrants outstanding and exercisable
as of March 31, 2022, based on the March 31, 2022 closing stock price of $2.02,
was $1,707,483.
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 Average | | |
Weighted Average | | |
| | |
| |
| |
Shares | | |
price per share | | |
Shares | | |
price per share | | |
Shares | | |
Total Exercisable | |
Balance outstanding, December 31, 2021 | |
| 1,333,101 | | |
$ | 0.72 | | |
| 16,207,108 | | |
$ | 3.50 | | |
| 17,540,209 | | |
| 17,308,567 | |
Granted | |
| - | | |
| - | | |
| 230,000 | | |
| 3.50 | | |
| 230,000 | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Expired/forfeited | |
| (25,279 | ) | |
| 0.69 | | |
| (86,670 | ) | |
$ | 3.50 | | |
| (111,949 | ) | |
| - | |
Balance outstanding, March 31, 2022 | |
| 1,307,822 | | |
$ | 0.72 | | |
| 16,350,438 | | |
$ | 3.50 | | |
| 17,658,260 | | |
| 17,486,529 | |
As
of March 31, 2022, the 1,307,822
options outstanding have a $0.72
weighted average exercise price and 7.47
years weighted average remaining term. Of
these options, 1,136,091
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 | | |
Percentage of Loan | | |
Defined | |
Shares Issuable |
Loan | |
Date | |
Principal | | |
Principal Issuable | | |
Date | |
Frequency |
| |
| |
| | |
| | |
| |
|
Loan 1 | |
July 21, 2020 | |
$ | 115,000 | | |
| 0.0435 | % | |
September 30, 2020 | |
Monthly |
Loan 2 | |
September 21, 2020 | |
$ | 345,000 | | |
| 0.0362 | % | |
November 16, 2020 | |
Weekly |
Loan 3 | |
October 22, 2020 | |
$ | 115,000 | | |
| 0.0652 | % | |
December 1, 2020 | |
Weekly |
Loan 4 | |
October 21, 2021 | |
$ | 189,750 | | |
| 0.0435 | % | |
January 2, 2022 | |
Weekly |
Loan 5 | |
November 1, 2021 | |
$ | 189,750 | | |
| 0.0435 | % | |
January 2, 2022 | |
Weekly |
For
the three-month period ended March 31,2022 the Company is obligated to issue 554,500 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. During the three-month period ended March 31, 2022 the Company accrued $1,165,250
in interest expense for these obligations to issue common stock.
On
various dates in the quarter ended March 31, 2022 the Company issued a total of 1,073,610
shares of restricted common stock to accredited
investors and consultants. 140,200
of the shares with a fair value of $350,500
were issued for the conversion of debt and interest
for common stock, 558,100
of the shares with a fair value of $1,173,458
were issued for interest paid-in-kind, 37,000
of the shares with a fair value of $77,700
were issued for services rendered, 31,810
shares with a fair value of $64,256
for dividends paid-in-kind, 92,000
shares with a fair value of $142,480
for new convertible debt issuances and 214,500
shares with a fair value of $472,900
for debt extension.
During
the three months ended March 31, 2022, we issued 100,000
warrants (three-year
term at a $3.50
exercise price) to acquire common stock at a
fair value of $87,436
to a lender in conjunction with signing
of new convertible loans. We also issued 30,000
warrants (three-year term at a $3.50 exercise
price) with a fair value of $39,761
for services rendered and 100,000
warrants (three-year term at a $3.50 exercise
price) with a fair value of $132,537
for debt extension.
During
the three months ended March 31, 2021, we issued 922,372 shares of common stock with a fair value of approximately $2.0 million to lenders
for interest paid-in-kind, 112,400 shares with a fair value of $238,512 for services rendered, 47,200 shares with a fair value of $118,000
for conversions of debt principal and interest and 21,411 shares for stock option exercises at an exercise price of $0.69 per share.
During this period, we also issued 521,200 warrants (five-year term at a $3.50 exercise price) to acquire common stock at a fair value
of $0.8 million to lenders in conjunction with signing of new convertible loans and interest paid-in-kind.
7) Subsequent Events
After April
1, 2022, the Company issued 22,000 shares
of common stock along with issuance of two convertible loans (totaling $200,000).
Each loan carries a 12%
annual interest rate, a twelve-month term and is convertible at $2.50
per share.
In
this period, the Company also borrowed $227,000
from related parties with 10%
original issue discount and 12%
annual interest rate, and repaid $211,000
of related party loans. The Company also entered into a new merchant cash loan arrangement (collecting $225,000
in return for contractual payments of $11,008
per week for 28 weeks). During this period the Company also issued 40,000
shares of common stock to professional services vendors and committed to issue 20,000
shares in three months for service to be provided.