UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
or
For the transition period from _____________ to _____________
Commission
File Number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
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.
☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒
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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller Reporting Company | |||
| Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act).
☐
Yes ☒
The number of shares outstanding of the Issuer’s common stock as of November 18, 2022 was .
TABLE OF CONTENTS
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| September 30, 2022 (Unaudited) | December 31, 2021 (Audited) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventories,
net of $ | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Investment in equity securities | ||||||||
| Property and equipment, net | ||||||||
| Right of use asset leases | ||||||||
| Intangible assets, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued employee compensation | ||||||||
| Accrued professional fees and other | ||||||||
| Accrued interest and dividends payable | ||||||||
| Deferred revenue | ||||||||
| Convertible
debt, net of unamortized debt discounts of $ | ||||||||
| Other
debt, net of unamortized discounts of $ | ||||||||
| Related
party, net of unamortized debt discount of $ | ||||||||
| Operating lease liability | ||||||||
| Total current liabilities | ||||||||
| LONG TERM LIABILITIES | ||||||||
| Long term debt | ||||||||
| Operating lease liability – long term | ||||||||
| Deferred revenue | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES (Notes 4) | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Series D, G, H, H2, J, K, AA Convertible Preferred Stock, $ par value (Note 6) | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding on September 30, 2022 and December 31, 2021, respectively | ||||||||
| Warrants to acquire common stock | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| 3 |
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue: | ||||||||||||||||
| Products, services, other | $ | $ | $ | $ | ||||||||||||
| Total revenue | ||||||||||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of products and services | ||||||||||||||||
| Research and development | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating costs | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income: | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Unrealized (loss) gain on investment in equity securities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain (loss) on extinguishment of liabilities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ( | ) | ( | ) | ||||||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Deemed dividends on beneficial conversion feature | ( | ) | ( | ) | ||||||||||||
| Preferred stock dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted net loss per share attributable to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding used in the basic and diluted net loss per share calculation | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| 4 |
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For
the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Gain on loan forgiveness | ( | ) | ( | ) | ||||
| Non-cash lease expense | ||||||||
| Common stock and warrants issued for interest and extension fees | ||||||||
| Depreciation and amortization | ||||||||
| Accretion of interest and amortization of debt discount | ||||||||
| Loss on extinguishment of accrued liabilities and debt | ||||||||
| Stock-based compensation expense | ||||||||
| Loss on investment in equity securities | ||||||||
| Common stock and warrants issued for services | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued employee compensation | ||||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Deferred revenue and other accrued expenses | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property plant and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Net proceeds from Series AA Convertible Preferred Stock | ||||||||
| Proceeds from stock option exercises | ||||||||
| Net proceeds from convertible debt | ||||||||
| Net proceeds from non-convertible debt - third party | ||||||||
| Net proceeds from non-convertible debt - related party | ||||||||
| Payments on convertible debt | ( | ) | ( | ) | ||||
| Payments on non-convertible debt - related party | ( | ) | ( | ) | ||||
| Payments on non-convertible debt | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | $ | $ | ||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | ||||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | ||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL INFORMATION | ||||||||
| Interest paid in cash | $ | $ | ||||||
| NON CASH TRANSACTIONS: | ||||||||
| Common stock issued for non-cash warrant exercise | ||||||||
| Early adoption of ASU 2020-06 adoption | ||||||||
| Common stock issued with debt | ||||||||
| Discount from warrants issued with debt | ||||||||
| Common stock issued in lieu of cash for dividend | ||||||||
| Preferred stock dividends | ||||||||
| Conversion of debt and interest into common stock | ||||||||
| Discount due to beneficial conversion feature | ||||||||
| Deemed dividend - beneficial conversion feature | ||||||||
| Conversion of accrued liabilities and debt for Series AA preferred stock | ||||||||
| Conversion of preferred stock into common stock | ||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| 5 |
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(UNAUDITED)
For the nine months ended September 30, 2022
| Combined Preferred Stock | Common Stock | Stock | Additional Paid In | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Warrants | Capital | Deficit | Deficit | |||||||||||||||||||||||||
| BALANCE, December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Early adoption of ASU 2020-06 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Series AA Preferred Stock dividend | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Issuance of common stock for services | - | |||||||||||||||||||||||||||||||
| Issuance of common stock warrants for services | - | - | ||||||||||||||||||||||||||||||
| Warrants issued for debt extension | - | - | ||||||||||||||||||||||||||||||
| Common stock issued for debt extension | - | |||||||||||||||||||||||||||||||
| Conversion of debt and interest for common stock | - | |||||||||||||||||||||||||||||||
| Issuance of common stock for dividends paid-in-kind | - | |||||||||||||||||||||||||||||||
| Issuance of common stock for interest paid-in-kind | - | |||||||||||||||||||||||||||||||
| Stock issued with debt | - | |||||||||||||||||||||||||||||||
| Warrants issued with debt | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| BALANCE, March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Stock option exercise | - | |||||||||||||||||||||||||||||||
| Series AA Preferred Stock dividend | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Issuance of common stock for services | - | |||||||||||||||||||||||||||||||
| Common stock issued for debt extension | - | |||||||||||||||||||||||||||||||
| Conversion of preferred stock for common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Issuance of common stock for dividends paid-in-kind | - | |||||||||||||||||||||||||||||||
| Issuance of common stock for interest paid-in-kind | - | |||||||||||||||||||||||||||||||
| Stock issued with debt | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| BALANCE, June 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Issuance of common stock for interest paid-in-kind | - | |||||||||||||||||||||||||||||||
| Issuance of common stock for dividends paid-in-kind | - | |||||||||||||||||||||||||||||||
| Issuance of common stock for services | - | |||||||||||||||||||||||||||||||
| Series AA Preferred Stock dividend | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Common stock issued for debt extension | - | |||||||||||||||||||||||||||||||
| Warrants issued for services | - | - | ||||||||||||||||||||||||||||||
| Stock issued with debt | - | |||||||||||||||||||||||||||||||
| Stock warrants issued | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| BALANCE, September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| 6 |
For the nine months ended September 30, 2021:
| Combined Preferred Stock | Common Stock | Stock | Additional Paid In | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Warrants | Capital | Deficit | Deficit | |||||||||||||||||||||||||
| BALANCE, December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Stock option exercise | - | |||||||||||||||||||||||||||||||
| Series AA Preferred Stock dividend | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Issuance of common stock warrants for interest and paid-in-kind | - | - | ||||||||||||||||||||||||||||||
| Issuance of common stock for services | - | |||||||||||||||||||||||||||||||
| Beneficial conversion feature on debt | - | - | ||||||||||||||||||||||||||||||
| Series AA Preferred Stock offering | - | |||||||||||||||||||||||||||||||
| Beneficial conversion option on convertible preferred stock | - | - | ||||||||||||||||||||||||||||||
| Deemed dividend on convertible preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Conversion of debt and interest for common stock | - | |||||||||||||||||||||||||||||||
| Issuance of common stock for interest paid in kind | - | |||||||||||||||||||||||||||||||
| Warrants issued with debt | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| BALANCE, March 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Series AA Preferred Stock dividend | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Beneficial conversion feature on debt | - | - | ||||||||||||||||||||||||||||||
| Issuance of common stock for interest paid in kind | - | |||||||||||||||||||||||||||||||
| Issuance of common stock for dividends paid-in-kind | - | |||||||||||||||||||||||||||||||
| Conversion of debt and interest for common stock | - | |||||||||||||||||||||||||||||||
| Stock issued with debt | - | |||||||||||||||||||||||||||||||
| Warrants issued with debt | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| BALANCE, June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Issuance of common stock for non-cash warrant exercise | - | ( | ) | |||||||||||||||||||||||||||||
| Issuance of common stock for interest paid-in-kind | - | |||||||||||||||||||||||||||||||
| Issuance of common stock for services | - | |||||||||||||||||||||||||||||||
| Series AA Preferred Stock dividend | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Conversion of debt and interest for common stock | - | |||||||||||||||||||||||||||||||
| Warrants issued with debt | - | - | ||||||||||||||||||||||||||||||
| Series AA Preferred Stock issued for settlement of liabilities | - | |||||||||||||||||||||||||||||||
| Series AA Preferred Stock offering | - | |||||||||||||||||||||||||||||||
| Beneficial conversion feature on debt | - | - | ||||||||||||||||||||||||||||||
| Beneficial conversion option on convertible preferred stock | - | - | ||||||||||||||||||||||||||||||
| Deemed dividend on convertible preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock issued with debt | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| BALANCE, September 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| 7 |
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
1) Business Overview, Liquidity and Management Plans
Pressure BioSciences, Inc. (OTCQB: PBIO) (the “Company”) is a leader in the development & sale of innovative, enabling, high pressure technology-based instruments, consumables, and services for the life sciences and other industries worldwide. Our products/services are based on three patented, high-pressure platforms: (i) Pressure Cycling Technology (“PCT”), (ii) BaroFold Technology (“BaroFold”), and (iii) Ultra Shear Technology (“UST”).
The Company was founded on the belief that its PCT Platform had the potential to significantly increase the quality of sample preparation in both research and clinical settings. Although this premise has been proven true, and although PBI has been successful in installing its PCT Platform in the laboratories of key opinion leaders worldwide, the Company now believes – based on market feedback – that the commercial potential for its UST Platform far exceeds the potential of the PCT Platform. Consequently, in January 2022, PBI made the critical decision to immediately shift its primary business focus from PCT to its innovative UST Platform.
The UST Platform (7 issued patents) is based on the use of intense shear forces from ultra-high pressure discharge (greater than 20,000 psi) through a dynamically-controlled nano-gap valve under precisely controlled temperatures. UST has been shown to turn hydrophobic (water-repelling) oil-based supplements (e.g., CBD, curcumin), therapeutics (e.g., prednisone), and other active ingredients (e.g., retinol, astaxanthin) into long-term stable, effectively water-soluble, highly bioavailable, oil-in-water nanoemulsion formulations. The Company began commercialization of the UST Platform in May 2022, and executed agreements have subsequently been announced with three CBD companies and one cosmeceutical/skincare company for commercialization in Q4 2022.
The BaroFold Platform (8 issued patents) can be used to significantly improve the quality and production costs of protein biotherapeutics. It employs high pressure manipulations for the disaggregation, unfolding and controlled refolding of proteins to their desired native structures at yields and efficiencies not achievable using existing technologies. The BaroFold Platform has been shown to remove protein aggregates in biotherapeutic drug manufacturing, thereby improving product efficacy, safety, and cost for both new-drug entities and biosimilar (follow-on biologic) products. It is scalable and practical for standard manufacturing processes.
The PCT Platform (15 issued patents) uses alternating cycles of hydrostatic pressure between ambient and ultra-high pressures to control bio-molecular interactions safely and reproducibly in the area of sample preparation (e.g., the critical steps performed by tens of thousands of scientists worldwide prior to analytical measurements. Our primary focus for PCT is on making our recently released, GMP-compliant, next generation PCT-based Barocycler EXTREME system available globally to biopharmaceutical drug manufacturers for use in the design, development, characterization, and quality control of biotherapeutic drugs. We currently have over 350 PCT Systems placed in approximately 225 academic, government, pharmaceutical, and biotech research laboratories worldwide. There are currently over 200 independent publications highlighting the advantages of using the PCT Platform in scientific research & clinical laboratories.
2) Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. However, we have experienced losses from operations and negative cash flows from operations with respect to our pressure cycling technology business since our inception. As of September 30, 2022, we do not have adequate working capital resources to satisfy our current liabilities and as a result, there is substantial doubt regarding our ability to continue as a going concern. We have been successful in raising debt and equity capital in the past and as described in Notes 5 and 6. In addition we raised debt and equity capital after September 30, 2022 as described in Note 7. We have financing efforts in place to continue to raise cash through debt and equity offerings. Although we have successfully completed financings and reduced expenses in the past, we cannot assure you that our plans to address these matters in the future will be successful. These financial statements do not include any adjustments that might result from this uncertainty.
| 8 |
3) Summary of Significant Accounting Policies
Basis of Presentation
The unaudited interim financial statements of Pressure BioSciences, Inc. and its consolidated subsidiaries (collectively, the “Company”) included herein have been prepared by the Company in accordance with the instructions to Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission. Under these rules and regulations, some information and footnote disclosures normally included in financial statements prepared under accounting principles generally accepted in the United States of America have been shortened or omitted. Management believes that all adjustments necessary for a fair statement of the financial position and the results of operations for the periods shown have been made. All adjustments are normal and recurring. These financial statements should be read together with the Company’s audited financial statements included in its Form 10-K for the fiscal year ended December 31, 2021. Operating results for the nine months ended September 30, 2022 are not necessarily indicative of the final results that may be expected for the year ending December 31, 2022.
Use of Estimates
The Company’s consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates, judgements and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Global concerns about the COVID-19 pandemic have adversely affected, and we expect will continue to adversely affect, our business, financial condition and results of operations including the estimates and assumptions made by management. Significant estimates and assumptions include valuations of share-based awards, investments in equity securities and intangible asset impairment. Actual results could differ from the estimates, and such differences may be material to the Company’s consolidated financial statements.
Recent Accounting Pronouncements
In
August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-06, Accounting for Convertible
Instruments and Contracts in an Entity’s Own Equity, as part of its overall simplification initiative to reduce costs and complexity
of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements.
Among other changes, the new guidance removes the beneficial conversion separation model for convertible debt. As a result, after adopting
the guidance, entities will no longer account for beneficial conversion features in equity. The guidance is effective for public business
entities, other than small reporting company’s financial statements starting January 1, 2022, with early adoption permitted. The
Company is a small reporting company and early adopted the new guidance on January 1, 2022 using the modified retrospective approach
and recorded a cumulative effect of adoption equal to a $
Principles of Consolidation
The consolidated financial statements include the accounts of Pressure BioSciences, Inc., and its wholly owned subsidiaries PBI BioSeq, Inc. and PBI Agrochem, Inc. All intercompany accounts and transactions have been eliminated in consolidation.
Revenue Recognition
We recognize revenue in accordance with FASB ASC 606, Revenue from Contracts with Customers, and ASC 340-40, Other Assets and Deferred Costs—Contracts with Customers. Revenue is measured based on a consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. We enter into sales contracts that may consist of multiple distinct performance obligations where certain performance obligations of the sales contract are not delivered in one reporting period. We measure and allocate revenue according to ASC 606-10.
| 9 |
We identify a performance obligation as distinct if both the following criteria are true: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. Determining the standalone selling price (“SSP”) and allocation of consideration from a contract to the individual performance obligations, and the appropriate timing of revenue recognition, is the result of significant qualitative and quantitative judgments. Management considers a variety of factors such as historical sales, usage rates, costs, and expected margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation in making these estimates. While changes in the allocation of the SSP between performance obligations will not affect the amount of total revenue recognized for a particular contract, any material changes could impact the timing of revenue recognition, which would have a material effect on our financial position and result of operations. This is because the contract consideration is allocated to each performance obligation, delivered or undelivered, at the inception of the contract based on the SSP of each distinct performance obligation.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.
Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are in included in cost of revenues as consistent with treatment in prior periods.
Our current Barocycler® instruments require a basic level of instrumentation expertise to set-up for initial operation. To support a favorable first experience for our customers, upon customer request, and for an additional fee, we will send a highly trained technical representative to the customer site to install Barocyclers® that we sell, lease, or rent through our domestic sales force. The installation process includes uncrating and setting up the instrument, followed by introductory user training. Our sales arrangements do not provide our customers with a right of return. Any shipping costs billed to customers are recognized as revenue.
The majority of our instrument and consumable contracts contain pricing that is based on the market price for the product at the time of delivery. Our obligations to deliver product volumes are typically satisfied and revenue is recognized when control of the product transfers to our customers. Concurrent with the transfer of control, we typically receive the right to payment for the shipped product and the customer has significant risks and rewards of ownership of the product. Payment terms require customers to pay shortly after delivery and do not contain significant financing components.
Revenue from scientific services customers is recognized upon completion of each stage of service as defined in service agreements.
We apply ASC 845, “Accounting for Non-Monetary Transactions”, to account for products and services sold through non-cash transactions based on the fair values of the products and services involved, where such values can be determined. Non-cash exchanges would require revenue to be recognized at recorded cost or carrying value of the assets or services sold if any of the following conditions apply:
| a) | The fair value of the asset or service involved is not determinable. | |
| b) | The transaction is an exchange of a product or property held for sale in the ordinary course of business for a product or property to be sold in the same line of business to facilitate sales to customers other than the parties to the exchange. | |
| c) | The transaction lacks commercial substance. |
We recognize revenue for non-cash transactions at recorded cost or carrying value of the assets or services sold.
We account for lease agreements of our instruments in accordance with ASC 842, Leases. We record revenue over the life of the lease term, and we record depreciation expense on a straight-line basis over the thirty-six-month estimated useful life of the Barocycler® instrument. The depreciation expense associated with assets under lease agreement is included in the “Cost of PCT products and services” line item in our accompanying consolidated statements of operations. Many of our lease and rental agreements allow the lessee to purchase the instrument at any point during the term of the agreement with partial or full credit for payments previously made. We pay all maintenance costs associated with the instrument during the term of the leases.
| 10 |
Deferred revenue represents amounts received from service contracts for which the related revenues have not been recognized because one or more of the revenue recognition criteria have not been met. Revenue from service contracts is recorded ratably over the length of the contract.
Disaggregation of revenue
In the following table, revenue is disaggregated by primary geographical market, major product line, and timing of revenue recognition.
| In thousands of US dollars ($) | Three
Months Ended September 30, | Nine
Months Ended September 30, | ||||||||||||||
| Primary geographical markets | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| North America | $ | $ | $ | $ | ||||||||||||
| Europe | ||||||||||||||||
| Asia | ( | ) | ||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| In thousands of US dollars ($) | Three
Months Ended September 30, | Nine
Months Ended September 30, | ||||||||||||||
| Major products/services lines | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Hardware | $ | $ | $ | $ | ||||||||||||
| Consumables | ||||||||||||||||
| Contract research services | ||||||||||||||||
| Sample preparation accessories | ||||||||||||||||
| Technical support/extended service contracts | ||||||||||||||||
| Agrochem Products | ||||||||||||||||
| Shipping and handling | ||||||||||||||||
| Other | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| In thousands of US dollars ($) | Three
Months Ended September 30, | Nine
Months Ended September 30, | ||||||||||||||
| Timing of revenue recognition | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Products transferred at a point in time | $ | $ | $ | $ | ||||||||||||
| Services transferred over time | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Contract balances
| In thousands of US dollars ($) | September 30, 2022 | December 31, 2021 | ||||||
| Receivables, which are included in ‘Accounts Receivable’ | $ | $ | ||||||
| Contract liabilities (deferred revenue) | ||||||||
| 11 |
Transaction price allocated to the remaining performance obligations.
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period.
| In thousands of US dollars ($) | 2022 | 2023 | Total | |||||||||
| Extended warranty service | $ | $ | $ | |||||||||
All consideration from contracts with customers is included in the amounts presented above.
Contract Costs
The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in selling, general, and administrative expenses. The costs to obtain a contract are recorded immediately in the period when the revenue is recognized either upon shipment or installation. The costs to obtain a service contract are considered immaterial when spread over the life of the contract so the Company records the costs immediately upon billing.
Concentrations
Credit Risk
Our financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents, and trade receivables. We have cash investment policies which, among other things, limit investments to investment-grade securities. We perform ongoing credit evaluations of our customers, and the risk with respect to trade receivables is further mitigated by the fact that many of our customers are government institutions, large pharmaceutical and biotechnology companies, and academic laboratories.
The following table illustrates the level of concentration as a percentage of total revenues during the three and nine months ended September 30, 2022 and 2021.
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Top Five Customers | % | % | % | % | ||||||||||||
| Federal Agencies | % | % | % | % | ||||||||||||
The following table illustrates the level of concentration as a percentage of net accounts receivable balance as of September 30, 2022 and December 31, 2021. The Top Five Customers category may include federal agency receivable balances if applicable.
| September
30, 2022 | December
31, 2021 | |||||||
| Top Five Customers | % | % | ||||||
| Federal Agencies | % | % | ||||||
Product Supply
In recent years we utilized a contract assembler for our Barocycler® 2320EXT. They provided us with precision manufacturing services that included management support services to meet our specific application and operational requirements. Among the services provided to us were:
| ● | CNC Machining | |
| ● | Contract Assembly & Kitting | |
| ● | Component and Subassembly Design | |
| ● | Inventory Management | |
| ● | ISO certification |
| 12 |
Beginning in July 2021, we brought the assembly of our Barocycler 2320EXT instruments in-house. This became necessary when our independent contract assembler (CBM Industries) informed us that they were about to need 100% of their assembly space for one of their customers, who was in fact one of the largest life science instrument manufacturers in the U.S. We worked with our notified body to gain approval to use both the CE and CSA marks on the instrument, which we received during the quarter ending September 30, 2021. Until further notice, we expect to continue to assemble our Barocycler 2320EXT instrument at our South Easton, MA location.
We currently manufacture and assemble the Barocycler®, HUB440, HUB880, the SHREDDER SG3, and most of our consumables at our South Easton, MA facility. We will regularly reassess the tradeoffs between in-house assembly versus the benefits of outsourced relationships for of the entire Barocycler® product line, and future instruments.
Investment in Equity Securities
As of September 30, 2022, we held shares of common stock of Nexity Global SA, (a Polish publicly traded company).
We account for this investment in accordance with ASC 320 “Investments — Debt and Equity Securities”. ASC 320 requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income.
As
of September 30, 2022, our consolidated balance sheet reflected the fair value, determined on a recurring basis based on Level 1 inputs
of our investment in Nexity, to be $
Basic loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding. Diluted loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding plus additional common shares that would have been outstanding if dilutive potential common shares had been issued. For purposes of this calculation, convertible preferred stock, common stock dividends, and warrants and options to acquire common stock, are all considered common stock equivalents in periods in which they have a dilutive effect and are excluded from this calculation in periods in which these are anti-dilutive to our net loss.
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator for basic and diluted loss per share: | ||||||||||||||||
| Weighted average common stock shares outstanding | ||||||||||||||||
| Loss per common share – basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The following table presents securities that could potentially dilute basic loss per share in the future. For all periods presented, the potentially dilutive securities were not included in the computation of diluted loss per share because these securities would have been anti-dilutive to our net loss. The Series D Convertible Preferred Stock, Series G Convertible Preferred Stock, Series H and H2 Convertible Preferred Stock, Series J Convertible Preferred Stock, Series K Convertible Preferred Stock, and Series AA Convertible Preferred Stock are presented below as if they were converted into common shares according to the conversion terms.
| 13 |
| As of September 30, | ||||||||
| 2022 | 2021 | |||||||
| Stock options | ||||||||
| Convertible debt | ||||||||
| Common stock warrants | ||||||||
| Convertible preferred stock: | ||||||||
| Series D Convertible Preferred Stock | ||||||||
| Series G Convertible Preferred Stock | ||||||||
| Series H Convertible Preferred Stock | ||||||||
| Series H2 Convertible Preferred Stock | ||||||||
| Series J Convertible Preferred Stock | ||||||||
| Series K Convertible Preferred Stock | ||||||||
| Series AA Convertible Preferred Stock | ||||||||
We maintain equity compensation plans under which incentive stock options and non-qualified stock options are granted to employees, independent members of our Board of Directors and outside consultants. We recognize stock-based compensation expense over the requisite service period using the Black-Scholes formula to estimate the fair value of the stock options on the date of grant.
Determining Fair Value of Stock Option and Warrant Grants
Valuation and Amortization Method - The fair value of each option award is estimated on the date of grant using the Black-Scholes pricing model based on certain assumptions. The estimated fair value of employee stock options is amortized to expense using the straight-line method over the vesting period.
Expected Term - The Company uses the simplified calculation of expected life, as the Company does not currently have sufficient historical exercise data on which to base an estimate of expected term. Using this method, the expected term is determined using the average of the vesting period and the contractual life of the stock options granted.
Expected Volatility - Expected volatility is based on the Company’s historical stock volatility data over the expected term of the award.
Risk-Free Interest Rate - The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term.
Forfeitures
- The Company records stock-based compensation expense only for those awards that are expected to vest. The Company estimated a forfeiture
rate of
The Company recognized stock-based compensation expense of $ and $ for the three months ended September 30, 2022 and 2021, respectively. The Company recognized stock-based compensation expense of $ and $ for the nine months ended September 30, 2022 and 2021, respectively. The following table summarizes the effect of this stock-based compensation expense within each of the line items of our costs and expenses within our Consolidated Statements of Operations:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Cost of sales | $ | $ | $ | $ | ||||||||||||
| Research and development | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | ||||||||||||
| 14 |
Fair Value of Financial Instruments
Due to their short maturities, the carrying amounts for cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and debt approximate their fair value. The carrying amount of long-term debt approximates fair value due to interest rates that approximate prevailing market rates.
Fair Value Measurements
The Company follows the guidance of FASB ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) as it related to all financial assets and financial liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis.
The Company generally defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company uses a three-tier fair value hierarchy, which classifies the inputs used in measuring fair values. These tiers include: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring the Company to develop its own assumptions. A slight change in an unobservable input like volatility could have a significant impact on fair value measurement.
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company has determined that its financial assets are classified within Level 1 in the fair value hierarchy. The development of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management.
The following tables set forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2022:
Fair value measurements at September 30, 2022 using: | ||||||||||||||||
September 30, 2022 | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||
| Equity Securities | $ | $ | ||||||||||||||
| Total Financial Assets | $ | $ | $ | $ | ||||||||||||
The following tables set forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2021:
Fair value measurements at December 31, 2021 using: | ||||||||||||||||
December 31, 2021 | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||
| Equity Securities | ||||||||||||||||
| Total Financial Assets | $ | $ | $ | $ | ||||||||||||
| 15 |
4) Commitments and Contingencies
Operating Leases
The Company accounts for its leases under ASC 842. The Company has elected to apply the short-term lease exception to leases of one year or less.
Our
corporate office is currently located at 14 Norfolk Avenue, South Easton, Massachusetts 02375. We are currently paying $
We
extended our lease for our space in Medford, MA (the “Medford Lease”) from December 30, 2020 to
The
Company accounted for the lease extension of our Medford Lease as a lease modification under ASC 842. At the effective date of modification,
the Company recorded an adjustment to the right-of-use asset and lease liability in the amount of $
The
Company accounted for the Sparks Lease as an operating lease under ASC 842. Upon the commencement of the lease, the Company recorded
a right-of-use asset and lease liability in the amount of $
Following is a schedule by years of future minimum rental payments required under operating leases with initial or remaining non-cancelable lease terms in excess of one year as of September 30, 2022:
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| $ |
Battelle Memorial Institute
In
December 2008, we entered into an exclusive patent license agreement with the Battelle Memorial Institute (“Battelle”).
The licensed technology is the subject of a patent application filed by Battelle in 2008 and relates to a method and a system for improving
the analysis of protein samples, including through an automated system utilizing pressure and a pre-selected agent to obtain a digested
sample in a significantly shorter period of time than current methods, while maintaining the integrity of the sample throughout the preparatory
process. In addition to royalty payments on net sales on “licensed products,” we are obligated to make minimum royalty payments
for each year that we retain the rights outlined in the patent license agreement and we are required to have our first commercial sale
of the licensed products within one year following the issuance of the patent covered by the licensed technology. After re-negotiating
the terms of the contract in 2013, the minimum annual royalty was $
| 16 |
Target Discovery Inc.
In March 2010, we signed a strategic product licensing, manufacturing, co-marketing, and collaborative research and development agreement with Target Discovery Inc. (“TDI”), a related party. Under the terms of the agreement, we have been licensed by TDI to manufacture and sell an innovative line of chemicals used in the preparation of tissues for scientific analysis (“TDI reagents”). The TDI reagents were designed for use in combination with our pressure cycling technology. The companies believe that the combination of PCT and the TDI reagents can fill an existing need in life science research for an automated method for rapid extraction and recovery of intact, functional proteins associated with cell membranes in tissue samples. We did not incur any royalty obligation under this agreement in 2021 or 2020.
In
April 2012, we signed a non-exclusive license agreement with TDI to grant the non-exclusive use of our pressure cycling technology. We
executed an amendment to this agreement on October 1, 2016 wherein we agreed to pay a monthly fee of $
Severance and Change of Control Agreements
Each of Mr. Schumacher, and Drs. Ting, and Lazarev, executive officers of the Company, are entitled to receive a severance payment if terminated by the Company without cause. The severance benefits would include a payment in an amount equal to one year of such executive officer’s annualized base salary compensation plus accrued paid time off. Additionally, the officer will be entitled to receive medical and dental insurance coverage for one year following the date of termination.
Each of these executive officers, other than Mr. Schumacher, is entitled to receive a change of control payment in an amount equal to one year of such executive officer’s annualized base salary compensation, accrued paid time off, and medical and dental coverage, in the event of their termination upon a change of control of the Company. In the case of Mr. Schumacher, this payment would be equal to two years of annualized base salary compensation, accrued paid time off, and two years of medical and dental coverage. The severance payment is meant to induce the aforementioned executives to remain in the employ of the Company, in general; and particularly in the occurrence of a change in control, as a disincentive to the control change.
5) Convertible Debt and Other Debt
Convertible Debt
On
various dates during the nine months ended September 30, 2022, the Company issued convertible notes for a total of $
| 17 |
The specific terms of the convertible notes and outstanding balances as of September 30, 2022 are listed in the tables below.
| Inception Date | Term | Loan Amount | Outstanding balance with OID | Original Issue Discount (OID) | Interest Rate | Conversion Price | Deferred Finance Fees | Discount for conversion feature and warrants/shares | ||||||||||||||||||||||||
| $ | $ | $ | % | $ | $ | $ | ||||||||||||||||||||||||||
| $ | $ | $ | % | $ | $ | |||||||||||||||||||||||||||
| $ | $ | % | $ | $ | $ | |||||||||||||||||||||||||||
| $ | $ | % | $ | $ | $ | |||||||||||||||||||||||||||
| $ | $ | % | $ | $ | $ | |||||||||||||||||||||||||||
| $ | $ | % | $ | $ | ||||||||||||||||||||||||||||
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| $ | $ | $ | % | $ | $ | |||||||||||||||||||||||||||
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| $ | $ | $ | % | ( | ) | |||||||||||||||||||||||||||
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| $ | $ | $ | % | ( | ) | |||||||||||||||||||||||||||
| $ | $ | $ | % | ( | ) | |||||||||||||||||||||||||||
| $ | $ | $ | % | ( | ) | $ | ||||||||||||||||||||||||||
| $ | $ | $ | % | ( | ) | |||||||||||||||||||||||||||
| $ | $ | $ | % | ( | ) | $ | ||||||||||||||||||||||||||
| $ | $ | $ | % | ( | ) | $ | ||||||||||||||||||||||||||
| $ | $ | % | ( | ) | $ | |||||||||||||||||||||||||||
| $ | $ | $ | % | ( | ) | |||||||||||||||||||||||||||
| $ | $ | % | ( | ) | ||||||||||||||||||||||||||||
| $ | $ | % | ( | ) | $ | |||||||||||||||||||||||||||
| $ | $ | $ | % | ( | ) | $ | ||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Less remaining debt discount | $ | |||||||||||||||||||||||||||||||
| Total convertible debt | $ | |||||||||||||||||||||||||||||||
| 18 |
Notes:
| (1) | ||
| (2) | ||
| (3) | ||
| (4) | ||
| (5) | ||
| (6) | ||
| (7) | ||
| (8) | ||
| (9) | ||
| (10) | ||
| (11) | ||
| (12) | ||
| (13) | ||
| (14) | ||
| (15) | ||
| (16) | ||
| (17) | ||
| (18) |
| 19 |
As
of September 30, 2022, one lender holds approximately $
For
the nine months ended September 30, 2022, the Company recognized amortization expense related to the debt discounts indicated above of
$
Standstill and Forbearance Agreements
In
recent years, the Company entered into Standstill and Forbearance Agreements with lenders who hold variable-rate convertible notes. Pursuant
to these agreements the lenders agreed to not convert any portion of their notes into shares of common stock at a variable rate. The
Company and two lenders ($
In
connection to these agreements, the Company incurred interest, penalties, and fees of approximately $
Convertible Loan Modifications and Extinguishments
We refinanced certain convertible loans during the nine months ended September 30, 2022 at substantially the same terms for extensions ranging over a period of one to twelve months. We amortized any remaining unamortized debt discount as of the modification date over the remaining, extended term of the new loans. We applied ASC 470 of modification accounting to the debt instruments which were modified during the quarter or those settled with new notes issued concurrently for the same amounts but different maturity dates. The terms such as the interest rate, prepayment penalties, and default rates will be the same over the new extensions. According to ASC 470, an exchange of debt instruments between or a modification of a debt instrument by a debtor and a creditor in a nontroubled debt situation is deemed to have been accomplished with debt instruments that are substantially different if the present value of the cash flows under the terms of the new debt instrument is at least 10 percent different from the present value of the remaining cash flows under the terms of the original instrument. If the terms of a debt instrument are changed or modified and the cash flow effect on a present value basis is less than 10 percent, the debt instruments are not considered to be substantially different and will be accounted for as modifications.
The
cash flows of new debt exceeded
Other Debt
Other debt consists of non-convertible debt and Merchant agreements.
The following is a detail of the non-convertible debt:
| Principal Balance | ||||||||||||||||||
| Note | Original Term |
Inception | September 30, 2022 | December 31, 2021 | Interest Rate | Security | ||||||||||||
| Accredited investor 1 | $ | $ | % | Unsecured | ||||||||||||||
| Accredited investor 2 | % | Unsecured (1) | ||||||||||||||||
| On Deck Capital | % (2) | Unsecured | ||||||||||||||||
| Totals | $ | $ | ||||||||||||||||
| (1) | ||
| (2) |
| 20 |
The following is a detail of the Merchant agreements debt:
We
have signed various Merchant Agreements which are secured by second position rights to all customer receipts until the loan has been
repaid in full and subject to interest rates of
The following table shows our Merchant Agreements as of September 30, 2022:
| Issue Date | Purchase Price | Purchase Amount | Outstanding Balance | Payment Frequency | Payment Rate | Deferred Finance Fees | ||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
The following table shows our Merchant Agreements as of December 31, 2021:
| Inception Date | Purchase Price | Purchased Amount | Outstanding Balance | Payment frequency | Payment Rate | Deferred Fees | ||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||||
| $ | ||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||
We have accounted for the Merchant Agreements as loans under ASC 860 because while we provided rights to current and future receipts, we still had control over the receipts. The difference between the Purchase Amount and the Purchase Price is imputed interest that is recorded as interest expense when paid each day.
Related Party Debt
Principal Balance | |||||||||||||||||
| Note | September 30, 2022 | December 31, 2021 | Interest rate | Security | |||||||||||||
| Candy Schumacher | $ | $ | % | Unsecured | |||||||||||||
| Jeff Peterson | % | (1) | Unsecured | ||||||||||||||
| Richard Schumacher | % | Unsecured | |||||||||||||||
| Accredited investor 3 | % | Unsecured | |||||||||||||||
| Accredited investor 4 | $ | % | Unsecured | ||||||||||||||
| Totals | $ | $ | |||||||||||||||
| Unamortized debt discount | |||||||||||||||||
| Total current notes due | $ | $ | |||||||||||||||
| (1) |
The
related parties’ notes are due upon demand,
| 21 |
Long term debt
The
Company entered into a COVID-19 government loan in 2020, the Economic Injury Disaster Loan (or “EIDL”). The Company’s
EIDL loan, $
6) Stockholders’ Deficit
Preferred Stock
We are authorized to issue shares of preferred stock with a par value of $. Of the shares of preferred stock, the following is outstanding:
| September 30, 2022 | December 31, 2021 | |||||||
| Series
D Convertible Preferred Stock, $par value; shares authorized; shares issued and outstanding on September
30, 2022 and December 31, 2021, respectively (Liquidation value of $ | ||||||||
| Series G Convertible Preferred Stock, $par value; shares authorized; shares issued and outstanding on September 30, 2022 and December 31, 2021, respectively | ||||||||
| Series H Convertible Preferred Stock, $par value; shares authorized; shares issued and outstanding on September 30, 2022 and December 31, 2021, respectively | ||||||||
| Series J Convertible Preferred Stock, $par value; shares authorized; and shares issued and outstanding on September 30, 2022 and December 31, 2021, respectively | ||||||||
| Series K Convertible Preferred Stock, $par value; shares authorized; shares issued and outstanding on September 30, 2022 and December 31, 2021, respectively | ||||||||
| Series AA Convertible Preferred Stock, $par value; shares authorized; and shares issued and outstanding on September 30, 2022 and December 31, 2021, respectively | ||||||||
| Series
H2 Convertible Preferred Stock, $par value; shares authorized; shares issued and outstanding on September
30, 2022 and December 31, 2021, respectively | ||||||||
Series A Junior Participating Preferred Stock, $ par value, shares authorized, shares outstanding | ||||||||
Series A Convertible Preferred Stock, $ par value, shares authorized, shares outstanding | ||||||||
| Series B Convertible Preferred Stock, $ par value, shares authorized, shares outstanding | ||||||||
| Series C Convertible Preferred Stock, $ par value, shares authorized, shares outstanding | ||||||||
| Series E Convertible Preferred Stock, $ par value, shares authorized, shares outstanding | ||||||||
| Total Convertible Preferred Shares | $ | $ | ||||||
Stock Options and Warrants
At the Company’s December 30, 2021 Special Meeting, the shareholder’s approved the 2021 Equity Incentive Plan (the “2021 Plan”) pursuant to which shares of our common stock were reserved for issuance upon exercise of stock options or other equity awards. Consistent with the Company’s existing 2013 Equity Incentive plan (the “2013 plan”), under the 2021 plan, we may award stock options, shares of common stock, and other equity interests in the Company to employees, officers, directors, consultants, and advisors, and to any other persons the Board of Directors deems appropriate. As of September 30, 2022, options to acquire shares were outstanding under these Plans.
As of September 30, 2022, total unrecognized compensation cost related to the unvested stock-based awards was $ which is expected to be recognized over weighted average period of years. The aggregate intrinsic value associated with the options outstanding and exercisable, and the aggregate intrinsic value associated with the warrants outstanding and exercisable as of September 30, 2022, based on the September 30, 2022 closing stock price of $, was $.
| 22 |
The following table summarizes information concerning options and warrants outstanding and exercisable:
| Stock Options | Warrants | |||||||||||||||||||||||
| Weighted
Average | Weighted
Average | |||||||||||||||||||||||
| Shares | price
per share | Shares | price
per share | Shares | Total
Exercisable | |||||||||||||||||||
| Balance outstanding, December 31, 2021 | $ | $ | ||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||
| Exercised | ( | ) | ( | ) | ||||||||||||||||||||
| Expired/forfeited | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balance outstanding, September 30, 2022 | $ | $ | ||||||||||||||||||||||
As of September 30, 2022, the options outstanding have a weighted average exercise price and years weighted average remaining term. Of these options, are currently exercisable.
Common Stock and Warrant Issuances
| Loan | Loan Issuance Date | Loan Principal | % of Loan Principal Issuable | Defined Date | Shares Issuable Frequency | ||||||||||||||
| Loan 1 | $ | % | |||||||||||||||||
| Loan 2 | $ | % | |||||||||||||||||
| Loan 3 | $ | % | |||||||||||||||||
| Loan 4 | $ | % | |||||||||||||||||
| Loan 5 | $ | % | |||||||||||||||||
For
the three-month and nine-month period ended September 30, 2022, the Company is obligated to issue and shares of common
stock, respectively, for the loans listed in the above table, but has not issued the shares. The Company and the lenders are negotiating
in good faith to resolve these loans. During the three-month and nine-month period ended September 30, 2022, the Company accrued $
During the nine months ended September 30, 2022, the Company issued a total of shares of restricted common stock to accredited investors and consultants. Shares issued:
| ● |
shares for option exercise for $ | |
| ● |
shares for services valued at $ | |
| ● |
shares for debt extensions value at $ | |
| ● |
shares for conversion of debt and interest valued at $ | |
| ● | shares for preferred stock conversions from Series AA Convertible Preferred Stock; | |
| ● |
shares for interest paid-in-kind valued at | |
| ● |
shares for stock issued with debt valued at $ | |
| ● |
shares with a fair value of $ |
During the nine months ended September 30, 2021, we issued a total of shares of restricted stock to accredited investors and consultants. Shares issued:
| ● |
shares of common stock with a fair value of approximately $ | |
| ● |
shares with a fair value of $ | |
| ● |
shares with a fair value of $ | |
| ● | shares for stock option exercises (at an exercise price of $ per share); | |
| ● |
shares with a fair value of $ | |
| ● |
shares with a fair value of $ | |
| ● |
During
the nine months ended September 30, 2022, the Company issued a total of warrants at a fair value of $
| ● | ||
| ● | | |
| ● | issued for professional services rendered. |
During the nine months ended
September 30, 2021, we issued warrants ( to -year term at a $
In this period, we also issued shares of Series AA preferred stock
and
7) Subsequent Events
From
October 1, 2022 through November 18, 2022 the Company borrowed $
| 23 |
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, forward-looking statements are identified by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions intended to identify forward-looking statements. Such statements include, without limitation, statements regarding:
| ● | our need for, and our ability to raise, additional equity or debt financing on acceptable terms, if at all; | |
| ● | our need to take additional cost reduction measures, cease operations or sell our operating assets, if we are unable to obtain sufficient additional financing; | |
| ● | our belief that we will have sufficient liquidity to finance normal operations for the foreseeable future; | |
| ● | the options we may pursue in light of our financial condition; | |
| ● | the potential applications for Ultra Shear Technology (UST); | |
| ● | the potential applications of the BaroFold high-pressure protein refolding and disaggregation technology | |
| ● | the amount of cash necessary to operate our business; | |
| ● | the anticipated uses of grant revenue and the potential for increased grant revenue in future periods; | |
| ● | our plans and expectations with respect to our continued operations; | |
| ● | the expected number of pressure cycling technology (“PCT”) and constant pressure (“CP”) based units that we believe will be installed and the expected revenues from the sale of consumable products, extended service contracts, and biopharma contract services; | |
| ● | our belief that PCT has achieved initial market acceptance in the mass spectrometry and other markets; | |
| ● | the expected development and success of new instrument and consumables product offerings; | |
| ● | the potential applications for our instrument and consumables product offerings; | |
| ● | the expected expenses of, and benefits and results from, our research and development efforts; | |
| ● | the expected benefits and results from our collaboration programs, strategic alliances and joint ventures; | |
| ● | our expectation of obtaining additional research grants from the government in the future; | |
| ● | our expectations of the results of our development activities funded by government research grants; | |
| ● | the potential size of the market for biological sample preparation, biopharma contract services and Ultra Shear Technology; | |
| ● | general economic conditions; | |
| ● | the anticipated future financial performance and business operations of our company; | |
| ● | our reasons for resources expended in the market for genomic, proteomic, lipidomic and small molecule sample preparation; | |
| ● | the importance of mass spectrometry as a laboratory tool; | |
| ● | the advantages of PCT over other current technologies as a method of biological sample preparation and protein characterization in biomarker discovery, forensics, and histology, as well as for other applications; | |
| ● | the capabilities and benefits of our PCT Sample Preparation System, consumables and other products; | |
| ● | our belief that laboratory scientists will achieve results comparable with those reported to date by certain research scientists who have published or presented publicly on PCT and our other products and services; | |
| ● | our ability to retain our core group of scientific, administrative and sales personnel; and | |
| ● | our ability to expand our customer base in sample preparation and for other applications of PCT, as well as for our other products and services in both the BaroFold and Ultra Shear Technology areas. |
These forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements, expressed or implied, by such forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q. Except as otherwise required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this Quarterly Report on Form 10-Q to reflect any change in our expectations or any change in events, conditions or circumstances on which any of our forward-looking statements are based. Factors that could cause or contribute to differences in our future financial and other results include those discussed in the risk factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 and in this Report. We qualify all of our forward-looking statements by these cautionary statements.
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Pressure BioSciences, Inc. (OTCQB: PBIO) (the “Company”) is a leader in the development & sale of innovative, enabling, high pressure technology-based instruments, consumables, and services for the life sciences and other industries worldwide. Our products/services are based on three patented, high-pressure platforms: (i) Pressure Cycling Technology (“PCT”), (ii) BaroFold Technology (“BaroFold”), and (iii) Ultra Shear Technology (“UST”).
The Company was founded on the belief that its PCT Platform had the potential to significantly increase the quality of sample preparation in both research and clinical settings. Although this premise has been proven true, and although PBI has been successful in installing its PCT Platform in the laboratories of key opinion leaders worldwide, the Company now believes – based on market feedback – that the commercial potential for its UST Platform far exceeds the potential of the PCT Platform. Consequently, in January 2022, PBI made the critical decision to immediately shift its primary business focus from PCT to its innovative UST Platform.
The UST Platform (7 issued patents) is based on the use of intense shear forces from ultra-high pressure discharge (greater than 20,000 psi) through a dynamically-controlled nano-gap valve under precisely controlled temperatures. UST has been shown to turn hydrophobic (water-repelling) oil-based supplements (e.g., CBD, curcumin), therapeutics (e.g., prednisone), and other active ingredients (e.g., retinol, astaxanthin) into long-term stable, effectively water-soluble, highly bioavailable, oil-in-water nanoemulsion formulations. The Company began commercialization of the UST Platform in May 2022, and executed agreements have subsequently been announced with three CBD companies and one cosmeceutical/skincare company for commercialization in Q4 2022.
The BaroFold Platform (8 issued patents) can be used to significantly improve the quality and production costs of protein biotherapeutics. It employs high pressure manipulations for the disaggregation, unfolding and controlled refolding of proteins to their desired native structures at yields and efficiencies not achievable using existing technologies. The BaroFold Platform has been shown to remove protein aggregates in biotherapeutic drug manufacturing, thereby improving product efficacy, safety, and cost for both new-drug entities and biosimilar (follow-on biologic) products. It is scalable and practical for standard manufacturing processes.
The PCT Platform (15 issued patents) uses alternating cycles of hydrostatic pressure between ambient and ultra-high pressures to control bio-molecular interactions safely and reproducibly in the area of sample preparation (e.g., the critical steps performed by tens of thousands of scientists worldwide prior to analytical measurements. Our primary focus for PCT is on making our recently released, GMP-compliant, next generation PCT-based Barocycler EXTREME system available globally to biopharmaceutical drug manufacturers for use in the design, development, characterization, and quality control of biotherapeutic drugs. We currently have over 350 PCT Systems placed in approximately 225 academic, government, pharmaceutical, and biotech research laboratories worldwide. There are currently over 200 independent publications highlighting the advantages of using the PCT Platform in scientific research & clinical laboratories.
2022/2021 Key Accomplishments
| ● | September 28, 2022: Imminent Commercial Launch of Revolutionary UST Processing Method to be Focus of PBI’s Presentation at Emerging Growth Conference 40. |
| ● | September 27: Unique Advantages and Commercial Process Scalability of PBI’s Revolutionary UST Platform Illuminated at the Conference of Food Engineering 2022. |
| ● | September 13: Pressure BioSciences to Expand on Pivotal Change in Business Strategy with Presentation at HC Wainwright Annual Global Investment Conference. |
| ● | August 24: PBI secures pivotal cosmeceuticals partnership for UST platform with Dr. Denese SkinScience, a 20-year industry leader with over $500 million in QVC sales. |
| ● | August 18: Third contract announced for hemp-derived CBD products, estimating $2 million 2023 revenue. |
| ● | August 11: PBI receives approval to manufacture hemp-derived CBD products in Mass, including novel CBD nanoemulsions processed by the Company’s revolutionary Ultra Shear Technology (UST) platform. |
| ● | July 21: Second contract for toll manufacturing of a CBD nanoemulsion product using PBI’s proprietary Ultra Shear Technology (UST) announced. |
| ● | June 29: PBI announces contracted production launch for estimated $3 million of UST-processed, nanoemulsified CBD spray for oral use. |
| 25 |
| ● | June 14: UST Platform positioned for critical enabling role in global $41B (2027) plant protein beverage market. |
| ● | May 4: PBI signs development/manufacturing agreement with Safer Medical of Montana for commercial production of CBD oral spray, under recently released UST Early Access Program. |
| ● | April 27: PBI announces Early Access Program for UST nanoemulsion processing platform. |
| ● | April 5: PBI announces strong FY 2021 Financial and Operational Successes: FY 2021 revenue increased 64% over FY 2020, UST platform achieved critical goals – discussions ongoing with key leaders in multiple markets, and PCT/BaroFold/PBI Agrochem groups all reported important gains in FY 2022. |
| ● | March 10: Emerging Technology Insider releases TechTalks video interview featuring PBI President Ric Schumacher, discussing OSU partnership, Food Industry Consortium, and commercialization of UST Platform. |
| ● | March 3: Ohio State installs & commissions new pilot-scale UST processing equipment for preparation of higher quality and safer liquid foods and beverages. |
| ● | January 19: PBI participated in FORCE Family Office’s Webinar on Innovations and Advancements in the $4.6 Billion CBD Market. |
| ● | December 22, 2021: PBI shatters preconceived nanoemulsion stability, performance, and production limits, produces CBD oil nanoemulsions with 18-month stability. |
| ● | November 11: Second U.S. patent awarded for revolutionary UST platform: for innovative nanogap valve. |
| ● | September 30: UST successfully processes Neem Oil into a novel, highly potent agrochem nanoemulsion. |
| ● | September 29: Plans discussed for UST demo and manufacturing sites on U.S. east and west coasts. |
| ● | July 13: PBI’s UST-enabled nanoemulsions soar past one-year stability goal; results open explosive growth potential for water-soluble CBD-infused beverages worldwide. |
| ● | July 1: UST processing results in breakthrough nanoemulsion for Astaxanthin - highly potent antioxidant. |
| ● | May 13: PBI awarded three new patents for revolutionary UST platform: Japan, Australia, and China. |
| ● | February 24: PBI and Ohio State University announce formation of a food industry consortium to advance commercialization of the Company’s Ultra Shear Technology (UST) platform. |
Results of Operations
The following disclosure compares the results of operations for the quarter ended September 30, 2022 (“Q3 2022”) with September 30, 2021 (“Q3 2021”) and compares the nine months ended September 30, 2022 (“YTD 2022”) with September 30, 2021(“YTD 2021”).
Products and Services Revenue
We recognized total revenue of $144,032 for Q3 2022 compared to $518,365 for Q3 2021, a 72% decrease. For YTD 2022 we recognized revenue of $1,122,169 and compared to YTD 2021 of $1,687,166, respectively, a 33% decrease.
The decline in revenue for the year-to-date periods was primarily attributable to: (i) a 46% decline in PCT instrument sales due to expected Q3 orders received in Q4; (ii) a 48% decline in Scientific Services due to the completion of two contracts at the end of 2021 and another in mid-2022; and (iii) a change in the focus of the Company from spreading the staff’s efforts in all three platform technology areas (PCT, BaroFold, and UST) to extending the vast majority of the staff’s efforts in UST alone, as the Company prepared for the Q4 2022 commercial launch of the UST platform. This revenue decline was partially offset by a 442% increase in Agrochem product sales.
Cost of Products and Services
The cost of products and services was $126,203 for Q3 2022 compared to $258,170 for Q3 2021. For YTD 2022 and YTD 2021 our cost of products and services was $742,707and $771,105, respectively. Gross profit margin on products and services decreased 20% in the year-to-date period ended YTD 2022 from the same period ended YTD 2021. This decrease was attributable to reduction of revenue offset by increased shipping charges for the import of Agrochem products and a $0 profit non-revenue exchange sale to Ohio State University.
Research and Development
Research and development expenses were $262,370 for Q3 2022 compared to $282,622 for Q3 2021. For YTD 2022 and YTD 2021 these expenses were $716,685 and $839,072, respectively, an 15% decrease. The decreased expense was attributable to the resignation of a Senior Engineer at the end of 2021.
| 26 |
Selling and Marketing
Selling and marketing expenses were $226,526 for Q3 2022 compared to $66,068 for Q3 2021. For YTD 2022 and YTD 2021 expenses were $422,422 and $252,209, respectively, a 67% increase. The reported increase was primarily attributable to the hiring of new employees in sales and marketing focused on UST market development.
General and Administrative
General and administrative expenses were $892,293 for Q3 2022 compared to $1,154,063 for Q3 2021. For FY 2022 and FY 2021 these expenses were $2,591,644 and $2,788,779, respectively, a 7% decrease which is due to lower investor relations consulting fees.
Operating Loss
Operating loss was $1,363,360 for Q3 2022 compared to $1,242,558 for Q3 2021. For YTD 2022 and YTD 2021 the operating loss was $3,351,289 and $2,963,999 respectively, a 13% increase.
Interest Expense, net
Interest expense was $2,034,021 for Q3 2022 compared to $3,330,101 for Q3 2021. For YTD 2022 and YTD 2021 these expenses were $6,448,771 and $11,524,306 respectively, a 44% decrease. The decrease was attributable to few debt transactions.
Unrealized (loss) gain on investment in equity securities
Unrealized loss on investments in equity securities was $8,675 for Q3 2022 compared to an unrealized loss of $162,071 for Q3 2021. For YTD 2022 and YTD 2021 the unrealized loss on investments in equity securities was $8,047 as compared to a $404,451, respectively. The reported change was attributable to movement in the market price of the Company’s investment in Nexity.
Loss on extinguishment of liabilities
In connection with debt extensions and forgiveness, we recognized net loss of $1,054,122 for Q3 2022 compared to $277,010 of losses for Q3 2021. For YTD 2022 and YTD 2021 these losses were $1,809,249 and $1,500,395 respectively. The increase in losses was attributable to increased debt extensions.
Net loss attributable to common stockholders
Net loss attributable to common stockholders was $4,893,946 ($0.44 per share) for Q3 2022 compared to $6,199,176 ($0.82 per share) for Q3 2021. For YTD 2022 and YTD 2021 these losses were $12,913,826 ($1.24 per share) and $18,387,204 ($3.02 per share), respectively. The decrease in loss per share was attributable to the lower net loss attributable to factors discussed above and increase in common stock outstanding thereby increasing weighted shares outstanding.
Liquidity and Financial Condition
We have experienced negative cash flows from operations with respect to our pressure cycling technology business since our inception. As of September 30, 2022, we did not have adequate working capital resources to satisfy our current liabilities and as a result, we have substantial doubt regarding our ability to continue as a going concern. As described in Notes 5 and 6 of the accompanying consolidated financial statements, we have been successful in raising debt and equity capital. We received $6 million in net proceeds from loans in the nine months ended September 30, 2022. In addition, we raised debt and equity capital after September 30, 2022 as described in Note 7 of the accompanying consolidated financial statements.
| 27 |
We will need substantial additional capital to fund our operations in future periods. If we are unable to obtain financing on acceptable terms, or at all, we will likely be required to cease our operations, pursue a plan to sell our operating assets, or otherwise modify our business strategy, which could materially harm our future business prospects.
Net cash used in operations for the nine months ended September 30, 2022 was $3,051,257 as compared to $4,083,902 for the nine months ended September 30, 2021.
Net cash used in investing activities for the nine months ended September 30, 2022 was $20,754 compared to $4,503 in the nine months ended September 30, 2021.
Net cash provided by financing activities for the nine months ended September 30, 2022 was $3,170,580 as compared to $4,733,516 for the nine months ended September 30, 2021.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This Item 3 is not applicable to us as a smaller reporting company and has been omitted.
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 filings are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management was necessarily required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of September 30, 2022, we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective.
Our conclusion that our disclosure controls and procedures were not effective as of September 30, 2022 is due to the continued presence of the material weaknesses in our internal control over financial reporting identified in our Annual Report on Form 10-K for the year ended December 31, 2021. These material weaknesses are the following:
| ● | We identified a lack of sufficient segregation of duties. Specifically, this material weakness is such that the design over these areas relies primarily on detective controls and could be strengthened by adding preventative controls to properly safeguard Company assets. | |
| ● | Management has identified a lack of sufficient personnel in the accounting function due to our limited resources with appropriate skills, training and experience to perform the review processes to ensure the complete and proper application of generally accepted accounting principles, particularly as it relates to valuation of warrants and other complex debt /equity transactions. Specifically, this material weakness resulted in audit adjustments to the annual consolidated financial statements and revisions to related disclosures, valuation of warrants and other equity transactions. | |
| ● | Limited policies and procedures that cover recording and reporting of financial transactions. | |
| ● | Lack of multiple levels of review over the financial reporting process | |
| We continue to plan to remediate those material weaknesses as follows: | ||
| ● | Improve the effectiveness of the accounting group by augmenting our existing resources with additional consultants or employees to assist in the analysis and recording of complex accounting transactions, and to simultaneously achieve desired organizational structuring for improved segregation of duties. We plan to mitigate this identified deficiency by hiring an independent consultant once we generate significantly more revenue or raise significant additional working capital. | |
| ● | Improve expert review and achieve desired segregation procedures by strengthening cross approval of various functions including quarterly internal audit procedures where appropriate once we generate significantly more revenue or raise significantly more working capital. | |
During the period covered by this Report, we implemented and performed additional substantive procedures, such as supervisory review of work papers and consistent use of financial models used in equity valuations, to ensure our consolidated financial statements as of and for the three-month period ended September 30, 2022, are fairly stated in all material respects in accordance with GAAP. We have not, however, been able to fully remediate the material weaknesses due to our limited financial resources. Our remediation efforts are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.
Except as described above, there have been no changes in our internal controls over financial reporting that occurred during the period ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
| 28 |
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 1A. Risk Factors
Factors that could cause or contribute to differences in our future financial and operating results include those discussed in the risk factors set forth in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2021 and in this Item 1A. The risks described in our Form 10-K and this Report are not the only risks that we face. Additional risks not presently known to us or that we do not currently consider significant may also have an adverse effect on the Company. If any of the risks actually occur, our business, results of operations, cash flows or financial condition could suffer.
There have been no material changes to the risk factors set forth in Item 1A of our 10-K for the year ended December 31, 2021 other than the following:
We owe over $9 million to one lender with such loans secured by a security interest in all of our assets. If we default under our obligations pursuant to such loans, the lender could foreclose on all of our assets which could require us to cease our operations.
Through September 30, 2022, we have issued Notes to the same holder such that the current gross amount owed to the holder is approximately $9.4 million. Our obligations under the Notes and the transaction documents relating to the Notes are secured by a security interest in all of our assets. As a result, if we default under our obligations under the Notes or the transaction documents, the holders of the Notes, acting through their appointed agent, could foreclose on their security interests and liquidate some or all of these assets, which could harm our business, financial condition and results of operations and could require us to reduce or cease operations. In addition, the pledge of these assets and other restrictions may limit our flexibility in raising capital for other purposes. Because all of our assets are pledged under these financing arrangements, our ability to incur additional secured indebtedness or to sell or dispose of assets to raise capital may be impaired, which could have an adverse effect on our financial flexibility.
The holders of our Common Stock could suffer substantial dilution due to our corporate financing practices.
The holders of our common stock could suffer substantial dilution due to our corporate financing practices which, in the past few years has included private placements. As of September 30, 2022, we had 12,220,611 shares of common stock outstanding. As of September 30, 2022, if all of the outstanding shares of Series D Convertible Preferred Stock, Series G Convertible Preferred Stock, Series H Convertible Preferred Stock, Series H2 Convertible Preferred Stock, Series J Convertible Preferred Stock, Series K Convertible Preferred Stock and Series AA Convertible Preferred Stock were converted into shares of common stock and all outstanding options and warrants to purchase shares of common stock were exercised and all fixed rate convertible notes and debentures were converted, each as of September 30, 2022, an additional 33,217,416 shares of common stock would be issued and outstanding. The full cash exercise of the options and warrants would result in approximately $57.2 million in cash proceeds to the Company. This additional issuance of shares of common stock would cause immediate and substantial dilution to our existing stockholders and could cause a significant reduction in the market price of our common stock.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Except where noted, all the securities discussed in this Part II, Item 2 were issued in reliance on the exemption under Section 4(a)(2) of the Securities Act.
During the nine months ended September 30, 2022, the Company issued a total of 3,100,085 shares of restricted common stock to accredited investors and consultants. Shares issued:
| ● | 25,279 shares for option exercise for $17,443; | |
| ● | 190,500 shares for services valued at $312,875; | |
| ● | 1,028,800 shares for debt extensions value at $1,714,678; | |
| ● | 140,200 shares for conversion of debt and interest valued at $350,500; | |
| ● | 4,400 shares for preferred stock conversions from Series AA Convertible Preferred Stock; | |
| ● | 1,172,100 shares for interest paid-in-kind valued at 2,196,278; | |
| ● | 368,500 shares for stock issued with debt valued at $512,593, and | |
| ● | 170,306 shares with a fair value of $306,333 for dividends paid-in-kind. |
During the nine months ended September 30, 2022, the Company issued a total of 277,500 warrants at a fair value of $280,608, all with a strike price of $3.50 per share and an expiration term ranging from 3 to 5 years. Warrants issued:
| ● | 120,000 issued in conjunction with signing of new convertible loans; | |
| ● | 100,000 issued for a debt extension, and | |
| ● | 57,500 issued for professional services. |
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
* Filed herewith.
** In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are furnished and not filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| PRESSURE BIOSCIENCES, INC. | ||
| Date: November 21, 2022 | By: | /s/ Richard T. Schumacher |
| Richard T. Schumacher | ||
| President & Chief Executive Officer | ||
| (Principal Executive Officer and Principal Financial Officer) | ||
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