UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
(Mark
One)
x
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Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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For the fiscal year ended
December 31, 2008 or
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¨
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Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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For
the transition period from ___________________ to
_______________________
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Commission
file number 000-21615
PRESSURE
BIOSCIENCES, INC.
(Exact
Name of Registrant as Specified in its Charter)
Massachusetts
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04-2652826
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(State
or Other Jurisdiction of Incorporation or Organization)
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(I.R.S.
Employer Identification No.)
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14
Norfolk Avenue
South
Easton, Massachusetts
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02375
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(Address
of Principal Executive Offices)
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(
Zip Code)
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(508)
230-1828
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(Registrant’s
Telephone Number, Including Area Code)
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Securities
registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which
Registered
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Common
Stock, par value $.01 per share
Preferred
Share Purchase Rights
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The
Nasdaq Stock Market,
LLC
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Securities
registered pursuant to Section 12(g) of the Act:
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(Title
of Class)
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes
¨
No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. Yes ¨
No x
Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
x
No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer ¨
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Accelerated
filer ¨
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Non-accelerated
filer ¨
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Smaller
reporting company x
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(Do
not check if smaller reporting company)
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨
No x
The
aggregate market value of the voting and non-voting common stock held by
non-affiliates of the registrant June 30, 2008 was $6,830,497 based on the
closing price of the common stock as quoted on the NASDAQ Capital Market on that
date.
As of
March 24, 2009, there were 2,195,283 shares of the registrant’s common stock
outstanding.
Documents
Incorporated by Reference
Part III of this Form 10-K incorporates
information by reference from the issuer’s definitive proxy statement which will
be filed no later than 120 days after the end of the fiscal year covered by this
report.
TABLE OF
CONTENTS
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Page
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PART
I
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Item
1.
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Business
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1
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Item
1A.
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Risk
Factors
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14
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Item
1B.
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Unresolved
Staff Comments
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21
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Item
2.
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Properties
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21
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Item
3.
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Legal
Proceedings
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21
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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21
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PART
II
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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22
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Item
6.
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Selected
Financial Data
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24
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
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24
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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35
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Item
8.
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Financial
Statements and Supplementary Data
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36
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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59
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Item
9A(T).
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Controls
and Procedures
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59
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Item
9B.
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Other
Information
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60
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PART
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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61
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Item
11.
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Executive
Compensation
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62
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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62
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Item
13.
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Certain
Relationships and Related Transactions, and Directors
Independence
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62
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Item
14.
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Principal
Accountant Fees and Services
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63
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PART
IV
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Item
15.
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Exhibits
and Financial Statement Schedules
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64
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Introductory
Comment
Throughout
this Annual Report on Form 10-K, the terms “we,” “us,” “our,” “the Company”
and “our company” refer to Pressure BioSciences, Inc., a Massachusetts
corporation, and, unless the context indicates otherwise, also includes our
wholly-owned subsidiaries.
PART
I
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). In some cases, forward-looking statements
are identified by terms such as “may,” “will,” “should,” “could,” “would,”
“expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,”
“predicts,” “potential,” and similar expressions intended to identify
forward-looking statements. Such statements include, without limitation,
statements regarding:
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our
ability to raise additional equity or debt financing on acceptable terms,
if at all;
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our
belief that we have sufficient liquidity to finance operations into the
second quarter of 2010;
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our
need to take additional cost reduction measures, cease operations or sell
our operating assets, if we are unable to obtain sufficient additional
financing in the future;
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the
amount of cash necessary to operate our business;
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the
anticipated uses of grant revenue and increased grant revenue in future
periods;
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potential
growth in the market for our PCT products;
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our
plans and expectations with respect to our pressure cycling technology
(PCT) operations, including our expected amount of research and
development, selling and marketing and general and administrative
expense;
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market
acceptance and the potential for commercial success of our PCT
products;
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our
belief that PCT provides a superior solution for sample
preparation;
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our
belief that PCT has achieved significant market acceptance in the mass
spectrometry market;
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the
expected development and success of new product
offerings;
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the
potential applications for PCT;
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the
expected benefits and results from our research and development
efforts;
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the
expected benefits and results from our collaboration
program;
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our
expectation of obtaining additional research grants from the government in
the future;
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the
expected tax benefits we may receive due to the American Recovery and
Reinvestment Act of 2009;
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general
economic conditions; and
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the
anticipated future financial performance and business operations of our
company.
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These
forward-looking statements are only predictions and involve known and unknown
risks, uncertainties, and other factors that may cause our actual results,
levels of activity, performance, or achievements to be materially different from
any future results, levels of activity, performance, or achievements expressed
or implied by such forward-looking statements. Also, these forward-looking
statements represent our estimates and assumptions only as of the date of this
Report. Except as otherwise required by law, we expressly disclaim any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statement contained in the Report to reflect any change in our
expectations or any change in events, conditions, or circumstances on which any
of our forward-looking statements are based. Factors that could cause or
contribute to differences in our future financial results include those
discussed in the risk factors set forth in Part I, Item 1A of this Report as
well as those discussed elsewhere in this Report. We qualify all of our
forward-looking statements by these cautionary statements.
Throughout
this document we use the following terms: Barocycler®, PULSE®, and BioSeq®,
which are registered trademarks of the Company. We also use the terms
ProteoSolveTM,
ProteoSolveLRSTM, the
Power of PCTTM, the
PCT ShredderTM, all of
which are unregistered trademarks of the Company.
Overview
We are a
life sciences company focused on the development and commercialization of a
novel, enabling, platform technology called pressure cycling technology (“PCT”).
PCT uses cycles of hydrostatic pressure between ambient and ultra-high levels
(up to 35,000 psi and greater) to control bio-molecular
interactions.
Our
pressure cycling technology uses internally developed instrumentation that is
capable of cycling pressure between ambient and ultra-high levels at controlled
temperatures to rapidly and repeatedly control the interactions of
bio-molecules. Our instrument, the Barocycler®, and our internally developed
consumables product line, which includes PULSE (Pressure Used to Lyse Samples
for Extraction) Tubes as well as application specific kits (which include
consumable products and reagents) together make up the PCT Sample Preparation
System (“PCT SPS”).
We have
experienced negative cash flows from operations with respect to our pressure
cycling technology business since our inception. As of December 31, 2008, we had
a total cash balance of approximately $918,000. During 2008 we took a
number of cost reduction measures, including a comprehensive restructuring
program to significantly reduce costs, centralize core operations, and refocus
our business strategy in specific areas where our products have found
significant market acceptance. The restructuring program included: a reduction
in personnel of eight full-time employees (40% of the workforce), reduction in
travel and meeting attendance for all personnel, continued reduction in investor
relations activities, decreases in the base salary of most of our employees and
all of our executive officers, a shutdown of our R&D facility in Rockville,
MD, a consolidation of our R&D activities in Massachusetts, and delay of
several research and development and marketing programs. We believe
that these initiatives will significantly decrease our rate of cash utilization,
from just under $1 million per quarter in 2008 to an average of just under
$600,000 per quarter during 2009. We also believe that these actions,
taken together with the proceeds we received from our $1.8 million equity
financing completed in February 2009, will enable us to extend our cash
resources into the second quarter of 2010.
Despite
the difficulty in the capital markets and the necessity to implement a very
challenging restructuring program, we are quite proud of the number of
accomplishments that we realized during 2008, and early 2009. These
activities included the following:
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Sale of Series A Convertible
Preferred Stock in a Private Placement – On February 12, 2009, we
received $1.8 million from the sale of 156,980 units, consisting of shares
of Series A Convertible Preferred Stock and warrants, in a private
placement to 35 accredited
investors.
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Patent license arrangement
with Battelle Memorial Institute – We entered into an exclusive
patent license agreement with the Battelle Memorial Institute ("Battelle")
in December 2008, pursuant to which we are licensing a method and system
for improving the analysis of protein samples, including through an
automated, in-line 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.
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Collaboration with J. Craig
Venter Institute (“JCVI”) – We entered into a collaboration
agreement with JCVI pursuant to which JVCI and PBI will further develop
PCT into JCVI's extraction protocols. In addition to JVCI’s purchase of a
Barocycler system, PBI will provide JCVI with two additional instruments
for further studies as part of the collaboration. Among the projects for
which PBI's technology will be used is JCVI's National Institutes of
Health ("NIH")-funded human micro-biome project, where JCVI scientists are
discovering and cataloging the microbes that live on and in the human
body.
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Omni International Marketing,
Distribution and Technology Development Agreement - Under the terms
of this agreement, PBI and Omni International will: (1) share market data,
customer leads and technology assessments; (2) co-promote certain products
at industry trade shows beginning in 2009; (3) license Omni to sell PBI's
recently released, patent-pending PCT Shredder to laboratories worldwide;
and (4) co-develop new instrumentation and consumables that combine the
homogenization capabilities of Omni with the extraction capabilities of
PBI, in an effort to provide research scientists with a targeted approach
to better solve certain sample preparation
issues.
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PCT Highlighted at Five Podium
Presentations at the Fifth International Conference on High
Pressure - Two of the presentations were made by our scientists and
three others were made by independent collaborators and customers
including: the U.S. Army Medical Research Institute of Infectious Diseases
(USAMRIID), Pacific Northwest National Laboratories (PNNL), and the
Southern California Water Research Project
(SCWRP).
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Launch of New Products
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ProteoSolve-SB,
a novel, pressure cycling technology-dependent kit for the simultaneous
extraction, isolation, and fractionation of nucleic acids (DNA and RNA),
proteins, and lipids from animal and plant samples routinely used in
laboratory research.
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PCT Shredder, a PCT-dependent
product used to help research scientists safely, rapidly, and conveniently
disrupt very tough samples, such as ticks, muscle, and seeds, that require
homogenization prior to PCT or other sample preparation
methods.
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Proteolysis
(Trypsin)–PrEP - We released our PCT-enhanced trypsin digestion
application for proteomics. “Proteolysis (Trypsin)-PrEP" is a
new PCT-enhanced processing ("PrEP") application that was unveiled at the
Drug Discovery & Development of Innovative Therapeutics Expo 2008 to
accelerate and improve the time consuming step of trypsin digestion, prior
to mass spectrometry.
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Receipt of Award of $850,000
Phase II SBIR Grant - This Phase II SBIR grant is funding
continuing experiments directed towards the development and
commercialization of novel, automated, and reproducible methods for the
extraction of clinically important protein biomarkers, sub-cellular
molecular complexes, and organelles (such as mitochondria) from cells and
tissues using our pressure cycling
technology.
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We hold
13 United States and 6 foreign patents covering multiple applications of PCT in
the life sciences field. Our pressure cycling technology employs a unique
approach that we believe has the potential for broad use in a number of
established and emerging life sciences areas, including;
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sample
preparation for genomic, proteomic, and small molecule
studies;
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control
of chemical (particularly enzymatic) reactions;
and
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Since we
began operations as Pressure BioSciences in February 2005, we have installed 74
Barocycler instruments, including 41 instruments in 2008, 20 instruments in
2007, 8 instruments in 2006, and 5 instruments in 2005. Our customers
include researchers at academic laboratories, government agencies and
biotechnology, pharmaceutical and other life sciences companies in the United
States, and five foreign distribution partners.
Corporate
Information
We were
incorporated in the Commonwealth of Massachusetts in August 1978 as Boston
Biomedica, Inc. In September 2004, we completed the sale of the
Boston Biomedica core business units and began to focus exclusively on the
development and commercialization of pressure cycling technology. Following this
change in business strategy, we changed our legal name from Boston Biomedica,
Inc. to Pressure BioSciences, Inc., or PBI, and commenced operations as Pressure
BioSciences in February 2005.
Available
Information
Our
Internet website address is http://www.pressurebiosciences.com. Through our
website, we make available, free of charge, this annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments
to those reports, as soon as reasonably practicable after we electronically file
such material with, or furnish it to, the Securities and Exchange Commission
(“SEC”). These SEC reports can be accessed through the investor relations
section of our website. The information found on our website is not part of this
or any other report we file with or furnish to the SEC.
You may
read and copy any materials we file with the SEC at the SEC’s Public Reference
Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet website that contains reports, proxy and
information statements, and other information regarding Pressure BioSciences and
other issuers that file electronically with the SEC. The SEC’s Internet website
address is http://www.sec.gov.
Sample
Preparation for Genomic, Proteomic, and Small Molecule Studies
The
Market
Since
February 2005, we have focused substantially all of our research &
development and commercialization efforts on sample preparation for genomic,
proteomic, and small molecule studies. This market is comprised of
academic and government research institutions, biotechnology and pharmaceutical
companies, and other public and private laboratories that are engaged in
studying genomic, proteomic and small molecule material within plant and animal
cells and tissues.
We
elected to initially focus our resources in the market of genomic, proteomic,
and small molecule sample preparation because we believe it is an area
that:
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is
a rapidly growing market;
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has
a large and immediate need for better
technology;
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is
comprised mostly of research laboratories, which are subject to minimal
governmental regulation;
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is
the least technically challenging application for the development of our
products;
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is
compatible with our technical core competency;
and
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is
the area in which we currently have strong patent
protection.
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We
believe that our existing Barocycler instrumentation, and PCT consumable
products, fill an important and growing need in the sample preparation market
for the safe, rapid, versatile, reproducible, and quality extraction of nucleic
acids, proteins, and small molecules from a wide variety of plant and animal
cells and tissues.
Mass
Spectrometry
Mass
spectrometry is one of the most powerful laboratory tools used today, and is
frequently used by research scientists to evaluate proteins and nucleic acids
(DNA and RNA). It is playing an increasingly important role in the
analysis of biological samples in life sciences research. According
to the Emmes Group, a life sciences market research firm engaged by the Company,
the mass spectrometry market is a multi-billion dollar business that should see
annual growth of better than 8% through 2010. A number of important
companies and research laboratories in this market are currently our customers,
or are in the process of evaluating our technology for use in their
laboratories.
Our plan
is to focus
primarily on the application of PCT-enhanced protein digestion for the mass
spectrometry market and the advantages of PCT in this market, and the use of PCT
in biomarker discovery, soil and plant biology, counter bio-terror and tissue
pathology applications.
Sample Extraction
Process
The
process of preparing samples for genomic, proteomic, and small molecule studies
includes a crucial step called sample extraction, or sample disruption. This is
the process of extracting nucleic acid (DNA and/or RNA), proteins, or small
molecules from the plant or animal cells and tissues that are being studied.
Sample preparation is widely regarded as a significant impediment to research
and discovery, and sample extraction is generally regarded as the key part of
sample preparation. Our current commercialization efforts are based upon our
belief that pressure cycling technology provides a superior solution to sample
extraction compared to other available technologies or procedures, and can thus
significantly improve the quality of sample preparation.
Collaboration
Program
Our
collaboration program is an important element of our business
strategy. Initiating a collaboration with a researcher usually
involves the installation of a Barocycler instrument for an agreed upon period
of time, generally three to six months, and the execution of an agreed upon work
plan. Our primary objectives for entering into a collaboration
agreement include:
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the
development of a new application for PCT in sample
preparation;
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the
advancement and validation of our understanding of PCT within an area of
life sciences in which we have already have
products;
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the
demonstration of effectiveness and impact of PCT to specific research
scientists whom we believe can have a positive impact on market acceptance
of PCT; and
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the
expectation of peer-reviewed publications and/or presentations at
scientific meetings by a third party on the merits of
PCT.
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Since we
initiated our collaboration program in June 2005, we have placed Barocycler
instruments in approximately twenty sites, resulting in approximately forty
publications and presentations by third party researchers. We believe
that this program has provided, and continues to provide us with independent and
objective data about PCT from well respected laboratories throughout the United
States. Below is a list of selected publications that have been made
by various researchers based on their experiences with PCT:
Title
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Authors
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Category
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Reference
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Soluble
Forms of the Notch Ligands Delta1 and Jagged1 Promote in Vivo
Tumorigenicity in NIH3T3
Fibroblasts
with Distinct Phenotypes
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Sumithra
Urs, Alice Roudabush, Christine F. O'Neill, Ilka Pinz, Igor Prudovsky,
Doreen
Kacer, Yuefang Tang, Lucy Liaw, and Deena Small
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Tumorigenesis
and
Neoplastic
Progression
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The
American Journal of Pathology, Vol. 173, No. 3, September
2008
Copyright
© American Society for Investigative Pathology DOI:
10.2353/ajpath.2008.080006
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Pilot
Proteomic Profile of Differentially Regulated Proteins in Right Atrial
Cardiopulmonary Bypass Appendage Before and After Cardiac Surgery Using
Cardioplegia and Cardiopulmonary Bypass
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Kamal
R. Khabbaz, Cesario Bianchi and Frank
W. Sellke Asara,
Jun Feng, Alexander Lazarev, Shiva Gautam, Venkatachalam Senthilnathan,
Richard T. Clements, Gary Smejkal, Neel R. Sodha, Alexander R. Ivanov,
John M.
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Proteomics
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.792747
Circulation
2008;118;S24-S31
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Strategies
to recover proteins from ocular tissues for proteomics
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Nikhil
Patel, Ekta Solanki,
Renata Picciani, Valerie Cavett, Jennifer A. Caldwell-Busby, Sanjoy K.
Bhattacharya, Dr.
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Proteomics
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Proteomics
2008, 8, 1055-1070
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Improvedextraction
of Rhizoctonia and Pythium DNA from wheat roots and soil samples using
pressure cycling technology
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P.
Okubara
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Genomics
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Can.
J. Plant Pathol. 29: 304-310 (2007)
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The
Daphnia Genomics Consortium Meeting: The Genome of the Model Crustacean
Daphnia
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Darren
J. Bauer
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Genomics
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Expert
Rev. Proteomics 4(5), 601-602 (2007)
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An
analysis of select pathogenic messages in lesional and non-lesional
psoriatic skin using non-invasive tape harvesting.
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Benson
NR, Papenfuss J, Wong R, Motaal A, Tran V, Panko J, Krueger
GG.
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Transcriptomics
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J
Invest Dermatol. 2006 Oct;126(10):2234-41. Epub
2006
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Company
Products
Our PCT
products have been developed to allow researchers to harness the Power of PCT to improve
scientific research studies in the life sciences field. All of our
products are developed with the expectation of meeting or exceeding the needs of
research scientists while enhancing the safety, speed, and quality that is
available to them with existing sample preparation technology.
Barocycler
Instrumentation
Our
Barocycler product line consists of laboratory instrumentation that subjects a
sample to cycles of pressure from ambient to ultra-high levels and then back to
ambient, all in a precisely controlled manner. Our instruments, the
Barocycler NEP3229 and Barocycler NEP2320, use cycles of high hydrostatic
pressure to quickly and efficiently break up the cellular structures of a
specimen to release nucleic acids, proteins, lipids and small molecules from the
specimen into our consumable processing tube, referred to as our PULSE
Tubes. Our Barocycler instrumentation is designed to fit on a
laboratory bench top, inside a biological safety cabinet, or on the shelf of a
laboratory cold room. Our instruments have an external chiller
hook-up (to control temperature during the PCT process), automatic fill and
dispensing valves, and an integrated micro-processor keypad. The
microprocessor is capable of saving up to 99 specific PCT protocols, so the
researcher can achieve maximum reproducibility for the extraction of nucleic
acids, proteins, lipids, or small molecules from various biological samples. Our
Barocycler instruments, together with our consumable products described below,
make up our current PCT Sample Preparation System (PCT SPS).
Barocycler NEP3229 –
The Barocycler NEP3229 contains two units, an upper, user interface and a lower,
power source, comprised primarily of a 1.5 horsepower motor and pump assembly
(hydraulic). Combined, the two components of the NEP3229 weigh
approximately 350 pounds. The Barocycler NEP3229 is capable of
processing up to three samples simultaneously using our specially designed,
single-use PULSE Tubes.
Barocycler NEP2320 –
The Barocycler NEP2320 is a smaller and more compact version of our NEP3229
unit. It weighs approximately 75 pounds, processes one sample at a
time, and works on compressed air (pneumatic) and not hydraulics like the larger
NEP3229 unit. Because this instrument is pneumatic, the NEP2320 can
be easily attached by an air hose to a typical 85 psi air compressor found in
most scientific laboratories, to many consumer-sold portable compressors, or
even to bottled gas. This instrument is currently being used by our
sales directors as a demonstration instrument and is being marketed as a second
instrument alternative to our PCT Sample Preparation System.
PCT Shredder – The patent-pending "PCT
Shredder" is designed to help research scientists safely, rapidly, and
conveniently disrupt very tough samples - such as ticks, muscle, and seeds, that
require homogenization prior to PCT or other sample preparation
methods. The PCT Shredder uses a similar PULSE Tube as the PCT Sample
Preparation System, and allows scientists to homogenize tough samples prior to
extraction with the PCT SPS, but without the need to transfer the sample into a
second processing container between steps.
Consumable
Products
PULSE Tubes (FT500) –
The FT500 PULSE Tube is a specially-designed, plastic, single-use, processing
container with two chambers separated by a small disk with about sixty small
holes. This small disk is referred to as a Lysis Disk. PULSE Tubes
transmit the power of PCT from the Barocycler instrument to the
sample. In sample extraction, the specimen is placed on the Lysis
Disk, buffers are added to the PULSE tube, the PULSE Tube is capped and placed
in the pressure chamber of the Barocycler instrument, pressure chamber fluid is
added, and pressurization begins. As pressure increases, a small moveable piston
(the Ram) pushes the specimen from the top (sample) chamber, through the Lysis
Disk and into the bottom (fluid retention) chamber. When pressure is released,
the sample (now partially homogenized) is pulled back through the Lysis Disk by
the receding Ram. The combination of physical passage through the Lysis Disk,
rapid pressure changes, and other biophysical mechanisms related to cycled
pressure break up the cellular structures of the specimen to quickly and
efficiently release nucleic acids, proteins, lipids, and small
molecules.
Non-Disk PULSE Tubes
(FT500-ND) – The FT500-ND PULSE Tube is a specially-designed, plastic,
single-use, processing container with one chamber separated by a small disk with
about sixty small holes. The FT500-ND is similar to the FT500 in look
and feel, except there is no Lysis Disk separating the body of the processing
container into two chambers, as in the FT500-ND. The design change
was based on strong market demand for a new PCT consumable for the rapid and
reproducible processing of solutions and suspensions that do not require partial
homogenization by passage through a Lysis Disk, and for a consumable that could
accept smaller sample volumes. It is the result of more than a year of testing
in several laboratories using various sample sizes and
types. The FT500-ND offers variable sample volumes (5x the
range of the existing FT500).
ProteoSolve - LRS –
(ProteoSolve for Lipid Rich Samples) is
a PCT-dependent method for the safe, rapid, efficient, and reproducible
extraction of proteins from lipid-rich samples, including adipose and brain
tissues, organelles, and membrane preparations. Proteomic analysis of these
types of samples is widely used in the study of diabetes, cancer, ALS, heart
disease, and a number of other serious human disorders related to obesity. We
believe that this PCT-dependent method of protein extraction from lipid-rich
samples offers significant advantages over current extraction techniques,
primarily due to the ability to use certain organic solvents instead of harsh
detergents in the extraction process. Harsh detergents are known to
compromise the integrity of many proteins; therefore the use of these detergents
requires a very careful and time consuming removal
process. ProteoSolve-LRS includes 12 specially-designed PULSE Tubes,
certain organic solvents, other reagents, and an instruction sheet on how to
utilize this patent-pending process to enhance the extraction of proteins from
lipid-rich samples.
ProteoSolve - SB –
(ProteoSolve for Systems Biology) is a
PCT-dependent method for the simultaneous extraction, isolation, and
fractionation of nucleic acids (DNA and RNA), proteins, and lipids from animal
and plant samples routinely used in laboratory research. This patent-pending kit
contains proprietary reagents, consumable processing containers (PULSE Tubes),
and instructions for use, and is intended to be used with the Company's patented
PCT Sample Preparation System. The kit is based on the unique approach to a
"systems biology" sample preparation method that was first unveiled during early
2008, in collaboration with Dr. Alexander Ivanov of the Harvard School of Public
Health.
ProteoSolve – CE –
(ProteoSolve for Conventional Extraction) is a
PCT-dependent kit for the extraction of proteins from a variety of samples using
optimized detergent-based reagent system compatible with two-dimensional
electrophoresis or two-dimensional chromatographic separation for proteomic
analysis. The kit contains all of the reagents and instructions
necessary for the extraction of either denatured or non-denatured proteins,
which can then be used for the analysis of protein structure and
function.
We
believe our development of these products has helped, and will continue to help,
drive the adoption of PCT within the life sciences market.
Company
Services
Government Grants –
We view federal agency grants to be an important part of our business plan.
These types of grants allow us to bill the federal agency for work that we are
planning to perform as part of the development, and commercialization, of our
technology. We generally start by submitting initial grant requests
that are in response to requests for proposals or “RFPs” from the federal
government through their Small Business Innovation Research (“SBIR”)
program. Initial grants (“SBIR I”) are meant to fund approved
research projects for six months, and generally have budgets of approximately
$100,000 to $150,000. Additionally, our work in SBIR Phase I grants
has been successful and we applied for larger NIH SBIR Phase II grants. Such
larger grants are typically for a two year period and are in excess of $750,000
to support significant research projects in areas we would otherwise expect to
support with internal funds should SBIR Phase II grants not be
awarded. To date we have been awarded two National Institutes of
Health (“NIH”) Small Business Innovation Research Phase I grants and one SBIR
Phase II grant. Both of our Phase I grants have been
completed. The data on one of the Phase I grants was the basis for
the submission, and subsequent award, of our Phase II award of approximately
$850,000. The Phase II grant is for work in the area of using PCT to
extract protein biomarkers, sub-cellular molecular complexes, and organelles,
with the expectation that these studies will ultimately lead to the release of a
new, commercially available PCT-based system, with validated protocols, end-user
kits, and other consumables intended for the extraction of clinically important
protein biomarkers, sub-cellular molecular complexes, and organelles from human
and animal tissues.
Extended Service
Contracts - We offer extended service contracts on our laboratory
instrumentation to all of our customers. These service contracts allow a
customer who purchases a Barocycler instrument to receive on-site scheduled
preventative maintenance, on-site repair and replacement of all worn or
defective component parts, and telephone support, all at no incremental cost for
the life of the service contract. We offer one-year and four-year extended
service contracts to customers who purchase Barocycler instruments.
Fee-for-Service – We
will occasionally perform PCT services on a fee-for-service basis. We may enter
into these types of arrangements if we believe that the customer has a high
likelihood of purchasing a PCT Sample Preparation System or if we believe that
the customer will publish or present results of the work performed in scientific
journals or in scientific meetings.
Other
Applications of Pressure Cycling Technology
PCT is an
enabling, platform technology based on a bio-physical process that had not
previously been used to control bio-molecular interactions. During its early
development, under the legacy business of Boston Biomedica, Inc., our scientists
were researching and developing applications of pressure cycling technology in
many areas of the life sciences, including genomic, proteomic, and small
molecule sample preparation. The data generated during these early years,
combined with the data generated since PBI began significant PCT operations in
February 2005, form the basis of knowledge that we believe will allow us to
successfully commercialize PCT both within and outside of the sample preparation
market.
Our
research and development efforts have shown that, in addition to genomic,
proteomic and small molecule sample preparation, PCT is potentially beneficial
in a number of other areas of the life sciences, including pathogen
inactivation, protein purification, control of chemical (particularly enzymatic)
reactions, and immunodiagnostics. Our pursuit of these markets, however, depends
on a number of factors, including our success in commercializing PCT in the area
of sample preparation, our judgment regarding the investment required to be
successful in these areas, and the value of these markets to our company. Below
is a brief explanation of each of these additional potential applications and a
short description of why we believe PCT can be used to improve scientific
studies in these areas.
Pathogen
Inactivation
Biological
products manufactured for human use, such as blood, vaccines, and drugs, are put
through rigorous processing protocols in an effort to minimize the potential of
that product to transmit disease. These protocols may include methods
to remove infectious materials (such as pre-processing testing, filtration, or
chromatography), or methods to inactivate infectious materials that are not
captured in the removal steps (such as pasteurization, irradiation, and solvent
detergent inactivation). Notwithstanding current diligence in both the removal
and inactivation steps, significant concern remains that some bacteria and
viruses capable of transmitting infection to recipients may not be removed or
inactivated with current procedures. In addition, some removal and inactivation
methods may not be useful because of cost, safety, ease-of-use, or other
practical concerns. To that end, we believe that a new inactivation
method is needed that can safely, rapidly and inexpensively inactivate pathogens
in blood, vaccines, and drugs without the need for chemical or other potentially
toxic additives. We believe we have successfully generated
proof-of-concept that PCT can satisfy this need. We believe that compared to
current procedures, a process that uses PCT has the potential to increase safety
and yield, lower cost, and decrease the potential side effects of current
methods. We have been issued US, European, and Japanese patents for
this PCT-dependent inactivation technology.
Protein
Purification
Many
vaccines and drugs are comprised of proteins. These proteins need to be purified
from complex mixtures as part of the manufacturing process. Current purification
techniques often result in the loss of a significant amount of the protein,
therefore, any method that could increase the amount of protein being recovered
in the purification step, would subsequently lead to a reduction in cost to the
manufacturer. We believe we have successfully generated
proof-of-concept that PCT can satisfy this need. We believe that compared to
current purification procedures, a process that uses PCT has the potential to
increase protein recovery, increase the quality of the product, and lower
production costs. We have been issued US and European patents in this
area.
Control
of Chemical (Particularly Enzymatic) Reactions
Chemical
reactions encompass many important interactions in nature. Methods
used to control chemical reactions could have a positive effect on the quality,
speed, and overall result of the reaction. The control and detection of chemical
reactions is particularly useful in the biotechnology field for synthesizing and
characterizing such molecules as nucleic acids and polypeptides. We believe that
PCT offers distinct advantages in controlling chemical reactions over current
methods, since PCT can provide precise, automated control over the timing and
synchronization of chemical reactions, particularly enzymatic
reactions. We have been issued US and European patents in this
area.
Immunodiagnostics
Many
tests used in the clinical laboratory today are based on the formation of a
complex between two proteins, such as an antigen and an
antibody. Such “immunodiagnostic” methods are used for the detection
of infectious agents (such as HIV, hepatitis viruses, and West Nile virus), as
well as for endocrine, drug testing, and cancer diagnostics. We have
generated proof-of-concept that PCT may be used to control bio-molecular
interactions between proteins, such as antigens and antibodies. We
believe this capability may provide a greater degree of sensitivity and
quantitative accuracy in immunodiagnostic testing than that offered by methods
that are available today. We have been issued US and European patents
in this area.
Customers
Our
customers include researchers at academic laboratories, government agencies,
biotechnology, pharmaceutical, and other life science companies in the United
States. Our customers also include five foreign distribution
partners. During 2008, we continued to commercialize PCT with sales,
and/or leases of our instrumentation to customers in all of these
categories. Our goal in 2009 is to continue our market penetration in
these target groups. We also feel that there is a significant
opportunity to sell and/or lease additional Barocycler instrumentation to
additional laboratories at current customer institutions.
If we are
successful in commercializing PCT in applications beyond our current focus area
of genomic, proteomic, and small molecule sample preparation, and if we are
successful in our attempts to attract significant additional capital, our
potential customer base could expand to include hospitals, reference
laboratories, blood banks and transfusion centers, plasma collection centers,
pharmaceutical manufacturing plants, and other sites involved in each specific
application.
Competition
We
compete with companies that have existing technologies for the extraction of
nucleic acids, proteins, and small molecules from “hard-to-lyse” cells and
tissues, including methods such as mortar and pestle grinding, sonication,
rotor-stator homogenization, French Press, bead beating, freezer milling,
enzymatic digestion, and chemical dissolution. We believe that there are a
number of significant issues related to the use of these methods, including:
complexity, sample containment, cross-contamination, shearing of bio-molecules
of interest, limited applicability to different sample types, ease-of-use,
reproducibility, and cost. We believe that the PCT Sample Preparation
System offers a number of significant advantages over these methods, including
labor reduction, temperature control, precision, reproducibility, versatility,
efficiency, simplicity, and safety. To compete, we must be able to clearly
and conclusively demonstrate to potential customers that our products provide
these improved performance capabilities.
We
believe that our PCT Sample Preparation System is a novel and enabling system
for genomic, proteomic, lipidomic, and small molecule sample preparation.
As such, many users of current manual techniques will need to be willing to
challenge their existing methods of sample preparation and invest time to
evaluate a method that could change their overall workflow in the sample
preparation process, prior to adopting our technology. We are also aware
that the cost of the PCT Sample Preparation System may be greater than the cost
of many of the other techniques currently employed. Consequently, we are
focusing our sales efforts on those product attributes that we believe will be
most important and appealing to potential customers, namely versatility,
reproducibility, quality, and safety.
PCT
Compared to Existing Technologies
There are
several incumbent technologies that offer scientists varying degrees of success
in sample preparation. For several years, PBI scientists have been performing
comparative studies with hundreds of samples to better understand how pressure
cycling technology compares with these competitive technologies. Depending on
the area of research and the type of material a scientist may be working with,
there is a different level of importance placed on each attribute. Below is an
illustration of how pressure cycling technology, in our opinion, compares to
several existing technologies across the key attributes that we have assessed
(with a “-”denoting a negative attribute, and a “+” denoting a positive
attribute, and “Min” denoting minimized or reduced).
|
|
Incumbent
Technologies
|
|
|
Key
Attributes
|
|
Sonication
|
|
Bead
Beating
|
|
Tissue
Homogenizer
|
|
Mortar
Pestle
|
|
French
Press
|
|
PCT
|
Safety
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed
System
|
|
-
|
|
+
|
|
-
|
|
-
|
|
-
|
|
+
|
Storage,
Transport
|
|
-
|
|
+
|
|
-
|
|
-
|
|
-
|
|
+
|
Versatility
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
+
|
Reproducibility
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
+
|
Efficiency
|
|
-
|
|
-/+
|
|
-
|
|
-
|
|
-
|
|
+
|
Shearing
Molecules
|
|
Yes
|
|
Yes
|
|
Yes
|
|
Min
|
|
Yes
|
|
Min
|
Manufacturing
and Supply
Source
Scientific, LLC currently provides all of the manufacturing and assembly
services for our instrumentation products. We plan to continue to
utilize Source Scientific, LLC as our primary assembler and contract
manufacturer of our current, and future, Barocycler instruments. We
have initiated several engineering initiatives to position us for greater
independence from any one supplier, and we are in the process of developing a
network of manufacturers and sub-contractors to reduce our reliance on any
single supplier. Until we develop a broader network of manufacturers
and subcontractors, obtaining alternative sources of supply or manufacturing
services could involve significant delays and other costs and challenges, and
may not be available to us on reasonable terms, if at all. The failure of a
supplier or contract manufacturer to provide sufficient quantities, acceptable
quality and timely products at an acceptable price, or an interruption of
supplies from such a supplier could harm our business and
prospects.
Research
and Development
Our
research and development expenses were approximately $1.8 million and $2.0
million for the years ended December 31, 2008 and 2007,
respectively. Our research and development activities are split into
two functional areas, applications and engineering.
Applications
Research and Development
Our
highly educated and trained staff has years of experience in molecular and
cellular biology, virology, and proteomics. Our team of scientists focuses on
the development of PCT-dependent genomic, proteomic, and small molecule sample
preparation methods that we believe will result in near-term commercial
opportunities. Dr. Alex Lazarev, our Vice President of Research &
Development, and his team meet regularly with our sales, marketing, and
engineering departments to discuss market needs and trends. Our
applications research and development staff is responsible for the technical
review of all scientific collaborations, for the support of our marketing and
sales departments through the generation of internal data in a number of areas
of market interest, and in the development of commercially-viable PCT-dependent
products.
Engineering
Research and Development
Our
engineering research and development team is focused on the design and
development of new and improved instrumentation and consumable products to
support the commercialization of PCT. Our engineering department is
led by Dr. Edmund Ting, our Senior Vice President of Engineering, and is
supported by a full-time senior engineer and third parties. The
primary focus of our engineering group is to ensure seamless production
processes, perform installations and field service, and work with our
application scientists to complete the development of a high throughput sample
processing system for the mass spectrometry market.
Sales
and Marketing
Our sales
and marketing efforts are centered on using the independent data developed and
disseminated by our collaboration partners to help drive the installed base of
PCT Sample Preparation Systems. The development of scientific data by our
partners and our internal researchers provides our sales and marketing staff
with additional tools that are essential in selling a new technology such as
PCT.
Sales
Direct US Sales
Force
Our
domestic sales force is led by our Vice President of Sales, Matthew B.
Potter. Mr. Potter is responsible for directing the efforts of our
two full-time sales directors, and for covering accounts in the Mid-West and New
England regions. We believe that hiring seasoned sales professionals,
with significant industry experience, will allow us to more effectively
penetrate the market with a small, focused sales force. Throughout 2009, we plan
to monitor this strategy and may increase the number of sales professionals if
our financial resources permit and if we believe that doing so will accelerate
our commercialization efforts.
Foreign Distributor
Network
We have a
distribution agreement with Veritas Corporation (“Veritas”) of Tokyo, Japan
pursuant to which we granted Veritas exclusive distribution rights to all of our
products in Japan. The agreement is effective from January 1, 2008 to
December 31, 2010.
In
December 2007, we signed a distribution agreement with Disruptive Technologies
(“DT”) of Villecresnes, France pursuant to which we granted DT exclusive
distribution rights to all of our products in France, Belgium, and Switzerland.
The agreement is effective from January 1, 2008 through December 31,
2010.
In
September 2007, we signed a distribution agreement with CM Corporation (“CM”),
of Seoul, South Korea pursuant to which we granted CM exclusive distribution
rights to all of our products in South Korea. The agreement is
effective from September 1, 2007 through August 31, 2010.
In May
2008, we signed a distribution agreement with the Ivorist Group (“Ivorist”), of
Taipei, Taiwan pursuant to which we granted Ivorist exclusive distribution
rights to all of our products in Taiwan. The agreement is effective
from May 15, 2008 through June 30, 2010.
In May
2008, we signed a distribution agreement with Analyx Technology Corporation
(“Analyx”), of Beijing, People’s Republic of China pursuant to which we granted
Analyx exclusive distribution rights to all of our products in the People’s
Republic of China. The agreement is effective from May 15, 2008
through June 30, 2010.
Marketing
Our
marketing function includes Dr. Nate Lawrence, our Vice President of Marketing,
and a limited amount of external support. Our marketing department
oversees and directs marketing activities such as trade show attendance and
sponsorship, on-line advertising, website maintenance and improvement, search
engine optimization, creation and dissemination of a PCT newsletter, market
research initiatives, and the arrangement of on-location seminars, lectures, and
demonstrations of PCT capabilities. Our marketing function is also
responsible for the overall coordination of our collaboration programs, from
initial set-up, research plan design, and training, service, and data
analysis. Some of these responsibilities are shared with other PBI
departments (such as R&D), but marketing drives the collaborative
process. Our marketing team is also responsible for the continued
coordination and support of our foreign, and domestic, distribution
partners.
Domestic Co-Marketing
Partner
In
December 2008, we entered into a strategic marketing, distribution, and
technology co-development Agreement with Omni International (“Omni”) of
Marietta, Georgia. Under the terms of the Agreement, we will: (1)
share market data, customer leads and technology assessments; (2) co-promote
certain products at industry trade shows beginning in 2009; (3) license Omni to
sell PBI's recently released, patent-pending PCT Shredder to laboratories
worldwide; and (4) co-develop new instrumentation and consumables that combine
the homogenization capabilities of Omni with our extraction capabilities in an
effort to provide research scientists with a targeted approach to better solve
certain sample preparation issues.
Intellectual
Property
We
believe that protection of our patents and other intellectual property is
essential to our business. Our practice is to file patent applications to
protect technology, inventions, and improvements to inventions that are
important to our business development. We also rely on trade secrets,
know-how, and technological innovations to develop and maintain our potential
competitive position. To date, we have been granted thirteen United States
patents, three European patents, one Australian patent, one Japanese patent, and
one Canadian patent. Our issued patents expire between 2015 and 2027. Our
failure to obtain and maintain adequate patent protection may adversely affect
our ability to enter into, or affect the terms of, any arrangement for the
marketing or sale of any of our PCT products. It may also allow our competitors
to duplicate our products without our permission and without
compensation.
License
Agreements Relating to Pressure Cycling Technology
BioMolecular Assays,
Inc.
In 1996,
we acquired our initial equity interest in BioSeq, Inc., which at the time was
developing our original pressure cycling technology. BioSeq, Inc. acquired
its pressure cycling technology from BioMolecular Assays, Inc. under a
technology transfer and patent assignment agreement. In 1998, we purchased
all of the remaining outstanding capital stock of BioSeq, Inc., and at such
time, the technology transfer and patent assignment agreement was amended to
require us to pay BioMolecular Assays, Inc. a 5% royalty on our sales of
products or services that incorporate or utilize the original pressure cycling
technology that BioSeq, Inc. acquired from BioMolecular Assays, Inc. We
are also required to pay BioMolecular Assays, Inc. 5% of the proceeds from any
sale, transfer or license of all or any portion of the original pressure cycling
technology. These payment obligations terminate in 2016. During the
fiscal years ended December 31, 2008 and 2007, we paid BioMolecular Assays, Inc.
$29,553 and $19,596 in royalties.
In
connection with our acquisition of BioSeq, Inc., we licensed certain limited
rights to the original pressure cycling technology back to BioMolecular Assays,
Inc. This license is non-exclusive and limits the use of the
original pressure cycling technology by BioMolecular Assays, Inc. solely for
molecular applications in scientific research and development and in scientific
plant research and development. BioMolecular Assays, Inc. is required to
pay us a royalty equal to 20% of any license or other fees and royalties, but
not including research support and similar payments, it receives in connection
with any sale, assignment, license or other transfer of any rights granted to
BioMolecular Assays, Inc. under the license. BioMolecular Assays, Inc. must pay
us these royalties until the expiration of the patents held by BioSeq, Inc. in
1998, which we anticipate will be 2016. We have not received any royalty
payments from BioMolecular Assays, Inc. under this license.
Battelle Memorial
Institute
In
December 2008, we entered into an exclusive patent license agreement with the
Battelle Memorial Institute ("Battelle"). The licensed technology is related to
a method and a system for improving the analysis of protein samples, including
through an automated, in-line 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. Pursuant to the terms of the agreement we paid
Battelle a non-refundable initial fee of $10,000 and we are obligated to make a
second non-refundable payment in the amount of $25,000 on or before June 30,
2009. In addition to royalty payments of 3.8% of 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 ranging
from $5,000 to $25,000 per year 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.
Regulation
Many of
our activities are subject to regulation by governmental authorities within the
United States and similar bodies outside of the United States. The regulatory
authorities may govern the collection, testing, manufacturing, safety, efficacy,
labeling, storage, record keeping, transportation, approval, advertising, and
promotion of our products, as well as the training of our
employees.
All of
our commercialization efforts to date are focused in the area of genomic,
proteomic, and small molecule sample preparation. We do not believe
that our current Barocycler products used in sample preparation are considered
“medical devices” under the United States Food, Drug and Cosmetic Act (the
“Act”) and we do not believe that we are subject to the law’s general control
provisions that include requirements for registration, listing of devices,
quality regulations, labeling, and prohibitions against misbranding and
adulteration. Nor do we believe that we are subject to regulatory
inspection and scrutiny. If, however, we are successful in
commercializing PCT in applications beyond our current focus area of genomic,
proteomic, and small molecule sample preparation, such as protein purification,
pathogen inactivation and immunodiagnostics, our products may be considered
“medical devices” under the Act, at which point we would be subject to the law’s
general control provisions and regulation by the U.S. Food and Drug
Administration (the “FDA”) that include requirements for registration listing of
devices, quality regulations, labeling, and prohibitions against misbranding and
adulteration. The process of obtaining approval to market these
devices in the other potential applications of PCT would be costly and time
consuming and could prohibit us from pursuing such markets.
We may
also become subject to the European Pressure Equipment Directive, which requires
certain pressure equipment meet certain quality and safety
standards. We do not believe that we are currently subject to this
directive because our Barocycler instruments are below the threshold documented
in the text of the directive. If our interpretation were to be
challenged, we could incur significant costs defending the challenge, and we
could face production and selling delays, all of which could harm our
business.
Our
Barocycler instrumentation received CE Marking, which means that our Barocycler
instruments meet the essential requirements of the relevant European health,
safety and environmental protection legislation. The CE Mark is an
important step toward our anticipated full-scale launch of our PCT product line
in Europe during 2008. In order to maintain our CE Marking, a
requirement to sell equipment in many countries of the European Union, we are
obligated to uphold certain safety and quality standards.
Employees
As of
March 20, 2009, we had thirteen (13) full-time employees.
Our 13
employees include four employees in the sales and marketing and technical
support functions, three in general and administrative, three in applications
research and development, and three in engineering research and
development.
Our
Executive Officers
The
following table sets forth the names, ages and positions of our current
executive officers as of March 24, 2009:
Name
|
|
Age
|
|
Position
|
Richard
T. Schumacher
|
|
58
|
|
President,
Chief Executive Officer and Director
|
Edmund
Ting, Ph.D.
|
|
54
|
|
Senior
Vice President of Engineering
|
Nathan
P. Lawrence, Ph.D.
|
|
54
|
|
Vice
President of Marketing
|
Alexander
Lazarev, Ph.D.
|
|
44
|
|
Vice
President of Research and Development
|
Matthew
B. Potter
|
|
43
|
|
Vice
President of Sales
|
Set forth
below is biographical information for each of our executive
officers.
Mr. Richard T.
Schumacher, the founder of our company, has served as one of our
directors since 1978. He has served as our Chief Executive Officer since April
16, 2004 and President since September 14, 2004. He previously served as Chief
Executive Officer and Chairman of the Board of our company from 1992 to February
2003. From July 9, 2003 until April 14, 2004 he served as a consultant to our
company pursuant to a consulting agreement. He served as President of our
company from 1986 to August 1999. Mr. Schumacher served as the Director of
Infectious Disease Services for Clinical Sciences Laboratory, a New
England-based medical reference laboratory, from 1986 to 1988. From 1972 to
1985, Mr. Schumacher was employed by the Center for Blood Research, a nonprofit
medical research institute associated with Harvard Medical School. Mr.
Schumacher received a B.S. in Zoology from the University of New
Hampshire.
Dr. Edmund Ting
joined as Senior Vice President of Engineering on April 24, 2006. Prior
to joining, Dr. Ting served as the Chief Research Officer of Avure Technologies,
a leading worldwide manufacturer of high pressure hydrostatic processing
equipment for the food and materials processing industry, where he worked from
2001 to 2006. From 1990 to 2001, Dr. Ting was employed by Flow International
Corporation, a world leader in the ultrahigh pressure waterjet cutting
technology market, and the parent company of Avure Technologies until November
2005. Dr. Ting last held the position of VP of Engineering Research and
Development at Flow International Corporation. From 1984 to 1990, Dr. Ting was a
research scientist, then a group leader at Grumman Aerospace Corporation. Dr.
Ting earned a Bachelor of Science degree in mechanical engineering from
Northeastern University and a Science Doctorate in materials science and
engineering from the Massachusetts Institute of Technology.
Dr. Nathan P.
Lawrence was appointed Vice President of Marketing and Sales on April 1,
2006. Dr. Lawrence joined Pressure BioSciences Inc. in 2005, serving as
Director of Research and Development until his promotion to Vice President of
Marketing and Business Development in 2006. Dr. Lawrence was responsible
for the development of protocols based on Pressure Cycling Technology
(PCT). From 2004 through 2005, Dr. Lawrence worked for 454 Life Sciences
in product development. Prior to 454 Life Sciences, Dr. Lawrence was
Director of Research and Development for Boston Biomedica, Inc. from
1998-2004. He was responsible for the development of PCT, as well as the
development of nucleic acid-based diagnostic assays. Prior to joining
Boston Biomedica, Inc., Dr. Lawrence held several positions with increasing
responsibility in Research and Development and manufacturing at Becton Dickinson
and Gene Trak Systems. Dr. Lawrence holds a BA from the University of
Miami, an M.S. from Southern Connecticut State University, and a Ph.D. from Yale
University.
Dr. Alexander
Lazarev was promoted to the position of Vice President of Research and
Development, effective March 20, 2007. Prior to his promotion he served as our
Director of Research and Development, since joining us on April 3,
2006. Prior to joining Pressure BioSciences, Inc., Dr. Lazarev worked as a
Visiting Scientist at the Barnett Institute of Chemical and Biological Analysis
at Northeastern University in 2005, and served as a Director of New Technology
Development at Proteome Systems, Inc., where he was involved in research and
development of innovative proteomic analysis applications from 2001 until early
2006. From 1998 to 2001, Dr. Lazarev was employed as Senior Scientist at the
Proteomics Division of Genomic Solutions, Inc. Prior to his employment at
Genomic Solutions, Inc., Dr. Lazarev was employed in an analytical contract
service startup company, PhytoChem Technologies, Inc., which was founded as a
spin-off from ESA, Inc. in 1997. Previously, Dr. Lazarev held various scientific
positions at the Ohio State University School of Medicine and the Uniformed
Services University of Health Sciences. Most of his scientific career has been
dedicated to development of methods and applications for biochemical analysis.
Since 2005, Dr. Lazarev has been elected as an Executive Board member of the
MASSEP.org, a non-profit scientific discussion forum dedicated to the promotion
and improvement of chromatography and other analytical technologies. Dr. Lazarev
earned his undergraduate and graduate degrees at the University of Kazan,
Russian Federation.
Mr. Matthew B.
Potter joined PBI as our Vice President of Sales on February 25, 2008 and
was appointed an executive officer on March 6, 2008. Mr. Potter has worked
in many different disciplines that include molecular biology, chromatography,
personalized medicine, diagnostics, & biophysics. Prior to
joining PBI Mr. Potter was the Vice President of Sales & Marketing at Abcam,
Inc. from July 2007 to January 2008. Prior to Abcam, Mr. Potter was
the National Sales Manager: Key Accounts Pharmaceutical at Qiagen, Inc. from
July 2005 to May 2007. Prior to Qiagen, Mr. Potter was Director,
Sales and Marketing at MicroCal, LLC from January 2000 to July
2005. Mr. Potter is also a former Treasurer of the New England
Scientific Manufacturers Association and has been cited as a co-author and
contributor on assorted scientific publications during his tenure working at the
Worcester Foundation for Experimental Biology. Mr. Potter holds a BA
in Biology from Clark University and an MBA from Assumption College, both
located in Worcester, MA.
This
report contains forward-looking statements that involve risks and uncertainties,
such as statements of our objectives, expectations and intentions. The
cautionary statements made in this report should be read as applicable to all
forward-looking statements wherever they appear in this report. Our actual
results could differ materially from those discussed herein. Factors that could
cause or contribute to such differences include those discussed below, as well
as those discussed elsewhere in this report.
We
will require additional capital to further develop our pressure cycling
technology products and services and cannot ensure that additional capital will
be available on acceptable terms or at all.
We have
experienced negative cash flows from operations from our pressure cycling
technology business since its inception. As of December 31, 2008, we
had available cash of approximately $918,000. Based on our current
projections, we believe our current cash resources, which includes the funds we
received from the private placement we completed in February 2009, are
sufficient to fund our normal operations into the second quarter of
2010.
We will
need additional capital sooner than we currently expect if we experience
unforeseen costs or expenses, unanticipated liabilities or delays in
implementing our business plan, developing our products and achieving commercial
sales. We also believe that we will need substantial capital to accelerate the
growth and development of our pressure cycling technology products and services
in the sample preparation area, as well as for applications in other areas of
life sciences. Our capital requirements will depend on many factors, including
but not limited to:
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the
problems, delays, expenses, and complications frequently encountered by
early-stage companies;
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market
acceptance of our pressure cycling technology products and services for
sample preparation;
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the
success of our sales and marketing programs;
and
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changes
in economic, regulatory or competitive conditions in the markets we intend
to serve.
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To
satisfy our potential capital requirements to cover the cost of the development
and commercialization of our pressure cycling technology products and services
relating to sample preparation and other life science applications, we expect to
raise additional funds in the public or private capital markets. We
may seek to raise any necessary additional funds through the issuance of
warrants, equity or debt financings or executing collaborative arrangements with
corporate partners or other sources, which may be dilutive to existing
stockholders or otherwise have a material effect on our current or future
business prospects. Additional financing may not be available to us on a timely
basis, if at all, or on terms acceptable to us. If adequate funds are not
available or if we fail to obtain acceptable additional financing, we may be
required to:
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obtain
financing with terms that may have the effect of diluting or adversely
affecting the holdings or the rights of the holders of our
stock;
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obtain
funds through arrangements with future collaboration partners or others
that may require us to relinquish rights to some or all of our
technologies or products;
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implement
additional cost reduction initiatives;
or
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limit
or cease our operations or otherwise reduce planned expenditures and
forego other business opportunities, which could harm our
business.
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Our
actual results and performance, including our ability to raise additional
capital, may be adversely affected by current economic conditions.
Our
actual results and performance could be adversely affected by the current
economic conditions in the global economy, which pose a risk to the overall
demand for our products from our customers who may elect to defer or cancel
purchases of our products in response to tighter credit markets, negative
financial news and general uncertainty in the economy. In addition, our ability
to obtain additional financing, on acceptable terms, if at all, may be adversely
affected by the crisis in the credit markets and the uncertainty in the current
economic climate.
We
have a history of operating losses, anticipate future losses and may never be
profitable.
We have
experienced significant operating losses in the area of pressure cycling
technology in each period since we began investing resources in pressure cycling
technology in 1998. These losses have resulted principally from
research and development, sales and marketing, and general and administrative
expenses associated with the development of our pressure cycling technology
business. We expect to continue to incur operating losses until sales
of our pressure cycling technology products increase
substantially. We cannot be certain when, if ever, we will become
profitable. Even if we were to become profitable, we might not be
able to sustain such profitability on a quarterly or annual
basis.
Our
financial results depend on revenues from our pressure cycling technology
products and services, which has a limited operating history, and from
government grants.
We
currently rely on revenues from our pressure cycling technology products and
services in the sample preparation area and from revenues derived from grants
awarded to us by governmental agencies, such as the National Institutes of
Health. We only recently commercialized our pressure cycling
technology products and services for sample preparation. Our limited sales and
operating history may not be adequate to enable you to fully assess our ability
to achieve market acceptance of our product offering. Competition for
government grants is very intense, and we can provide no assurance that we will
continue to be awarded grants in the future. If we are unable to
increase revenues from sales of our pressure cycling technology products and
services and government grants, our business will fail.
Our
business may be harmed if we encounter problems, delays, expenses, and
complications that affect early-stage companies.
We are an
early-stage company and our pressure cycling technology business has a limited
operating history. Early-stage companies may encounter problems,
delays, expenses and complications, many of which may be beyond our control or
may harm our business or prospects. These include:
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unanticipated
problems and costs relating to the development, testing, production,
marketing, and sale of our
products;
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delays
and costs associated with our ability to attract and retain key
personnel;
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availability
of adequate financing; and
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We cannot
guarantee that we will successfully complete the transition from an early-stage
company to the commercialization of our pressure cycling technology products and
services.
We
may be unable to obtain market acceptance of our pressure cycling technology
products and services.
Many of
our initial sales of our pressure cycling technology products and services have
been to our collaborators, following their use of our products in studies
undertaken in sample preparation for genomics, proteomics and small molecules
studies. Our technology requires scientists and researchers to adopt
a method of sample extraction that is different than existing
techniques. Our PCT sample preparation system is also more costly
than existing techniques. Our ability to obtain market acceptance
will depend, in part, on our ability to demonstrate to our potential customers
that the benefits and advantages of our technology outweigh the increased cost
of our technology compared to existing methods of sample
extraction. If we are unable to demonstrate the benefits and
advantages of our products and technology as compared to existing technologies,
then we may not gain market acceptance and our business will fail.
The
sales cycle of our pressure cycling technology products is
lengthy. We have incurred and may continue to incur significant
expenses and we may not generate any significant revenue related to those
products.
Many of
our current and potential customers have required between three and six months,
or more to test and evaluate our pressure cycling technology
products. This increases the possibility that a customer may decide
to cancel its order or otherwise change its plans, which could reduce or
eliminate our sales to that potential customer. As a result of this lengthy
sales cycle, we have incurred and may continue to incur significant research and
development, selling and marketing, and general and administrative expense
related to customers from whom we have not yet generated any revenue from our
products, and from whom we may never generate the anticipated revenue if a
customer cancels or changes its plans.
Our
business could be harmed if our products contain undetected errors or
defects.
We are
continuously developing new, and improving our existing, pressure cycling
technology products in sample preparation and we expect to do so in other areas
of life sciences depending upon the availability of our
resources. Newly introduced products can contain undetected errors or
defects. In addition, these products may not meet their performance
specifications under all conditions or for all applications. If,
despite internal testing and testing by our collaborators, any of our products
contain errors or defects or fail to meet customer specifications, then we may
be required to enhance or improve those products or technologies. We
may not be able to do so on a timely basis, if at all, and may only be able to
do so at considerable expense. In addition, any significant
reliability problems could result in adverse customer reaction, negative
publicity or legal claims and could harm our business and
prospects.
Our
success may depend on our ability to manage growth effectively.
We expect
our operations to grow at a rapid pace as we further commercialize our pressure
cycling technology in sample preparation and other areas of life
sciences. Our failure to manage growth effectively could harm
our business and prospects. Given our limited resources and
personnel, growth of the business could place significant strain on our
management, information technology systems, sources of manufacturing capacity
and other resources. To properly manage our growth, we may need to
hire additional employees and identify new sources of manufacturing
capabilities. Failure to effectively manage our growth could make it
difficult to manufacture our products and fill orders, as well as lead to
declines in product quality or increased costs, any of which would adversely
impact our business and results of operations.
Our
success is substantially dependent on the continued service of our senior
management.
Our
success is substantially dependent on the continued service of our senior
management. We do not have long-term employment agreements with our
key employees. The loss of the services of any of these individuals could make
it more difficult to successfully operate our business and achieve our business
goals. In addition, our failure to retain existing engineering,
research and development and sales personnel could harm our product development
capabilities and customer and employee relationships, delay the growth of sales
of our products and could result in the loss of key information, expertise or
know-how.
We
may not be able to hire or retain the number of qualified personnel,
particularly engineering personnel, required for our business, which would harm
the development and sales of our products and limit our ability to
grow.
Competition
in our industry for senior management, technical, sales, marketing, finance and
other key personnel is intense. If we are unable to retain our existing
personnel, or attract and train additional qualified personnel, our growth may
be limited. Our success also depends in particular on our ability to
identify, hire, train and retain qualified engineering personnel with experience
in design and development of laboratory equipment.
Our
reliance on a single third party for all of our manufacturing, and certain of
our engineering, and other related services could harm our
business.
We
currently rely on Source Scientific, LLC, a third party contract manufacturer,
to manufacture our products, provide engineering expertise, and manage the
majority of our sub-contractor supplier relationships. Because of our
dependence on one manufacturer, our success will depend, in part, on the ability
of Source Scientific to manufacture our products cost effectively, in sufficient
quantities to meet our customer demand, if and when such demand occurs, and
meeting our quality requirements. If Source Scientific
experiences manufacturing problems or delays, or if Source Scientific decides
not to continue to provide us with these services, our business may be harmed.
While we believe other contract manufacturers are available to address our
manufacturing and engineering needs, if we find it necessary to replace Source
Scientific, there will be a disruption in our business and we would incur
additional costs and delays that would harm our business.
Our
failure to manage current or future alliances or joint ventures effectively may
harm our business.
We have
entered into business relationships with distribution partners, and we may enter
into additional alliances, joint ventures or other business relationships to
further develop our pressure cycling technology product line. We may
not be able to:
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identify
appropriate candidates for alliances, joint ventures or other business
relationships;
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assure
that any candidate for an alliance, joint venture or business relationship
will provide us with the support
anticipated;
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successfully
negotiate an alliance, joint venture or business relationship on terms
that are advantageous to us; or
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successfully
manage any alliance or joint
venture.
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Furthermore,
any alliance, joint venture or other business relationship may divert management
time and resources. Entering into a disadvantageous alliance, joint
venture or business relationship, failing to manage an alliance, joint venture
or business relationship effectively, or failing to comply with any obligations
in connection therewith, could harm our business and prospects.
We
may not be successful in growing our international sales.
We cannot
guarantee that we will successfully develop our international sales channels to
enable us to generate significant revenue from international
sales. To date, we have entered into five international distribution
agreements, covering Belgium, France, Switzerland, Japan, China, Taiwan and
South Korea. We have generated limited sales to date from
international sales and cannot guarantee that we will be able to increase our
sales. As we expand, our international operations may be subject to
numerous risks and challenges, including:
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multiple,
conflicting and changing governmental laws and regulations, including
those that regulate high pressure
equipment;
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reduced
protection for intellectual property rights in some
countries;
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protectionist
laws and business practices that favor local
companies;
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political
and economic changes and
disruptions;
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export/import
controls;
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tariff
regulations; and
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Our
operating results are subject to quarterly variation.
Our
operating results may fluctuate significantly from period to period depending on
a variety of factors, including the following:
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our
ability to increase our sales of our pressure cycling technology products
for sample preparation on a consistent quarterly or annual
basis;
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the
lengthy sales cycle for our
products;
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the
product mix of the Barocycler instruments we install in a given period,
and whether the installations are completed pursuant to sales, rental or
lease arrangements, and the average selling prices that we are able to
command for our products;
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our
ability to manage our costs and
expenses;
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our
ability to continue our research and development activities without
unexpected costs and expenses; and
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our
ability to comply with state and federal regulations without incurring
unexpected costs and expenses.
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Our
instrumentation operates at high pressures and may therefore become subject to
certain regulation in the European Community. Regulation of high
pressure equipment may limit or hinder our development and sale of future
instrumentation.
Our
Barocycler instruments operate at high pressures. If our Barocycler
instruments exceed certain pressure levels, our products may become subject to
the European Pressure Equipment Directive, which requires certain pressure
equipment meet certain quality and safety standards. We do not
believe that we are subject to this directive because our Barocycler instruments
are currently below the threshold documented in the text of the
directive. If our interpretation were to be challenged, we could
incur significant costs defending the challenge, and we could face production
and selling delays, all of which could harm our business.
We
expect that we will be subject to regulation in the United States, such as the
FDA, and overseas as we begin to invest more resources in the development and
commercialization of PCT in applications outside of sample
preparation.
Our
current pressure cycling technology products in the area of sample preparation
are not regulated by the U.S. Food and Drug Administration, or the
FDA. Applications in which we intend to develop and commercialize
pressure cycling technology, such as protein purification, pathogen inactivation
and immunodiagnostics, are expected to require regulatory approvals or
clearances from regulatory agencies, such as the FDA, prior to
commercialization. We expect that obtaining these approvals or
clearances will require a significant investment of time and capital resources
and there can be no assurance that such investments will receive approvals or
clearances that would allow us to commercialize the technology for these
applications.
If
we are unable to protect our patents and other proprietary technology relating
to our pressure cycling technology products, our business will be
harmed.
Our
ability to further develop and successfully commercialize our products will
depend, in part, on our ability to enforce our patents, preserve our trade
secrets, and operate without infringing the proprietary rights of third parties.
We currently have thirteen United States patents issued and several pending
patent applications for our pressure cycling technology. Several of these have
been followed up with foreign applications, for which three patents have been
issued in Europe and one patent has been issued in Australia, one in Japan, and
one in Canada. We expect to file additional foreign applications in the future
relating to our pressure cycling technology, and we will file additional United
States applications as we develop new patentable intellectual property.
The patents which have been issued expire between 2015 and 2027.
There can
be no assurance that:
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any
patent applications filed by us will result in issued
patents;
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patent
protection will be secured for any particular
technology;
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any
patents that have been or may be issued to us will be valid or
enforceable;
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any
patents will provide meaningful protection to
us;
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others
will not be able to design around our patents;
or
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our
patents will provide a competitive advantage or have commercial
value.
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The
failure to obtain adequate patent protection would have a material adverse
effect on us and may adversely affect our ability to enter into, or affect the
terms of, any arrangement for the marketing or sale of any product.
Our
patents may be challenged by others.
We could
incur substantial costs in patent proceedings, including interference
proceedings before the United States Patent and Trademark Office, and comparable
proceedings before similar agencies in other countries, in connection with any
claims that may arise in the future. These proceedings could result in adverse
decisions about the patentability of our inventions and products, as well as
about the enforceability, validity, or scope of protection afforded by the
patents.
If
we are unable to maintain the confidentiality of our trade secrets and
proprietary knowledge, others may develop technology and products that could
prevent the successful commercialization of our products.
We also
rely on trade secrets and other unpatented proprietary information in our
product development activities. To the extent we rely on trade secrets and
unpatented know-how to maintain our competitive technological position, there
can be no assurance that others may not independently develop the same or
similar technologies. We seek to protect our trade secrets and proprietary
knowledge, in part, through confidentiality agreements with our employees,
consultants, advisors and contractors. Nevertheless, these agreements may not
effectively prevent disclosure of our confidential information and may not
provide us with an adequate remedy in the event of unauthorized disclosure of
such information. If our employees, consultants, advisors, or contractors
develop inventions or processes independently that may be applicable to our
products, disputes may arise about ownership of proprietary rights to those
inventions and processes. Such inventions and processes will not necessarily
become our property, but may remain the property of those persons or their
employers. Protracted and costly litigation could be necessary to enforce and
determine the scope of our proprietary rights. Failure to obtain or maintain
trade secret protection, for any reason, could harm our business.
If
we infringe on the intellectual property rights of others, our business will be
harmed.
It is
possible that the manufacture, use or sale of our pressure cycling technology
products or services may infringe patent or other intellectual property rights
of others. We may be unable to avoid infringement of the patent or other
intellectual property rights of others and may be required to seek a license,
defend an infringement action, or challenge the validity of the patents or other
intellectual property rights in court. We may be unable to secure a license on
terms and conditions acceptable to us, if at all. Also, we may not prevail in
any patent or other intellectual property rights litigation. Patent or other
intellectual property rights litigation is costly and time-consuming, and there
can be no assurance that we will have sufficient resources to bring any possible
litigation related to such infringement to a successful conclusion. If we do not
obtain a license under such patents or other intellectual property rights, or if
we are found liable for infringement, or if we are unsuccessful in having such
patents declared invalid, we may be liable for significant monetary damages, may
encounter significant delays in successfully commercializing and developing our
pressure cycling technology products, or may be precluded from participating in
the manufacture, use, or sale of our pressure cycling technology products or
services requiring such licenses.
We
may be unable to adequately respond to rapid changes in technology and the
development of new industry standards.
The
introduction of products and services embodying new technology and the emergence
of new industry standards may render our existing pressure cycling technology
products and related services obsolete and unmarketable if we are unable to
adapt to change. We may be unable to allocate the funds necessary to improve our
current products or introduce new products to address our customers’ needs and
respond to technological change. In the event that other companies develop more
technologically advanced products, our competitive position relative to such
companies would be harmed.
We
may not be able to compete successfully with others that are developing or have
developed competitive technologies and products.
A number
of companies have developed, or are expected to develop, products that compete
or will compete with our products. We compete with companies that have existing
technologies for the extraction of nucleic acids, proteins and small molecules
from cells and tissues, including methods such as mortar and pestle, sonication,
rotor-stator homogenization, French press, bead beating, freezer milling,
enzymatic digestion, and chemical dissolution. We are aware that there are
additional companies pursuing new technologies with similar goals to the
products developed or being developed by us. Some of the companies with which we
now compete, or may compete in the future, have or may have more extensive
research, marketing, and manufacturing capabilities, more experience in genomics
and proteomics sample preparation, protein purification, pathogen inactivation,
immunodiagnostics, and DNA sequencing and significantly greater technical,
personnel and financial resources than we do, and may be better positioned to
continue to improve their technology to compete in an evolving industry. To
compete, we must be able to demonstrate to potential customers that our products
provide improved performance and capabilities. Our failure to compete
successfully could harm our business and prospects.
Provisions
in our articles of organization and bylaws and our poison pill may discourage or
frustrate shareholders’ attempts to remove or replace our current
management.
Our
articles of organization and bylaws contain provisions that may make it more
difficult or discourage changes in our management that our stockholders may
consider to be favorable. These provisions include:
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a
classified board of directors;
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advance
notice for stockholder nominations to the board of
directors;
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limitations
on the ability of stockholders to remove directors;
and
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a
provision that allows a majority of the directors to fill vacancies on the
board of directors.
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Our
shareholders rights agreement, or “poison pill”, may also have the effect of
discouraging or preventing a change in control.
These
provisions could prevent or frustrate attempts to make changes in our management
that our stockholders consider to be beneficial and could limit the price that
our stockholders might receive in the future for shares of our common
stock.
The
costs of compliance with the reporting obligations of the Exchange Act, and with
the requirements of the Sarbanes-Oxley Act of 2002, may place a strain on our
limited resources and our management’s attention may be diverted from other
business concerns.
As a
result of the regulatory requirements applicable to public companies, we incur
legal, accounting, and other expenses that are significant in relation to the
size of our company. In addition, the Sarbanes-Oxley Act of 2002, as well
as rules subsequently implemented by the SEC and NASDAQ, have required changes
in corporate governance and financial disclosure practices of public companies,
some of which are currently applicable to us and others will or may become
applicable to us in the future. These rules and regulations will increase
our legal and financial compliance costs and may make some activities more
time-consuming. These requirements may place a strain on our systems and
on our management and financial resources.
The
holders of our common stock could suffer substantial dilution as the result of
the private placement we completed in February 2009.
In
connection with the private placement we completed in February 2009, we issued
Series A Convertible Preferred Stock, together with warrants to purchase shares
of Series A Convertible Preferred Stock and common stock. Each share of Series A
Convertible Preferred Stock is convertible into 10 shares of common
stock. If all of the shares of Series A Convertible Preferred
Stock, together with the warrants to purchase Series A Convertible Preferred
Stock and common stock, were converted or exercised into shares of our common
stock, an additional 4,709,400 shares of common stock would be issued and
outstanding. The additional issuance of common stock would cause
immediate and substantial dilution to our existing stockholders, and could cause
a significant reduction in the market price of our common stock.
Our
shares of Series A Convertible Preferred Stock are entitled to certain rights,
privileges and preferences over our common stock, including the right to receive
dividends and a preference upon a liquidation of the company, which could reduce
amounts available for distribution to our common stockholders.
We have
never declared or paid any cash dividends on our common stock and do not plan to
pay any cash dividends on our common stock in the foreseeable
future. The holders of our shares of Series A Convertible Preferred
Stock, however, are entitled to receive a cumulative dividend at the rate of 5%
per annum of the purchase price paid for the Series A Convertible Preferred
Stock, payable semi-annually on June 30 and December 31, commencing on June 30,
2009. Dividends may be paid in cash or in shares of common stock at
our option, subject to certain conditions. If we elect to pay
the dividends in cash, we will have less cash available for operations, and less
cash available to the holders of common stock upon a liquidation of the
company. If we elect to pay the dividends in common stock, our
common stockholders will suffer additional dilution.
The
Series A Convertible Preferred Stock is also entitled to receive preferential
treatment in the event of liquidation, dissolution or winding up of our company,
which could leave significantly less assets, if any, available for distribution
to our common stockholders upon a liquidation, dissolution or winding up of our
company.
There
is no guarantee that we will continue to meet the standards for continued
listing on the NASDAQ Capital Market. The value of your investment in
our company may substantially decrease if we were delisted from
NASDAQ.
As of the
date of this Annual Report on Form 10-K, we are in compliance with the continued
listing standards of the NASDAQ Capital Market. However, we cannot
guarantee that we will continue to meet the standards for listing in the
future. Upon delisting from the NASDAQ Capital Market, our common
stock would be traded on the over-the-counter bulletin board (“OTC”). OTC
transactions involve risks in addition to those associated with transactions in
securities traded on the NASDAQ Capital Market. Many OTC stocks trade less
frequently and in smaller volumes than NASDAQ listed stocks. Accordingly,
delisting from the NASDAQ Capital Market could adversely affect the trading
price of our common stock, significantly limit the liquidity of our common stock
and impair our ability to raise additional funds.
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS.
|
Not
Applicable.
Our
corporate offices are currently located at 14 Norfolk Avenue, South Easton,
Massachusetts 02375. In November 2007, we signed an 18 month lease
agreement commencing in February 2008 pursuant to which we lease approximately
5,500 square feet of office space, with an option for an additional 12
months. We pay approximately $6,500 per month for the use of these
facilities.
Effective
January 1, 2009, we terminated our lease agreement with Scheer Partners and the
Maryland Economic Development Corporation, pursuant to which we leased
laboratory and office space in Rockville, MD. We paid approximately
$3,300 per month for the use of these facilities through December 31, 2008 with
no further obligation.
Effective
January 31, 2009, we terminated our sub-lease agreement with Proteome Systems,
pursuant to which we leased approximately 650 square feet of laboratory space
plus 100 square feet of office space from Proteome Systems in Woburn,
Massachusetts. We paid approximately $3,200 per month for the use of
these facilities through January 31, 2009 with no further
obligation.
ITEM
3.
|
LEGAL
PROCEEDINGS.
|
We are
not currently involved in any legal proceedings.
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
|
None.
PART
II
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIES.
|
Our
common stock is traded on the NASDAQ Capital Market under the trading symbol
“PBIO”.
The
following table sets forth, for the periods indicated, the high and low sales
price per share of common stock, as reported by the NASDAQ Capital Market from
January 1, 2007 through December 31, 2008.
|
|
Common
Stock Price
|
|
Fiscal
Year Ended December 31, 2007
|
|
High
|
|
|
Low
|
|
First
Quarter
|
|
$ |
4.35 |
|
|
$ |
3.50 |
|
Second
Quarter
|
|
|
5.70 |
|
|
|
4.00 |
|
Third
Quarter
|
|
|
5.00 |
|
|
|
3.67 |
|
Fourth
Quarter
|
|
|
7.78 |
|
|
|
3.98 |
|
Fiscal
Year Ended December 31, 2008
|
|
High
|
|
|
Low
|
|
First
Quarter
|
|
$ |
5.72 |
|
|
$ |
3.80 |
|
Second
Quarter
|
|
|
5.09 |
|
|
|
3.14 |
|
Third
Quarter
|
|
|
3.75 |
|
|
|
2.25 |
|
Fourth
Quarter
|
|
|
2.37 |
|
|
|
0.55 |
|
As of
March 20, 2009, there were 20,000,000 shares of common stock authorized of which
2,195,283 shares were issued and outstanding, and held by 93 stockholders of
record. As of March 20, 2009, we had 1,000,000 shares of
preferred stock authorized of which 156,980 shares of Series A Convertible
Preferred Stock were issued and outstanding and held by 35 stockholders of
record. Each share of Series A Convertible Preferred Stock is
convertible into 10 shares of common stock.
We have
never declared or paid any cash dividends on our common stock and do not plan to
pay any cash dividends on our common stock in the foreseeable future. As
part of the private placement completed in February 2009, the holders of the
Series A Convertible Preferred Stock are entitled to receive a cumulative
dividend at the rate of 5% per annum of $11.50 (the “Purchase Price”), payable
semi-annually on June 30 and December 31, commencing on June 30, 2009 (with the
first payment to be pro-rated based on the number of days occurring between the
date of issuance and June 30, 2009). Dividends may be paid in cash or
in shares of common stock at our option, subject to certain
conditions.
Recent
Sales of Unregistered Securities
On
February 12, 2009, we completed a private placement, pursuant to which we sold
an aggregate of 156,980 units for a purchase price of $11.50 per unit, resulting
in gross proceeds to us of $1,805,270 (the “Private Placement”). The units were
issued and sold to a total of 35 accredited investors pursuant to a Securities
Purchase Agreement entered into as of February 12, 2009 (the “Securities
Purchase Agreement”). Each unit consists of (i) one share
of a newly created series of preferred stock, designated “Series A Convertible
Preferred Stock,” par value $0.01 per share (the “Series A Convertible
Preferred Stock”) convertible into 10 shares of our common stock, (ii) a
warrant to purchase, at the purchaser’s election to be made within 7 days of the
closing, either 10 shares of our common stock, at an exercise price equal to
$1.25 per share, with a term expiring 15 months after the date of closing
(“15 Month Common
Stock Warrant”), or one share of Series A Convertible Preferred Stock at
an exercise price equal to $12.50 per share, with a term expiring 15 months
after the date of closing (“15 Month Preferred Stock
Warrant”); and (iii) a warrant to purchase 10 shares of common stock at
an exercise price equal to $2.00 per share, with a term expiring 30 months after
the date of closing (the “30 Month Common Stock
Warrants”).
The sale
of the units described in the Private Placement were issued and sold in the
Private Placement without registration under the Securities Act, in reliance
upon the exemption from registration set forth in Rule 506 of Regulation D
(“Regulation
D”) promulgated under the Securities Act. The Company based
such reliance upon representations made by each purchaser of units, including,
but not limited to, representations as to the purchaser’s status as an
“accredited investor” (as defined in Rule 501(a) under Regulation D) and the
purchaser’s investment intent. The units were not offered or sold by
any form of general solicitation or general advertising (as such terms are used
in Rule 502 under Regulation D). The units or the shares of Series A
Convertible Preferred Stock, 15 Month Common Stock Warrants, 15 Month Preferred
Stock Warrants and 30 Month Preferred Stock Warrants comprising the units, may
not be re-offered or sold in the United States absent an effective registration
statement or an exemption from the registration requirements under applicable
federal and state securities laws.
Repurchases
by Pressure BioSciences
We did
not repurchase any of our equity securities during the fourth quarter of
2008.
ITEM
6.
|
SELECTED
FINANCIAL DATA.
|
Not
Applicable.
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION.
|
OVERVIEW
We are a
life sciences company focused on the development and commercialization of a
novel, enabling, platform technology called pressure cycling technology (“PCT”).
PCT uses cycles of hydrostatic pressure between ambient and ultra-high levels
(up to 35,000 psi and greater) to control bio-molecular
interactions.
Our
pressure cycling technology uses internally developed instrumentation that is
capable of cycling pressure between ambient and ultra-high levels at controlled
temperatures to rapidly and repeatedly control the interactions of
bio-molecules. Our instrument, the Barocycler®, and our internally developed
consumables product line, which includes PULSE (Pressure Used to Lyse Samples
for Extraction) Tubes as well as application specific kits, which include
consumable products and reagents, together make up the PCT Sample Preparation
System (“PCT SPS”).
We have
experienced negative cash flows from operations with respect to our pressure
cycling technology business since our inception. As of December 31, 2008, we had
a total cash balance of approximately $918,000. During 2008 we took a
number of cost reduction measures, including a comprehensive restructuring
program to significantly reduce costs, centralize core operations, and refocus
our business strategy in specific areas where our products have found
significant market acceptance. The restructuring program included: a reduction
in personnel of eight full-time employees (40% of the workforce), reduction in
travel and meeting attendance for all personnel, continued reduction in investor
relations activities, decreases in the base salary of most of our employees and
all of our executive officers, a shutdown of our R&D facility in Rockville,
MD, a consolidation of our R&D activities in Massachusetts, and delay of
several research and development and marketing programs. We believe
that these initiatives will significantly decrease our rate of cash utilization,
from just under $1 million per quarter in 2008 to an average of just under
$600,000 per quarter during 2009. We also believe that these actions,
taken together with the proceeds we received from our $1.8 million equity
financing completed in February 2009, will enable us to extend our cash
resources into the second quarter of 2010.
Our
pressure cycling technology employs a unique approach that we believe has the
potential for broad applications in a number of established and emerging life
sciences areas, including:
|
-
|
sample preparation for genomic,
proteomic, and small molecule
studies;
|
|
-
|
control of chemical (enzymatic)
reactions; and
|
Since we
began operations as Pressure BioSciences in February 2005, we have focused
substantially all of our research and development and commercialization efforts
on sample preparation for genomic, proteomic, and small molecule
studies.
Our
business strategy is to commercialize pressure cycling technology in the area of
sample preparation for genomic, proteomic, and small molecule studies (“sample
preparation”). We also plan to pursue the further development and
commercialization of PCT in other life sciences applications, which could
include working with various strategic partners that have greater scientific,
and regulatory, expertise in the respective applications than we do. We plan to focus
primarily on the application of PCT-enhanced protein digestion for the mass
spectrometry market and the advantages of PCT in this market, and the use of PCT
in biomarker discovery, soil and plant biology, counter bio-terror and tissue
pathology applications.
To
support our current strategy, our primary focus is the execution of our
commercialization plan for PCT in sample preparation. We remain
focused on projects that we feel represent near-term revenue
opportunities. If we are successful commercializing our technology in
the sample preparation market, we believe that our financial results will be
positively affected by a combination of the revenue from the sale, lease, and
rental of the Barocycler instruments, the sale of other PCT equipment, such as
the PCT Shredder, and by the recurring revenue streams that we hope to realize
from the sale of the single-use PULSE Tubes, PCT-dependent kits, and extended
service contracts on our instrumentation. We believe the recurring
revenue streams that could be generated from our instruments in the field is a
very important component of our future financial success. Therefore,
we believe that it is important for us to continue to focus on increasing the
number of installed Barocyclers in the field. To this end, we have
offered our prospective customers the opportunity to lease or rent the
Barocycler instruments, and in some cases we have engaged in short-term reagent
rental agreements. Under a reagent rental agreement we provide the
customer with a Barocycler instrument in exchange for a minimum purchase
commitment of consumable products. While these arrangements do not provide us
with the immediate revenue of a sale, they do serve to expand the utilization of
PCT and they provide a stream of revenue in the form of rental payments and
consumable purchases. We define sales, leases, and rentals of
Barocycler instruments as revenue-generating installations.
We also
derive revenues from Small Business Innovation Research (“SBIR”) grants awarded
to us by the National Institutes of Health. These types of grants
allow us to bill the federal agency for work that we are planning to perform as
part of the development, and commercialization, of our
technology. Additionally, if our work in SBIR Phase I grants is
successful, then we expect to apply for larger NIH SBIR Phase II grants. To date
we have been awarded two National Institutes of Health (“NIH”) Small Business
Innovation Research (“SBIR”) Phase I Grants and one SBIR Phase II
Grant. Both of our Phase I Grants have been completed. The
data on one of the Phase I grants was the basis for the submission, and
subsequent award, of our Phase II award of approximately
$850,000. The Phase II Grant is for work in the area of the use of
PCT to extract protein biomarkers, sub-cellular molecular complexes, and
organelles, with the expectation that these studies will ultimately lead to the
release of a new, commercially available PCT-based system, with validated
protocols, end-user kits, and other consumables intended for the extraction of
clinically important protein biomarkers, sub-cellular molecular complexes, and
organelles.
In
February 2009, we completed a private placement, pursuant to which we sold an
aggregate of 156,980 shares of Series A Convertible Preferred Stock, together
with warrants, resulting in aggregate gross proceeds to us of
$1,805,270.
We
believe we have sufficient cash resources to fund normal operations into the
second quarter of 2010 due to the restructuring measures we have
undertaken and the $1,805,270 we received in connection with our February 2009
private placement. We believe we will need substantial additional
capital to fund our current operations beyond the second quarter of
2010. If we are able to obtain additional capital or otherwise
increase our revenues, we may increase spending in specific research and
development applications and engineering projects and may hire additional sales
personnel or invest in targeted marketing programs. In the event that
we are unable to obtain financing on acceptable terms, or at all, we may be
required to limit or cease our operations, pursue a plan to sell our operating
assets, or otherwise modify our business strategy, which could materially harm
our future business prospects.
RESULTS OF
OPERATIONS
Years
Ended December 31, 2008 as compared to 2007
Revenue
We had
total revenue of $852,263 in the year ended December 31, 2008 as compared to
$645,870 in the prior year.
PCT Products, Services,
Other. Revenue from the sale of PCT products and services was
$655,252 in 2008 as compared to $399,787 in 2007. This increase in revenue in
2008 was driven primarily by the installation of a total of 41 Barocycler
instruments during 2008 as compared to 20 during 2007, and an increase in sales
of consumable products and extended service contracts in 2008 compared to
2007. Although the number of instruments that we installed more than
doubled in 2008 as compared to 2007, the increase in revenue was not as
significant. This decrease in revenue per instrument installed is due
to the fact that twelve of the instruments that we installed during 2008 were
sold to our foreign distribution partners at discounted
prices. Additionally, ten of our 2008 installations were made
pursuant to lease and rental agreements. During 2007 four of our
installations were made under lease and rental agreements. When we
install instrumentation under lease or rental agreements, we record the revenue
over the life of the agreement, generally 12 months or 36
months.
We expect
the number of units installed will continue to increase in future periods as we
continue to gain commercial awareness of our technology, although we may
experience some delays in customer purchases due to current economic conditions
in the United States and globally. We also expect that some portion
of future installations will be for the smaller, lower priced, Barocycler
NEP2320 model and some will be placed under lease or short-term rental
agreements. Therefore, we expect that the average revenue per
installation may continue to fluctuate from period to period as we continue to
drive our installed base and commercialize PCT. We also expect that
as we continue to expand the installed base of Barocycler instruments in the
field, we will realize increasing revenue from the sale of consumable products
and extended service contracts. In the short-term, these recurring
revenue streams may continue to fluctuate from period to period.
Grant
Revenue. During 2008, we recorded $197,011 of grant revenue as
compared to $246,083 in 2007. This decrease in grant revenue was due
to a shift in resources from grant-related activities to other research and
development projects when the remaining portion of the Phase I grant was
completed in the second quarter of 2008. The 2008 revenue was
earned in connection with our research and development efforts related to the
completion of our SBIR Phase I grant and the commencement of our SBIR Phase II
grant in August 2008. We expect that revenue related to the SBIR
Phase II grant will increase in 2009, relative to the amount earned in 2008, as
we continue to increase our efforts on this important project under an existing
grant award. The amount of grant revenue that we recognize in any
given period is dependent upon the level of resources we devote to grant-related
work in the period under existing grant awards.
Cost of PCT Products and
Services
The cost
of PCT products and services was $401,017 for the year ended December 31, 2008,
compared to $209,050 in 2007. This increase in cost of PCT products
and services was primarily due to our increase in sales of Barocycler
units. Costs of PCT products and services as a percentage of revenue
increased from 52% in 2007 to 61% for 2008. This increase in overall
cost of goods sold as a percentage of revenue is due to the fact that we sold 12
Barocycler instruments to our foreign distributors at discounted prices during
2008. Additionally, our gross margins during 2007 were higher than
expected due to the sale of several prototype NEP2320 Barocycler instruments
during the period. These prototype instruments had been expensed,
through the research and development line in the consolidated statement of
operations, as they were built; therefore there was no cost of product sales
recognized in connection with the sale of these units.
We
believe that our cost of PCT Products and Services will improve as a percentage
of revenue as we continue to install more instruments, and sell more consumable
products, such as PULSE Tubes and ProteoSolve kits. However, we
expect our gross margin may fluctuate from period to period as we continue to
sell, lease, or rent a varying mix of Barocycler instrumentation and consumable
products.
Research and
Development
Research
and development expenditures decreased to $1,810,590 during 2008 from $2,022,730
in 2007. This decrease was primarily due to the delay of several engineering
projects during 2008. This reduction in project spending and a
reduction in the total number of employees in our research and development
function are steps that were taken as part of our overall cost cutting programs
that we implemented during 2008.
Research
and development expense included $162,421 and $141,115 of non-cash, stock-based
compensation expense related to Statement of Financial Accounting Standards
(“SFAS”) 123R “Share-Based
Payment” (“SFAS 123R”) in 2008 and 2007, respectively.
Selling and
Marketing
Selling
and marketing expenses increased to $1,686,590 in 2008 from $1,386,519 for the
year ended December 31, 2007. This increase in selling and marketing
expense was primarily the result of our increase in the size of our domestic
sales force in early 2008, the addition of our Vice President of Sales in
February 2008, and the continued emphasis on strategic marketing
programs. In the middle of 2008, we reduced our sales force from
seven full time sales directors to three and in late 2008 we further reduced our
sales force to two full time directors, as we implemented a full restructuring
program to further reduce our rate of cash utilization. Despite these
reductions in our sales force, we more than doubled the number of Barocycler
instruments that we installed as compared to 2007.
Selling
and marketing expense included $93,947 and $70,770 of non-cash, stock-based
compensation expense related to SFAS 123R in 2008 and 2007,
respectively.
General and
Administrative
General
and administrative costs totaled $1,920,465 in the year ended December 31, 2008,
as compared to $2,174,739 in 2007. The decrease in general and
administrative costs was due to a decrease in cash compensation paid to our
independent directors, a moratorium on executive bonus payments and a decrease
in investor relations spending, and Sarbanes-Oxley compliance
costs. These decreases were partially offset by an increase in
non-cash, stock-based compensation expense related to SFAS 123R. An
increase in spending for patent and trademark work performed in 2008 and general
SEC compliance also contributed to partially offset the overall decrease in
general and administrative costs. In 2007, our SFAS 123R general and
administrative expense was $150,479; in 2008, our general and administrative
SFAS 123R expense was $252,827. The increase in general and
administrative SFAS 123R expense was due to the fact that our four independent
directors did not receive any stock options grants in 2007, but each received
non-qualified, fully-vested stock options to purchase 10,000 shares of our
common stock in April 2008, resulting in approximately $100,000 in SFAS 123R
expense.
Operating Loss from
Continuing Operations
The
operating loss from continuing operations was $4,966,399 in 2008, as compared to
$5,147,168 in the year ended December 31, 2007. This decrease in
operating loss was due to an increase in revenue, and therefore gross profit
partially offset by an increase in total operating expenses in
2008.
Included
in our operating loss was $509,195 and $367,110 of non-cash, stock-based
compensation expense related to SFAS 123R in 2008 and 2007,
respectively.
Realized Gain on Sale on
Securities Held for Sale
During
2007, we completed the liquidation of our investment in Panacos Pharmaceuticals
and realized a gain on securities sold of $2,028,720. We did not hold
any shares of Panacos Pharmaceuticals common stock in 2008 and therefore did not
realize any such gains in 2008.
Interest
Income
Interest
income totaled $57,954 for the year ended December 31, 2008 as compared to
$286,600 for the year ended December 31, 2007. The decrease in
interest income from 2007 to 2008 was a result of lower average cash balances
and lower yield on our cash during 2008.
Income Tax Benefit from
Continuing Operations
For the
year ended December 31, 2008 we did not record a benefit for income
taxes. For the year ended December 31, 2007 we recorded a benefit for
income taxes from continuing operations of $520,214. Despite our history of
operating losses, we recorded this benefit due to our expected ability under
federal income tax law to carry back current operating losses to offset taxable
income that was recorded in 2005.
We expect
to record an income tax benefit of approximately $623,000 during 2009 due to new
legislation within the American Recovery and Reinvestment Act of 2009 relating
to net operating loss carrybacks. The cash is expected to come in
during the second half of 2009. Aside from the impact of the passage
of this congressional act, we do not expect any other income tax benefit
relating to carry backs from prior periods. If we are successful
commercializing PCT and if we are able to generate operating income, then we may
be able to utilize the net operating loss carry-forwards that we
generate.
Gain on Sale of Net Assets
Related to Discontinued Operations
During
2008, we did not realize any gain, or loss, in connection with discontinued
operations. During 2007, we realized a gain on the sale of Source
Scientific, LLC of $1,155,973. This gain is comprised of the $378,503 charge
that we recorded in the first quarter of 2007 under the provisions of Staff
Accounting Bulletin (“SAB”) Topic 5E, “Accounting for Divestiture of a
Subsidiary or Other Business Operation (“SAB Topic 5E”) and the gain of
$1,534,476, net of income taxes of $218,060, that we recorded during the second
quarter of 2007, the period in which we completed the sale.
We
recorded this gain in connection with the receipt on May 29, 2007 of $1,780,071
from Mr. Richard W. Henson and Mr. Bruce A. Sargeant, the principals of Source
Scientific, LLC, as full payment for their purchase of our remaining interest in
that business.
Upon
completion of the transaction, we accounted for the total gain on the sale of
our ownership interests in Source Scientific, LLC as discontinued
operations. The charge that we recorded in 2007, under the provisions
of SAB Topic 5E, was reclassified as discontinued operations to reflect this
change.
Net Loss
Our net
loss in 2008 was $4,908,445 as compared to a net loss of $1,155,661 in
2007. This increase in net loss was due to the fact that our
operating losses were not partially offset by realized gains from the sale of
securities held, and a gain on sale of assets related to discontinued operations
during 2008 and benefit from income taxes, as was the case during
2007.
We expect
that our net loss in 2009 will be lower than it was in 2008 due to the
significant cost cutting measures that we implemented during 2008.
LIQUIDITY
AND FINANCIAL CONDITION
As of
December 31, 2008, our working capital position was $1,602,556, the primary
components of which were cash and cash equivalents, accounts receivable,
inventory, prepaid expenses, and deposits. Our working capital
balance was partially offset by accounts payable, accrued employee compensation,
and other accrued expenses. As of December 31, 2007, our working capital balance
was $5,933,822, the primary components of which were cash and cash equivalents,
income taxes receivable, prepaid expenses, and deposits. We expect to continue
to fund our operations from our working capital balance.
During
2008, we took a number of cost reduction measures, including a comprehensive
restructuring program to significantly reduce costs, centralize core operations,
and refocus our business strategy in specific areas where our products have
found significant market acceptance. The restructuring program included: a
reduction in personnel of eight full-time employees (40% of the workforce),
reduction in travel and meeting attendance for all personnel, continued
reduction in investor relations activities, decreases in the base salary of most
of our employees and all of our executive officers, a shutdown of the
our R&D facility in Rockville, MD, a consolidation of our R&D activities
in Massachusetts and delay of several research and development and marketing
programs. We believe that these initiatives significantly
decreased our rate of cash utilization, from just under $1 million per quarter
to an average of just under $600,000 per quarter during 2009.
On
February 12, 2009, we completed a private placement, pursuant to which we sold
an aggregate of 156,980 units for a purchase price of $11.50 per unit (the
“Purchase Price”), resulting in gross proceeds to us of $1,805,270 (the “Private
Placement”). Each unit consists of (i) one share of a newly created
series of preferred stock, designated “Series A Convertible Preferred Stock,”
par value $0.01 per share (the “Series A Convertible
Preferred Stock”) convertible into 10 shares of our common stock, (ii) a
warrant to purchase, at the purchaser’s election to be made within 7 days of the
closing, either 10 shares of our common stock, at an exercise price equal to
$1.25 per share, with a term expiring 15 months after the date of closing
(“15 Month Common
Stock Warrant”), or one share of Series A Convertible Preferred Stock at
an exercise price equal to $12.50 per share, with a term expiring 15 months
after the date of closing (“15 Month Preferred Stock
Warrant”); and (iii) a warrant to purchase 10 shares of common stock at
an exercise price equal to $2.00 per share, with a term expiring 30 months after
the date of closing (the “30 Month Common Stock
Warrants”). The holders of our shares of Series A
Convertible Preferred Stock, however, are entitled to receive a cumulative
dividend at the rate of 5% per annum of the purchase price paid for the Series A
Convertible Preferred Stock, payable semi-annually on June 30 and December 31,
commencing on June 30, 2009. See Note 11 to our Consolidated
Financial Statements for a further description of the Series A Convertible
Preferred Stock and Warrants issued in the Private Placement.
On
December 19, 2008, we received $200,000 from one of our distributors in the
escrow account for the private placement. Prior to February 12, 2009,
the distributor requested that the $200,000 be used as payment for anticipated
future purchases of our PCT instrument and consumable products, and not for an
investment in the private placement. This amount will be recorded as
deferred revenue in the first quarter of 2009.
We
believe that because of the cost restructuring measures we have undertaken,
together with the $1,805,270 we received in connection with our February 2009
private placement of units, consisting of Series A Convertible Preferred Stock
and warrants, we have sufficient cash resources to fund normal operations into
the second quarter of 2010. We believe we will need substantial
additional capital to fund our current operations beyond the second quarter of
2010. If we are able to obtain additional capital or otherwise
increase our revenues, we may increase spending in specific research and
development applications and engineering projects and may hire additional sales
personnel or invest in targeted marketing programs. In the event that
we are unable to obtain financing on acceptable terms, or at all, we may be
required to limit or cease our operations, pursue a plan to sell our operating
assets, or otherwise modify our business strategy, which could materially harm
our future business prospects.
In June
2008, we engaged Emerging Growth Equities, Ltd. (“EGE”), an investment banking
firm, to assist us in raising equity financing to support our research and
development activities, commercialization efforts, working capital requirements,
and general corporate purposes. The engagement of EGE contemplates a private
placement of our securities exempt from the registration requirements under
Regulation D promulgated under the Securities Act of 1933, as amended (the
"Act") of up to $8,000,000 or more at our discretion (the “Financing”). We have
agreed to pay EGE a cash fee of 8% of the gross proceeds from the Financing and
to issue EGE warrants to purchase 8% of the number of securities issued in the
Financing. The warrants will have a five year term and an exercise price equal
to the price of the securities issued in the Financing. However, EGE will
receive a lower fee of 3% of the gross proceeds from the Financing and warrants
to purchase 3% of the number of securities issued in the Financing with respect
to all investors that they do not introduce to us. EGE is also entitled to a
retainer of $7,500 per month for three months in 2008.
Either
EGE or we may terminate the engagement in general with prior written notice. If
during the 12 month period following termination of the engagement we sell
securities to any investor introduced to us by EGE, we will pay a declining fee
to EGE based upon the number of months elapsed since the date of termination,
commencing with a cash fee of 8% of the gross proceeds received from such
investors, plus warrants to purchase 8% of the number of securities issued to
such investors in the first month following termination of the engagement and
with such fees being reduced by 1/12 for each month following such termination.
We have also agreed to customary indemnification of EGE in connection with the
Financing. Notwithstanding our engagement of EGE, we can provide no assurance
that any such equity offerings will occur, or that additional financing will be
available to us of acceptable or affordable terms. To date, they have not been
successful in raising any funds for us. In October 2008, we revised the terms of
our engagement with EGE to eliminate any requirement to pay EGE any fees with
respect to any funds we raise without the help of EGE.
Net cash
used in continuing operations during 2008 was $4,420,209 as compared to net cash
used in continuing operations of $3,896,422 during 2007. The cash used in
operations in 2008 included our net loss, an increase in inventory and accounts
receivable and a decrease in accrued compensation, partially offset by decreases
in deposits, and prepaid expenses. We expect net cash used in
continuing operations to decrease in 2009 as we decrease our overall rate of
cash utilization.
Net cash
used in investing activities during 2008 was $145,819 as compared to net cash
provided by investing activities of $1,852,482 in the prior year. The cash
generated in 2007 was entirely from the sale of 513,934 shares of Panacos
Pharmaceuticals common stock, partially offset by purchases of fixed assets. The
cash used in 2008 was related to purchases of fixed assets in connection with
Barocyclers under lease. We expect that our investment in fixed
assets will decrease in 2009 as we continue to conserve our cash
resources.
Net cash
generated from financing activities during 2007 was $571,133 and relates to the
sale of 126,750 shares of our common stock to 8 non-affiliated investors
pursuant to a private placement that we completed in November
2007. We had $9,750 of cash flows from financing activities
during 2008.
Net cash
provided by discontinued operations during 2007 of $1,562,011 was due to the
completion of the divestiture of Source Scientific, LLC. We did not
have any cash flows from discontinued operations during 2008.
CONTRACTUAL
OBLIGATIONS
The
following is a summary of our future contractual obligations as of December 31,
2008:
Contractual Obligations
|
|
Total
|
|
|
Less than
1 year
|
|
|
More than
1 year
|
|
|
|
|
|
|
|
|
|
|
|
Lease
for Easton operating office (1)
|
|
$ |
127,135 |
|
|
$ |
78,572 |
|
|
$ |
48,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Contractual Obligations
|
|
$ |
127,135 |
|
|
$ |
78,572 |
|
|
$ |
48,563 |
|
(1)
|
In
November 2007, we signed an 18-month lease agreement with Easton Norfolk
Realty Trust, commencing in February 2008 pursuant to which we lease
approximately 5,500 square feet of office space, with an option for an
additional 12 months. We pay approximately $6,500 per month for
the use of these facilities.
|
COMMITMENTS
AND CONTINGENCIES
Royalty
Commitments
In 1996,
we acquired our initial equity interest in BioSeq, Inc., which at the time was
developing our original pressure cycling technology. BioSeq, Inc. acquired
its pressure cycling technology from BioMolecular Assays, Inc. (“BMA”) under a
technology transfer and patent assignment agreement. In 1998, we purchased
all of the remaining outstanding capital stock of BioSeq, Inc., and at such
time, the technology transfer and patent assignment agreement was amended to
require us to pay BMA a 5% royalty on our sales of products or services
that incorporate or utilize the original pressure cycling technology that
BioSeq, Inc. acquired from BioMolecular Assays, Inc. We are also required
to pay BMA 5% of the proceeds from any sale, transfer or license of all or any
portion of the original pressure cycling technology. These payment
obligations terminate in 2016. During the year ended December 31,
2008 and 2007, we incurred approximately $29,553 and $19,596, respectively in
royalty expense associated with our obligation to BMA.
In
connection with our acquisition of BioSeq, Inc., we licensed certain limited
rights to the original pressure cycling technology back to BMA. This
license is non-exclusive and limits the use of the original pressure cycling
technology by BMA solely for molecular applications in scientific research and
development and in scientific plant research and development. BMA is
required to pay us a royalty equal to 20% of any license or other fees and
royalties, but not including research support and similar payments, it receives
in connection with any sale, assignment, license or other transfer of any rights
granted to BMA under the license. BMA must pay us these royalties until the
expiration of the patents held by BioSeq, Inc. in 1998, which we anticipate will
be 2016. We have not received any royalty payments from BMA under this
license.
Purchase
Commitments
On
September 18, 2008, we submitted a purchase order to Source Scientific, LLC, the
manufacturer of the Company’s PCT Barocycler instrumentation, for 50 Barocycler
NEP2320 units. Pursuant to the terms of the purchase order, we placed a deposit
with Source Scientific, LLC, of approximately $100,000, representing
approximately 25% of the expected total value of the order, upon submission of
the purchase order. On November 12, 2008, we placed an additional deposit of
approximately $100,000 with Source Scientific, LLC to provide them with funds
required to commence manufacturing of the NEP2320 units ordered. The purchase
price for the 50 Barocycler NEP2320 units is based upon a fixed bill of
materials. We expect that the NEP2320 units will be completed and ready for sale
to our customers during the first quarter of 2009. We will be billed
for the unpaid purchase price of each unit at the time each unit is completed
and ready for sale.
As of
December 31, 2008 we had $163,006 on deposit with Source Scientific, LLC for 40
remaining units pursuant to open purchase orders. In addition, in
December 2008, we put the remaining $203,758 amount of the purchase order in an
escrow account, which funds will be released to pay the remaining balance due
when units are completed. As of December 31, 2007 we had $379,000 on
deposit with Source Scientific, LLC for 54 remaining units pursuant to these
purchase orders.
Indemnification
In
connection with our sale of substantially all of the assets of Boston Biomedica,
Inc. (“BBI Core Businesses”) to SeraCare Life Sciences, Inc. in September 2004,
we continue to be exposed to possible indemnification claims in amounts up to
the purchase price of approximately $29 million. Our indemnification obligations
for breaches of some representations and warranties relating to compliance with
environmental laws extend until September 14, 2009, representations and
warranties relating to tax matters extend for the applicable statute of
limitations period (which varies depending on the nature of claim), and
representations and warranties relating to our due organization, subsidiaries,
authorization to enter into and perform the transactions contemplated by the
Asset Purchase Agreement, and brokers fees, extend indefinitely.
Severance
and Change of Control Agreements
Each of
our executive officers is entitled to receive a severance payment if terminated
by the Company without cause. The severance benefits would include a payment in
an amount equal to one year of each executive officer’s annualized base salary
compensation plus accrued paid time off. Additionally, each executive officer
will be entitled to receive medical and dental insurance coverage for one year
following the date of termination. The total commitment related to these
agreements in the aggregate is approximately $1.0 million.
Each of
our executive officers, other than Mr. Richard T. Schumacher, our President and
Chief Executive Officer, 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 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 total commitment related to these agreements in the aggregate is
approximately $1.3 million. The severance payment is
meant to induce the executive to become an employee of the Company and to remain
in the employ of the Company, in general, and particularly in the occurrence of
a change in control.
CRITICAL
ACCOUNTING POLICIES
Use
of Estimates
To
prepare our consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, we are required
to make significant estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. In addition, significant estimates were
made in projecting future cash flows to quantify impairment of assets, deferred
tax assets, the costs associated with fulfilling our warranty obligations for
the instruments that we sell, and the estimates employed in our calculation of
fair value of stock options awarded. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results could differ from the
estimates and assumptions used.
Revenue
Recognition
We
recognize revenue in accordance with the Securities and Exchange Commission’s
(“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition ("SAB
104"). Revenue is recognized when realized or earned when all the following
criteria have been met: persuasive evidence of an arrangement exists; delivery
has occurred and risk of loss has passed to the customer; the seller’s price to
the buyer is fixed or determinable; and collectibility is reasonably
assured.
Our
current instruments, the Barocycler NEP3229 and NEP2320, require a basic level
of instrumentation expertise to set-up for initial operation. To support a
favorable first experience for our customers, we send a representative to the
customer site to install every Barocycler that we sell through our domestic
sales force. The installation process includes uncrating and setting up the
instrument and conducting introductory user training. Product revenue related to
current Barocycler instrumentation is recognized upon the installation of our
instrumentation at the customer location. Product revenue related to sales of
PCT products to our foreign distributors is recognized upon shipment through a
common carrier. We provide for the expected costs of warranty upon the
recognition of revenue for the sales of our instrumentation. Our sales
arrangements do not provide our customers with a right of return. Product
revenue related to our consumable products such as PULSE Tubes and application
specific kits is recorded upon shipment through a common carrier. Shipping
costs are included in the costs of sales. Any shipping costs billed to customers
are recognized as revenue.
In
accordance with the Financial Accounting Standards Board (“FASB”) Statement of
Financial Accounting Standards (“SFAS”) No. 13, “Accounting for Leases”, we
account for our lease agreements under the operating method. 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 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 rental payments
previously made. We pay all maintenance costs associated with the instrument
during the term of the leases.
Revenue
from government grants is recorded when expenses are incurred under the grant in
accordance with the terms of the grant award.
Our
transactions sometimes involve multiple element arrangements (i.e., products and
services). Revenue under multiple element arrangements is recognized
in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-21, “Accounting for Revenue Arrangements
with Multiple Deliverables”. Under this method, if an element is
determined to be a separate unit of accounting, the revenue for the element is
based on fair value and determined by vendor specific objective evidence
(“VSOE”), and recognized at the time of delivery. If an arrangement includes
undelivered elements that are not essential to the functionality of the
delivered elements, we defer the fair value of the undelivered elements with the
residual revenue allocated to the delivered elements. Fair value is determined
based upon the price charged when the element is sold separately. If there is
not sufficient evidence of the fair value of the undelivered elements, no
revenue is allocated to the delivered elements and the total consideration
received is deferred until delivery of those elements for which objective and
reliable evidence of the fair value is not available. We provide certain
customers with extended service contracts and, to the extent VSOE is
established, these service revenues are recognized ratably over the life of the
contract which is generally one to four years.
Intangible
Assets
We have
classified as intangible assets, costs associated with the fair value of certain
assets of businesses acquired. Intangible assets relate to the remaining
value of acquired patents associated with PCT. The cost of these acquired
patents is amortized on a straight-line basis over sixteen years. We
annually review our intangible assets for impairment. When impairment is
indicated, any excess of carrying value over fair value is recorded as a
loss. An impairment analysis of intangible assets as of December 31, 2008
concluded they were not impaired.
Long-Lived
Assets and Deferred Costs
In
accordance with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets”, if indicators of impairment exist, we
assess the recoverability of the affected long-lived assets by determining
whether the carrying value of such assets can be recovered through the
undiscounted future operating cash flows related to the long-lived assets. If
impairment is indicated, we measure the amount of such impairment by comparing
the carrying value of the asset to the fair value of the asset and record the
impairment as a reduction in the carrying value of the related asset and a
charge to operating results. While our current and historical operating losses
and cash flow are indicators of impairment, we performed an impairment analysis
at December 31, 2008 and determined that our long-lived assets were not
impaired.
RECENT ACCOUNTING
STANDARDS
On
January 1, 2008, the Company adopted Statement of Financial Accounting Standards
No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair
value, establishes a framework for measuring the fair value of assets and
liabilities, and expands disclosure requirements regarding the fair value
measurement. SFAS 157 does not expand the use of fair value measurements. This
statement, as issued, is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those
fiscal years. FASB Staff Position (FSP) FAS No. 157-2 was issued in February
2008 and deferred the effective date of SFAS 157 for nonfinancial assets and
liabilities to fiscal years beginning after November 2008. As such, the Company
adopted SFAS 157 as of January 1, 2008 for financial assets and liabilities
only. There was no significant effect on the Company’s financial statements. The
Company does not believe that the adoption of SFAS 157 to non-financial assets
and liabilities will significantly effect its financial statements.
In
December 2007, the FASB issued SFAS 141 (revised 2007), “Business Combinations” (“SFAS
141(R)”) and SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements – an amendment of ARB
No. 51” (“SFAS 160”).
SFAS
141(R) significantly changes the accounting for business combinations. Under
SFAS 141(R), an acquiring entity will be required to recognize all the assets
acquired and liabilities assumed in a transaction at the acquisition-date at
fair value with limited exceptions. SFAS 141(R) further changes the accounting
treatment for certain specific items, including:
|
-
|
Acquisition
costs will be generally expensed as
incurred;
|
|
-
|
Noncontrolling
interests (formerly known as “minority interests” – see SFAS 160
discussion below) will be valued at fair value at the acquisition
date;
|
|
-
|
Acquired
contingent liabilities will be recorded at fair value at the acquisition
date and subsequently measured at either the higher of such amount or the
amount determined under existing guidance for non-acquired
contingencies;
|
|
-
|
In-process
research and development will be recorded at fair value as an
indefinite-lived intangible asset at the acquisition
date;
|
|
-
|
Restructuring
costs associated with a business combination will be generally expensed
subsequent to the acquisition date;
and
|
|
-
|
Changes
in deferred tax asset valuation allowances and income tax uncertainties
after the acquisition date generally will affect income tax
expense.
|
SFAS
141(R) includes a substantial number of new disclosure requirements. FAS 141(R)
applies prospectively to business combinations for which the acquisition date is
on or after January 1, 2009.
In April
2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 142-3, Determination
of the Useful Life of Intangible Assets (“FSP 142-3”). FSP 142-3 removes the
requirement under Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets to consider whether an intangible asset can
be renewed without substantial cost or material modifications to the existing
terms and conditions, and replaces it with a requirement that an entity consider
its own historical experience in renewing similar arrangements, or a
consideration of market participant assumptions in the absence of historical
experience. FSP 142-3 also requires entities to disclose information that
enables users of financial statements to assess the extent to which the expected
future cash flows associated with the asset are affected by the entity’s intent
and/or ability to renew or extend the arrangement. We are required to adopt FSP
142-3 effective January 1, 2009 on a prospective basis. The adoption of this
statement is not expected to have any impact to our financial
statements.
SFAS 160
establishes new accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a subsidiary.
Specifically, this statement requires the recognition of non-controlling
interests (minority interests) as equity in the consolidated financial
statements and separate from the parent’s equity. The amount of net income
attributable to non-controlling interests will be included in consolidated net
income on the face of the income statement. SFAS 160 clarifies that changes in a
parent’s ownership interest in a subsidiary that does not result in
deconsolidation are treated as equity transactions if the parent retains its
controlling financial interest. In addition, this statement requires that a
parent recognize a gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss will be measured using the fair value of the
non-controlling equity investment on the deconsolidation date. SFAS 160 also
includes expanded disclosure requirements regarding the interests of the parent
and its non-controlling interest.
SFAS 160
is effective for fiscal years, and interim periods within such year, beginning
January 1, 2009. Early adoption of both SFAS 141(R) and SFAS 160 is
prohibited. We do not expect that either SFAS 141(R) or SFAS 160 is not expected
to have a material affect on our consolidated results of operations and
financial condition.
In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161,
“Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”), –
an amendment of FASB Statement No. 133”, which requires additional disclosures
about the objectives of derivative instruments and hedging activities, the
method of accounting for such instruments under SFAS No. 133 and its related
interpretations, and a tabular disclosure of the effects of such instruments and
related hedged items on our financial position, financial performance, and cash
flows. SFAS No. 161 is effective for us beginning January 1, 2009. We
believe the adoption of SFAS No. 161 will not have a material impact on our
financial statements.
In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The
Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS 162
identifies the sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles. SFAS 162 directs the hierarchy to the entity,
rather than the independent auditors, as the entity is responsible for selecting
accounting principles for financial statements that are presented in conformity
with generally accepted accounting principles. SFAS 162 is effective 60 days
following SEC approval of the Public Company Accounting Oversight Board
amendments to remove the hierarchy of generally accepted accounting principles
from the auditing standards. SFAS 162 is not expected to have an impact on our
financial condition, results of operations or cash flows.
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
|
Not
Applicable
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
|
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2008 and 2007
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
868,208
|
|
|
$
|
5,424,486
|
|
Restricted
cash
|
|
|
50,000
|
|
|
|
-
|
|
Accounts
receivable
|
|
|
209,117
|
|
|
|
118,471
|
|
Inventories
|
|
|
571,831
|
|
|
|
172,548
|
|
Deposits
|
|
|
382,236
|
|
|
|
553,483
|
|
Prepaid
income taxes
|
|
|
6,600
|
|
|
|
56,863
|
|
Income
tax receivable
|
|
|
-
|
|
|
|
249,541
|
|
Prepaid
expenses and other current assets
|
|
|
235,111
|
|
|
|
94,783
|
|
Total
current assets
|
|
|
2,323,103
|
|
|
|
6,670,175
|
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, NET
|
|
|
252,249
|
|
|
|
257,797
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
|
Intangible
assets, net
|
|
|
279,658
|
|
|
|
328,290
|
|
TOTAL
ASSETS
|
|
$
|
2,855,010
|
|
|
$
|
7,256,262
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
263,486
|
|
|
$
|
152,729
|
|
Accrued
employee compensation
|
|
|
161,374
|
|
|
|
377,190
|
|
Accrued
professional fees and other expenses
|
|
|
278,982
|
|
|
|
191,359
|
|
Deferred
revenue
|
|
|
16,705
|
|
|
|
15,075
|
|
Total
current liabilities
|
|
|
720,547
|
|
|
|
736,353
|
|
|
|
|
|
|
|
|
|
|
LONG
TERM LIABILITIES
|
|
|
|
|
|
|
|
|
Deferred
revenue
|
|
|
10,821
|
|
|
|
6,767
|
|
TOTAL
LIABILITIES
|
|
|
731,368
|
|
|
|
743,120
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
Preferred
stock; 1,000,000 shares authorized; 0 outstanding
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $.01 par value; 20,000,000 shares authorized; 2,195,283 shares
issued and outstanding on December 31, 2008 and 2,192,175 shares issued
and outstanding on December 31, 2007
|
|
|
21,953
|
|
|
|
21,922
|
|
Additional
paid-in capital
|
|
|
6,803,530
|
|
|
|
6,284,616
|
|
Retained
(deficit) earnings
|
|
|
(4,701,841
|
)
|
|
|
206,604
|
|
Total
stockholders' equity
|
|
|
2,123,642
|
|
|
|
6,513,142
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
2,855,010
|
|
|
$
|
7,256,262
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
|
|
For
the Year Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
REVENUE:
|
|
|
|
|
|
|
PCT
Products, services, other
|
|
$ |
655,252 |
|
|
$ |
399,787 |
|
Grant
revenue
|
|
|
197,011 |
|
|
|
246,083 |
|
Total
revenue
|
|
|
852,263 |
|
|
|
645,870 |
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
Cost
of PCT products and services
|
|
|
401,017 |
|
|
|
209,050 |
|
Research
and development
|
|
|
1,810,590 |
|
|
|
2,022,730 |
|
Selling
and marketing
|
|
|
1,686,590 |
|
|
|
1,386,519 |
|
General
and administrative
|
|
|
1,920,465 |
|
|
|
2,174,739 |
|
Total
operating costs and expenses
|
|
|
5,818,662 |
|
|
|
5,793,038 |
|
|
|
|
|
|
|
|
|
|
Operating
loss from continuing operations
|
|
|
(4,966,399 |
) |
|
|
(5,147,168 |
) |
|
|
|
|
|
|
|
|
|
OTHER
INCOME:
|
|
|
|
|
|
|
|
|
Realized
gain on securities available for sale
|
|
|
- |
|
|
|
2,028,720 |
|
Interest
income
|
|
|
57,954 |
|
|
|
286,600 |
|
Total
other income
|
|
|
57,954 |
|
|
|
2,315,320 |
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before income taxes
|
|
|
(4,908,445 |
) |
|
|
(2,831,848 |
) |
Income
tax benefit from continuing operations
|
|
|
- |
|
|
|
520,214 |
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(4,908,445 |
) |
|
|
(2,311,634 |
) |
|
|
|
|
|
|
|
|
|
DISCONTINUED
OPREATIONS
|
|
|
|
|
|
|
|
|
Gain
on sale of net assets related to discontinued operations (net of income
tax of $218,060)
|
|
|
- |
|
|
|
1,155,661 |
|
Net
loss
|
|
$ |
(4,908,445 |
) |
|
$ |
(1,155,661 |
) |
|
|
|
|
|
|
|
|
|
Loss
per share from continuing operations - basic and diluted
|
|
$ |
(2.24 |
) |
|
$ |
(1.11 |
) |
Income
per share from discontinued operations - basic and diluted
|
|
|
- |
|
|
|
0.55 |
|
Net
loss per share - basic and diluted
|
|
$ |
(2.24 |
) |
|
$ |
(0.56 |
) |
|
|
|
|
|
|
|
|
|
Weighted
average number of shares used to calculate (loss) income per share - basic
and diluted
|
|
|
2,194,093 |
|
|
|
2,078,657 |
|
The
accompanying notes are an integral part of these consolidated financial
statements
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
|
|
For
the Year Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(4,908,445 |
) |
|
$ |
(1,155,661 |
) |
|
|
|
|
|
|
|
|
|
Holding
gain
|
|
|
- |
|
|
|
(27,479 |
) |
Reclassification
of unrealized gain to realized gain on securities during the
period
|
|
|
- |
|
|
|
(2,028,720 |
) |
|
|
|
|
|
|
|
|
|
Unrealized
loss on marketable securities
|
|
|
- |
|
|
|
(2,056,199 |
) |
Income
tax benefit related to items of other comprehensive loss
|
|
|
- |
|
|
|
671,323 |
|
|
|
|
|
|
|
|
|
|
Total
other comprehensive loss, net of taxes
|
|
|
- |
|
|
|
(1,384,876 |
) |
Comprehensive
loss
|
|
$ |
(4,908,445 |
) |
|
$ |
(2,540,537 |
) |
The
accompanying notes are an integral part of these consolidated financial
statements
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
$.01
Par
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Income
|
|
|
Earnings
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
December 31, 2006
|
|
|
2,065,425 |
|
|
$ |
20,654 |
|
|
$ |
5,347,641 |
|
|
$ |
1,384,876 |
|
|
$ |
1,362,265 |
|
|
$ |
8,115,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
costs relating to private placement
|
|
|
|
|
|
|
- |
|
|
|
(62,617 |
) |
|
|
|
|
|
|
|
|
|
|
(62,617 |
) |
Stock
issued in private placement
|
|
|
126,750 |
|
|
|
1,268 |
|
|
|
632,482 |
|
|
|
|
|
|
|
|
|
|
|
633,750 |
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
367,110 |
|
|
|
|
|
|
|
|
|
|
|
367,110 |
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,155,661 |
) |
|
|
(1,155,661 |
) |
Unrealized
loss on investments (net of tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,384,876 |
) |
|
|
|
|
|
|
(1,384,876 |
) |
BALANCE,
December 31, 2007
|
|
|
2,192,175 |
|
|
$ |
21,922 |
|
|
$ |
6,284,616 |
|
|
$ |
- |
|
|
$ |
206,604 |
|
|
$ |
6,513,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
509,195 |
|
|
|
|
|
|
|
|
|
|
|
509,195 |
|
Issuance
of common stock
|
|
|
3,108 |
|
|
|
31 |
|
|
|
9,719 |
|
|
|
|
|
|
|
|
|
|
|
9,750 |
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,908,445 |
) |
|
|
(4,908,445 |
) |
BALANCE,
December 31, 2008
|
|
|
2,195,283 |
|
|
$ |
21,953 |
|
|
$ |
6,803,530 |
|
|
$ |
- |
|
|
$ |
(4,701,841 |
) |
|
$ |
2,123,642 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
|
|
For
the Year Ended
|
|
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(4,908,445 |
) |
|
$ |
(1,155,661 |
) |
Less
gain on sale of discontinued operations
|
|
|
- |
|
|
|
(1,155,973 |
) |
Loss
from continuing operations
|
|
$ |
(4,908,445 |
) |
|
$ |
(2,311,634 |
) |
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
199,999 |
|
|
|
179,446 |
|
Stock-based
compensation expense
|
|
|
509,195 |
|
|
|
367,110 |
|
Realized
gain on sale of marketable securities
|
|
|
- |
|
|
|
(2,028,720 |
) |
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
(50,000 |
) |
|
|
- |
|
Accounts
receivable
|
|
|
(90,646 |
) |
|
|
(80,976 |
) |
Inventories
|
|
|
(399,283 |
) |
|
|
(152,890 |
) |
Deposits
|
|
|
171,247 |
|
|
|
(378,183 |
) |
Accounts
payable
|
|
|
110,757 |
|
|
|
(21,560 |
) |
Accrued
employee compensation
|
|
|
(215,816 |
) |
|
|
134,693 |
|
Deferred
revenue and other accrued expenses
|
|
|
93,307 |
|
|
|
18,746 |
|
Prepaid
expenses and other current assets and other current
liabilities
|
|
|
159,476 |
|
|
|
377,546 |
|
Net
cash used in operating activities from continuing
operations
|
|
|
(4,420,209 |
) |
|
|
(3,896,422 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Additions
to property and equipment
|
|
|
(145,819 |
) |
|
|
(180,915 |
) |
Proceeds
from sale of marketable securities
|
|
|
- |
|
|
|
2,033,397 |
|
Net
cash (used in) provided by investing activities from continuing
operations
|
|
|
(145,819 |
) |
|
|
1,852,482 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from the issuance of common stock
|
|
|
9,750 |
|
|
|
571,133 |
|
Net
cash provided by financing activities from continuing
operations
|
|
|
9,750 |
|
|
|
571,133 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM DISCONTINUED OPERATIONS:
|
|
|
|
|
|
|
|
|
Operating
cash flows
|
|
|
|
|
|
|
(218,060 |
) |
Cash
flows from investing activities
|
|
|
- |
|
|
|
1,780,071 |
|
Net
cash provided by discontinued operations
|
|
|
- |
|
|
|
1,562,011 |
|
|
|
|
|
|
|
|
|
|
CHANGE
IN CASH AND CASH EQUIVALENTS:
|
|
|
(4,556,278 |
) |
|
|
89,204 |
|
Cash
and cash equivalents, beginning of period
|
|
|
5,424,486 |
|
|
|
5,335,282 |
|
Cash
and cash equivalents, end of period
|
|
$ |
868,208 |
|
|
$ |
5,424,486 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
INFORMATION:
|
|
|
|
|
|
|
|
|
Income
taxes paid
|
|
$ |
6,177 |
|
|
$ |
20,800 |
|
Income
taxes received
|
|
|
301,060 |
|
|
|
723,801 |
|
The
accompanying notes are an integral part of these consolidated financial
statements
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As
of December 31, 2008
(1) Business
Overview and Management Plans
We are a
life sciences company focused on the development and commercialization of a
novel, enabling, platform technology called pressure cycling technology (“PCT”).
PCT uses cycles of hydrostatic pressure between ambient and ultra-high levels
(up to 35,000 psi and greater) to control bio-molecular
interactions.
Our
pressure cycling technology uses internally developed instrumentation that is
capable of cycling pressure between ambient and ultra-high levels at controlled
temperatures to rapidly and repeatedly control the interactions of
bio-molecules. Our instrument, the Barocycler®, and our internally developed
consumables product line, which includes PULSE (Pressure Used to Lyse Samples
for Extraction) Tubes as well as application specific kits, which include
consumable products and reagents, together make up the PCT Sample Preparation
System (“PCT SPS”).
We have
experienced negative cash flows from operations with respect to our pressure
cycling technology business since our inception. As of December 31, 2008, we had
a total cash balance of approximately $918,000. During 2008 we took a
number of cost reduction measures, including a comprehensive restructuring
program to significantly reduce costs, centralize core operations, and refocus
our business strategy in specific areas where our products have found
significant market acceptance. The restructuring program included: a reduction
in personnel of eight full-time employees (40% of the workforce), reduction in
travel and meeting attendance for all personnel, continued reduction in investor
relations activities, decreases in the base salary of most of our employees and
all of our executive officers, a shutdown of our R&D facility in Rockville,
MD, a consolidation of our R&D activities in Massachusetts, and delay of
several research and development and marketing programs. We believe
that these initiatives will significantly decrease our rate of cash utilization,
from just under $1 million per quarter in 2008 to an average of just under
$600,000 per quarter during 2009. We also believe that these actions,
taken together with the proceeds we received from our $1.8 million equity
financing completed in February 2009, will enable us to extend our cash
resources into the second quarter of 2010.
On
February 12, 2009, we completed a private placement, pursuant to which we sold
an aggregate of 156,980 units, consisting of Series A Convertible Preferred
Stock and warrants, for a purchase price of $11.50 per unit, resulting in gross
proceeds to us of $1,805,270 (the “Private Placement”). See Note 11
to our Consolidated Financial Statement for a further description of the Series
A Convertible Preferred Stock and Warrants issued in the Private
Placement.
We
believe we have sufficient cash resources to fund normal operations into the
second quarter of 2010 due to the restructuring measures we have
undertaken and the $1,805,270 we received in connection with our Private
Placement. We believe we will need substantial additional capital to
fund our current operations beyond the second quarter of 2010. If we
are able to obtain additional capital or otherwise increase our revenues, we may
increase spending in specific research and development applications and
engineering projects and may hire additional sales personnel or invest in
targeted marketing programs. In the event that we are unable to
obtain financing on acceptable terms, or at all, we may be required to limit or
cease our operations, pursue a plan to sell our operating assets, or otherwise
modify our business strategy, which could materially harm our future business
prospects.
(2) Summary
of Significant Accounting Policies
(i) Principles
of Consolidation
The
consolidated financial statements include the accounts of Pressure BioSciences,
Inc., and its wholly-owned subsidiary PBI BioSeq, Inc.
(ii) Use
of Estimates
To
prepare our consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, we are required
to make significant estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. In addition, significant estimates were
made in projecting future cash flows to quantify impairment of assets, deferred
tax assets, the costs associated with fulfilling our warranty obligations for
the instruments that we sell, and the estimates employed in our calculation of
fair value of stock options awarded. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results could differ from the
estimates and assumptions used.
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As
of December 31, 2008
(iii) Revenue
Recognition
We
recognize revenue in accordance with the Securities and Exchange Commission’s
(“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition ("SAB
104"). Revenue is recognized when realized or earned when all the following
criteria have been met: persuasive evidence of an arrangement exists; delivery
has occurred and risk of loss has passed to the customer; the seller’s price to
the buyer is fixed or determinable; and collectibility is reasonably
assured.
Our
current instruments, the Barocycler NEP3229 and NEP2320, require a basic level
of instrumentation expertise to set-up for initial operation. To support a
favorable first experience for our customers, we send a representative to the
customer site to install every Barocycler that we sell through our domestic
sales force. The installation process includes uncrating and setting up the
instrument and conducting introductory user training. Product revenue related to
current Barocycler instrumentation is recognized upon the installation of our
instrumentation at the customer location. Product revenue related to sales of
PCT products to our foreign distributors is recognized upon shipment through a
common carrier. We provide for the expected costs of warranty upon the
recognition of revenue for the sales of our instrumentation. Our sales
arrangements do not provide our customers with a right of return. Product
revenue related to our consumable products such as PULSE Tubes and application
specific kits is recorded upon shipment through a common carrier. Shipping
costs are included in the costs of sales. Any shipping costs billed to customers
are recognized as revenue.
In
accordance with the Financial Accounting Standards Board (“FASB”) Statement of
Financial Accounting Standards (“SFAS”) No. 13, “Accounting for Leases”, we
account for our lease agreements under the operating method. 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 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 rental payments
previously made. We pay all maintenance costs associated with the instrument
during the term of the leases.
Revenue
from government grants is recorded when expenses are incurred under the grant in
accordance with the terms of the grant award.
Our
transactions sometimes involve multiple element arrangements (i.e., products and
services). Revenue under multiple element arrangements is recognized in
accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-21, “Accounting for Revenue Arrangements
with Multiple Deliverables”. Under this method, if an element is
determined to be a separate unit of accounting, the revenue for the element is
based on fair value and determined by vendor specific objective evidence
(“VSOE”), and recognized at the time of delivery. If an arrangement includes
undelivered elements that are not essential to the functionality of the
delivered elements, we defer the fair value of the undelivered elements with the
residual revenue allocated to the delivered elements. Fair value is determined
based upon the price charged when the element is sold separately. If there is
not sufficient evidence of the fair value of the undelivered elements, no
revenue is allocated to the delivered elements and the total consideration
received is deferred until delivery of those elements for which objective and
reliable evidence of the fair value is not available. We provide certain
customers with extended service contracts and, to the extent VSOE is
established, these service revenues are recognized ratably over the life of the
contract which is generally one to four years.
(iv) Cash
and Cash Equivalents
Our
policy is to invest available cash in short-term, investment grade
interest-bearing obligations, including money market funds, and bank and
corporate debt instruments. Securities purchased with initial
maturities of three months or less are valued at cost plus accrued interest,
which approximates fair market value, and are classified as cash
equivalents. As of December 31, 2008, we held $50,000 in a restricted
account as collateral for our corporate credit card and therefore classified
this balance as restricted cash on our consolidated balance
sheet.
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As
of December 31, 2008
(v) Research
and Development
Research
and development costs, which are comprised of costs incurred in performing
research and development activities including wages and associated employee
benefits, facilities, consumable products and overhead costs that are expensed
as incurred. In support of our research and development activities we
utilize our Barocycler instruments that are capitalized as fixed assets and
depreciated over their expected useful life.
(vi) Inventories
Inventories
are valued at the lower of cost or market. The composition of inventory as
of December 31, 2008 and 2007 is as follows:
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Raw
materials
|
|
$ |
83,451 |
|
|
$ |
28,115 |
|
Finished
goods
|
|
|
488,380 |
|
|
|
144,433 |
|
Total
|
|
$ |
571,831 |
|
|
$ |
172,548 |
|
(vii) Property
and Equipment
Property
and equipment are stated at cost, less accumulated depreciation. For financial
reporting purposes, depreciation is recognized using the straight-line method,
allocating the cost of the assets over their estimated useful lives of three
years for certain laboratory equipment, from three to five years for management
information systems and office equipment, and three years for all PCT finished
units classified as fixed assets.
(viii) Intangible
Assets
We have
classified as intangible assets, costs associated with the fair value of
acquired intellectual property. Intangible assets, including patents, are
being amortized on a straight-line basis over sixteen years. We perform a
quarterly review of our intangible assets for impairment. When impairment
is indicated, any excess of carrying value over fair value is recorded as a
loss. An impairment analysis of intangible assets was performed as of December
31, 2008. Based on this analysis, we have concluded that no impairment of
intangible assets had occurred.
(ix) Long-Lived
Assets and Deferred Costs
In
accordance with the Financial Accounting Standards Board (“FASB”) Statements of
Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets”, if indicators of impairment exist, we
assess the recoverability of the affected long-lived assets by determining
whether the carrying value of such assets can be recovered through the
undiscounted future operating cash flows. If impairment is indicated, we measure
the amount of such impairment by comparing the carrying value of the asset to
the fair value of the asset and record the impairment as a reduction in the
carrying value of the related asset and a charge to operating results. While our
current and historical operating losses and cash flow are indicators of
impairment, we performed an impairment test at December 31, 2008 and determined
that such long-lived assets were not impaired.
(x) 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 and
university labs.
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As
of December 31, 2008
The
following table illustrates the level of concentration of the below two groups
within revenue as a percentage of total revenues during the years ended December
31, 2008 and 2007:
|
|
For
the Year Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Top
Five Customers
|
|
|
52 |
% |
|
|
66 |
% |
Federal
Agencies
|
|
|
33 |
% |
|
|
55 |
% |
The
following table illustrates the level of concentration of the below two groups
within accounts receivable as a percentage of total accounts receivable balance
as of December 31, 2008 and 2007:
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Top
Five Customers
|
|
|
81 |
% |
|
|
94 |
% |
Federal
Agencies
|
|
|
1 |
% |
|
|
41 |
% |
Product
Supply
Source
Scientific, LLC has been our sole contract manufacturer for all of our PCT
instrumentation. During 2008, however, we initiated several engineering
initiatives to position us for greater independence from any one supplier, and
we are in the process of developing a network of manufacturers and
sub-contractors to reduce our reliance on any single supplier. Until
we develop a broader network of manufacturers and subcontractors, obtaining
alternative sources of supply or manufacturing services could involve
significant delays and other costs and challenges, and may not be available to
us on reasonable terms, if at all. The failure of a supplier or contract
manufacturer to provide sufficient quantities, acceptable quality and timely
products at an acceptable price, or an interruption of supplies from such a
supplier could harm our business and prospects.
(xi) 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, stock options are considered common stock
equivalents in periods in which they have a dilutive effect. Stock options that
are anti-dilutive are excluded from this calculation. The following table
illustrates our computation of loss per share for the years ended December 31,
2008 and 2007.
|
|
For
the Year Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Numerator:
|
|
|
|
|
|
|
Loss
from continuing operations - basic and diluted
|
|
$ |
(4,908,445 |
) |
|
$ |
(2,311,634 |
) |
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - basic and diluted
|
|
|
2,194,093 |
|
|
|
2,078,657 |
|
|
|
|
|
|
|
|
|
|
Loss
per share from continuing operations - basic and diluted
|
|
$ |
(2.24 |
) |
|
$ |
(1.11 |
) |
|
|
|
|
|
|
|
|
|
Shares
excluded from calculations
|
|
|
82,659 |
|
|
|
211,796 |
|
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As
of December 31, 2008
(xii) Accounting
for Income Taxes
Effective
January 1, 2007, we adopted the provisions of FASB Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109” (FIN 48). FIN
48 clarifies the accounting for uncertainty in income taxes recognized in
an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income
Taxes”. This interpretation prescribes a recognition threshold
and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN
48 also provides guidance on de-recognition of tax benefits, classification on
the balance sheet, interest and penalties, accounting in interim periods,
disclosure, and transition. We adopted FIN 48 effective January 1, 2007.
FIN 48 requires significant judgment in determining what constitutes an
individual tax position as well as assessing the outcome of each tax position.
Changes in judgment as to recognition or measurement of tax positions can
materially affect the estimate of the effective tax rate and consequently,
affect our operating results. Prior to the adoption of FIN 48, we recorded
liabilities related to uncertain tax positions based upon Statement of Financial
Accounting Standards No. 5, “Accounting for Contingencies”.
We
account for income taxes under the asset and liability method, which requires
recognition of deferred tax assets, subject to valuation allowances, and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of asset and liabilities for financial reporting and income tax
purposes. A valuation allowance is established if it is more likely than not
that all or a portion of the net deferred tax assets will not be
realized.
(xiii) Accounting
for Stock-Based Compensation
On
January 1, 2006, we adopted SFAS No. 123 (revised 2004), “Share-Based Payment” , or
SFAS 123R, and its related implementation guidance as promulgated by both the
FASB, and the SEC SAB 107, associated with the accounting for stock-based
compensation arrangements of our employees and directors. These pronouncements
require that equity-based compensation cost be measured at the grant date (based
upon an estimate of the fair value of the compensation granted) and recorded to
expense over the requisite service period, which generally is the vesting
period. We adopted SFAS 123R using the modified prospective method in the first
quarter of 2006.
We
estimate the fair value of equity-based compensation utilizing the Black-Scholes
option pricing model. This model requires the input of several factors such as
the expected option term, expected volatility of our stock price over the
expected term, expected risk-free interest rate over the expected option term,
expected dividend yield rate over the expected option term, and an estimate of
expected forfeiture rates, and is subject to various assumptions. We believe
this valuation methodology is appropriate for estimating the fair value of stock
options granted to employees and directors which are subject to SFAS 123R
requirements. These amounts are estimates and thus may not be reflective of
actual future results, nor amounts ultimately realized by recipients of these
grants. These amounts, and the amounts applicable to future quarters, are also
subject to future quarterly adjustments based upon a variety of factors. The
following table summarizes the assumptions we utilized for grants of stock
options to the three sub-groups of our stock option recipients during the twelve
months ended December 31, 2008 and 2007:
Assumptions
|
|
Outside
Consultants
|
|
|
Outside Board
Members and
Consultants
|
|
|
CEO and other
Officers and
Employees
|
|
Expected
life
|
|
2.0
(yrs)
|
|
|
5.0
(yrs)
|
|
|
6.0
(yrs)
|
|
Expected
volatility
|
|
|
79.60%
|
|
|
|
55.66% - 77.86%
|
|
|
|
55.66% - 92.53%
|
|
Risk-free
interest rate
|
|
|
1.27%
|
|
|
|
2.60% - 4.94%
|
|
|
|
2.76% - 4.94%
|
|
Forfeiture
rate
|
|
|
0.00%
|
|
|
|
5.00%
|
|
|
|
5.00%
|
|
Expected
dividend yield
|
|
|
0.0%
|
|
|
|
0.0%
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As
of December 31, 2008
We
recognized stock-based compensation expense of $509,195 and $367,110 for the
years ended December 31, 2008 and 2007, respectively. The following table
summarizes the effect of this stock-based compensation expense within each of
the line items within our Consolidated Statement of Operations:
|
|
For
the Year Ended, December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Cost
of PCT products and services
|
|
$ |
- |
|
|
$ |
4,746 |
|
Research
and development
|
|
|
162,421 |
|
|
|
141,115 |
|
Selling
and marketing
|
|
|
93,947 |
|
|
|
70,770 |
|
General
and administrative
|
|
|
252,827 |
|
|
|
150,479 |
|
Total
stock-based compensation expense
|
|
$ |
509,195 |
|
|
$ |
367,110 |
|
The
provisions of SFAS 123R require that we make an estimate of our forfeiture rate
and adjust the expense that we recognize to reflect the estimated number of
stock options that will go unexercised. Our historical forfeiture rate has been
approximately 5%. We used this historical rate as our assumption in
calculating future stock-based compensation expense.
During
the years ended December 31, 2008 and 2007, the total fair value of stock
options awarded was $403,711 and $590,912, respectively.
As of
December 31, 2008, the total estimated fair value of unvested stock options to
be amortized over their remaining vesting period was $319,632. The
non-cash, stock based compensation expense associated with the vesting of these
options will be $210,166 in 2009, $84,860 in 2010 and $24,606 in
2011.
(xiv) Fair
Value of Financial Instruments
Due to
their short maturities, the carrying amounts for cash and cash equivalents,
accounts receivable, accounts payable, and accrued expenses approximate their
fair value. Long-term liabilities are primarily related to liabilities
transferred under contractual arrangements with carrying values that approximate
fair value.
(xv)
Reclassifications
Certain
prior year amounts have been reclassified to conform to our current year
presentation.
(xvi)
Recent Accounting Standards
On
January 1, 2008, the Company adopted SFAS 157, “Fair Value Measurements”.
SFAS No. 157 establishes a formal framework for measuring fair value under GAAP
and expands on disclosure of fair value measurements. Although SFAS No. 157
applies to and amends the provisions of existing FASB and AICPA pronouncements,
it does not, of itself, require any new fair value measurements, nor does it
establish valuation standards. SFAS No. 157 applies to all other accounting
pronouncements requiring or permitting fair value measurements, except for: SFAS
No. 123R, “Share-Based
Payment” and related pronouncements, the practicability exceptions to
fair value determinations allowed by various other authoritative pronouncements,
and AICPA Statements of Position 97-2 and 98-9 that deal with software revenue
recognition. This statement is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within those
fiscal years. We do not expect the adoption of SFAS 157 to have a material
impact on our consolidated financial statements.
In
December 2007, the FASB issued SFAS 141 (revised 2007), “Business Combinations”
(“SFAS 141(R)”) and SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements – an amendment of ARB
No. 51” (“SFAS 160”).
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As
of December 31, 2008
SFAS
141(R) significantly changes the accounting for business combinations. Under
SFAS 141(R), an acquiring entity will be required to recognize all the assets
acquired and liabilities assumed in a transaction at the acquisition-date at
fair value with limited exceptions. SFAS 141(R) further changes the accounting
treatment for certain specific items, including:
|
-
|
Acquisition
costs will be generally expensed as
incurred;
|
|
-
|
Noncontrolling
interests (formerly known as “minority interests” – see SFAS 160
discussion below) will be valued at fair value at the acquisition
date;
|
|
-
|
Acquired
contingent liabilities will be recorded at fair value at the acquisition
date and subsequently measured at either the higher of such amount or the
amount determined under existing guidance for non-acquired
contingencies;
|
|
-
|
In-process
research and development will be recorded at fair value as an
indefinite-lived intangible asset at the acquisition
date;
|
|
-
|
Restructuring
costs associated with a business combination will be generally expensed
subsequent to the acquisition date;
and
|
|
-
|
Changes
in deferred tax asset valuation allowances and income tax uncertainties
after the acquisition date generally will affect income tax
expense.
|
SFAS
141(R) includes a substantial number of new disclosure requirements. FAS 141(R)
applies prospectively to business combinations for which the acquisition date is
on or after January 1, 2009.
In April
2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
(FSP) No. FAS 142-3, Determination of the Useful Life of Intangible Assets (FSP
142-3). FSP 142-3 removes the requirement under Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets to
consider whether an intangible asset can be renewed without substantial cost or
material modifications to the existing terms and conditions, and replaces it
with a requirement that an entity consider its own historical experience in
renewing similar arrangements, or a consideration of market participant
assumptions in the absence of historical experience. FSP 142-3 also requires
entities to disclose information that enables users of financial statements to
assess the extent to which the expected future cash flows associated with the
asset are affected by the entity’s intent and/or ability to renew or extend the
arrangement. We are required to adopt FSP 142-3 effective January 1, 2009 on a
prospective basis. The adoption of this statement is not expected to have any
impact to our financial statements.
SFAS 160
establishes new accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a subsidiary.
Specifically, this statement requires the recognition of non-controlling
interests (minority interests) as equity in the consolidated financial
statements and separate from the parent’s equity. The amount of net income
attributable to non-controlling interests will be included in consolidated net
income on the face of the income statement. SFAS 160 clarifies that changes in a
parent’s ownership interest in a subsidiary that does not result in
deconsolidation are treated as equity transactions if the parent retains its
controlling financial interest. In addition, this statement requires that a
parent recognize a gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss will be measured using the fair value of the
non-controlling equity investment on the deconsolidation date. SFAS 160 also
includes expanded disclosure requirements regarding the interests of the parent
and its non-controlling interest.
SFAS 160
is effective for fiscal years, and interim periods within such year, beginning
January 1, 2009. Early adoption of both SFAS 141(R) and SFAS 160 is
prohibited. We do not expect that either SFAS 141(R) or SFAS 160 is not expected
to have a material affect on our consolidated results of operations and
financial condition.
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities – an amendment of FASB Statement No. 133, which requires
additional disclosures about the objectives of derivative instruments and
hedging activities, the method of accounting for such instruments under SFAS No.
133 and its related interpretations, and a tabular disclosure of the effects of
such instruments and related hedged items on our financial position, financial
performance, and cash flows. SFAS No. 161 is effective for us beginning January
1, 2009. We believe the adoption of SFAS No. 161 will not have a material impact
on our financial statements.
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As
of December 31, 2008
In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The
Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS 162
identifies the sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles. SFAS 162 directs the hierarchy to the entity,
rather than the independent auditors, as the entity is responsible for selecting
accounting principles for financial statements that are presented in conformity
with generally accepted accounting principles. SFAS 162 is effective 60 days
following SEC approval of the Public Company Accounting Oversight Board
amendments to remove the hierarchy of generally accepted accounting principles
from the auditing standards. SFAS 162 is not expected to have an impact on our
financial condition, results of operations or cash flows.
(xvii)
Investment in Marketable Securities
As of
December 31, 2008 and 2007, we held no shares of common stock of Panacos
Pharmaceuticals, Inc. During 2007, we completed the liquidation
of our investment in Panacos Pharmaceuticals and realized a gain on securities
sold of $2,028,720.
(xviii)
Advertising
Advertising
costs are expensed as incurred. During 2008 and 2007 we incurred
$68,716 and $30,572, respectively in advertising expense.
(xvix)
Rent Expense
Rental
costs are expensed as incurred. During 2008 and 2007 we incurred
$148,982 and $85,555, respectively in rent expense for the use of our corporate
office and research and development facilities.
(3) Discontinued
Operations
Source Scientific,
LLC
In
June 2004, we transferred certain assets and liabilities of our PBI Source
Scientific, Inc. subsidiary to a newly formed limited liability company
known as Source Scientific, LLC. At the time of the transfer, we owned 100% of
the ownership interests of Source Scientific, LLC. We subsequently sold 70% of
our ownership interests of Source Scientific, LLC to Mr. Richard Henson and
Mr. Bruce A. Sargeant pursuant to a purchase agreement (the “Source
Scientific Agreement”). As a result of the sale of 70% of our ownership
interests, Mr. Henson and Mr. Sargeant each owned 35% and we owned the
remaining 30% of Source Scientific, LLC. Under the Source Scientific Agreement,
we received notes receivable in the aggregate amount of $900,000 (the “Notes”)
payable at the end of three years bearing 8% interest. The Source Scientific
Agreement offered Mr. Henson and Mr. Sargeant the option (“the
Option”) to purchase our 30% ownership interest in Source Scientific, LLC until
May 31, 2007, at an escalating premium (10-50%) over our initial ownership
value, provided that they first paid off the Notes in their
entirety.
On May
29, 2007, we executed a consent agreement with Mr. Henson and Mr. Sargeant,
Source Scientific LLC, and BIT Analytical Instruments, Inc. (“the Consent
Agreement”) pursuant to which the Notes were repaid in full in the aggregate
amount of $1,201,534 in principal and interest, and Mr. Henson and Mr. Sargeant
exercised their Option through BIT Analytical Instruments, Inc. to purchase our
remaining 30% ownership interest in Source Scientific, LLC for an aggregate
price of $578,573. As a result of these transactions, we no longer retain any
direct or indirect ownership interest in Source Scientific, LLC.
The
execution of these transactions, and receipt of the funds, triggered our
recognition of a gain on the sale of assets related to discontinued operations
of $1,534,476, net of income taxes of $218,060, during the twelve months ended
December 31, 2007. There was no such gain during
2008.
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As
of December 31, 2008
(4) Property
and Equipment
Property
and equipment as of December 31, 2008 and 2007 consisted of the following
components:
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Laboratory
and manufacturing equipment
|
|
$ |
127,355 |
|
|
$ |
59,361 |
|
Office
equipment
|
|
|
129,101 |
|
|
|
105,906 |
|
Leasehold
improvements
|
|
|
8,117 |
|
|
|
- |
|
PCT
collaboration, demonstration and leased systems
|
|
|
398,352 |
|
|
|
351,838 |
|
|
|
|
|
|
|
|
|
|
Total
property and equipment
|
|
|
662,925 |
|
|
|
517,105 |
|
Less
accumulated depreciation
|
|
|
(410,676 |
) |
|
|
(259,308 |
) |
|
|
|
|
|
|
|
|
|
Net
book value
|
|
$ |
252,249 |
|
|
$ |
257,797 |
|
Depreciation
expense for the years ended December 31, 2008 and 2007 was $169,359 and
$130,814, respectively.
(5) Intangible
Assets
Intangible
assets as of December 31, 2008 reflect an estimate of purchase price
attributable to patents in connection with the 1998 acquisition of BioSeq, Inc.
and the PCT business. Acquired PCT patents are being amortized to expense on a
straight line basis at the rate of $48,632 per year over their estimated
remaining useful lives of approximately 6 years. We performed a
review of our intangible assets for impairment. When impairment is
indicated, any excess of carrying value over fair value is recorded as a
loss. An impairment analysis of intangible assets was performed as of
December 31, 2008. We have concluded that there is no impairment of
intangible assets. Intangible assets at December 31, 2008 and 2007
consisted of the following:
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
PCT
Patents
|
|
$ |
778,156 |
|
|
$ |
778,156 |
|
Less
accumulated amortization
|
|
|
(498,498 |
) |
|
|
(449,866 |
) |
|
|
|
|
|
|
|
|
|
Net
book value
|
|
$ |
279,658 |
|
|
$ |
328,290 |
|
Amortization
expense for each of the years ended December 31, 2008 and 2007 was
$48,632.
(6) Retirement
Plan
We
provide all of our employees with the opportunity to participate in our
retirement savings plan. Our retirement savings plan has been qualified under
Section 401(k) of the Internal Revenue Code. Eligible employees are permitted to
contribute to the plan through payroll deductions within statutory limitations
and subject to any limitations included in the plan. During 2008 and 2007 we
contributed $19,238 and $15,708, respectively, in the form of discretionary
company matching contributions.
(7) Income
Taxes
The
components of the benefit for income taxes from continuing operations are as
follows:
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As
of December 31, 2008
|
|
For
the Year Ended
|
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Current
benefit: federal
|
|
$ |
- |
|
|
$ |
481,394 |
|
Current
benefit: state
|
|
|
- |
|
|
|
38,820 |
|
Total current
benefit
|
|
|
- |
|
|
|
520,214 |
|
|