Quarterly report pursuant to Section 13 or 15(d)

Summary of Significant Accounting Policies

v3.21.2
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2021
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

 

  3) Summary of Significant Accounting Policies

 

Basis of Presentation

 

The unaudited interim financial statements of Pressure BioSciences, Inc. and its consolidated subsidiaries (collectively, the “Company”) included herein have been prepared by the Company in accordance with the instructions to Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission. Under these rules and regulations, some information and footnote disclosures normally included in financial statements prepared under accounting principles generally accepted in the United States of America have been shortened or omitted. Management believes that all adjustments necessary for a fair statement of the financial position and the results of operations for the periods shown have been made. All adjustments are normal and recurring. These financial statements should be read together with the Company’s audited financial statements included in its Form 10-K for the fiscal year ended December 31, 2020.

 

Use of Estimates

 

The Company’s consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates, judgements and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Global concerns about the COVID-19 pandemic have adversely affected, and we expect will continue to adversely affect, our business, financial condition and results of operations including the estimates and assumptions made by management. Significant estimates and assumptions include valuations of share-based awards, investments in equity securities and intangible asset impairment. Actual results could differ from the estimates, and such differences may be material to the Company’s consolidated financial statements.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Pressure BioSciences, Inc., and its wholly owned subsidiary PBI BioSeq, Inc. All intercompany accounts and transactions have been eliminated in consolidation.

 

 

Revenue Recognition

 

We recognize revenue in accordance with FASB ASC 606, Revenue from Contracts with Customers, and ASC 340-40, Other Assets and Deferred Costs—Contracts with Customers. Revenue is measured based on a consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. We enter into sales contracts that may consist of multiple distinct performance obligations where certain performance obligations of the sales contract are not delivered in one reporting period. We measure and allocate revenue according to ASC 606-10.

 

We identify a performance obligation as distinct if both the following criteria are true: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. Determining the standalone selling price (“SSP”) and allocation of consideration from a contract to the individual performance obligations, and the appropriate timing of revenue recognition, is the result of significant qualitative and quantitative judgments. Management considers a variety of factors such as historical sales, usage rates, costs, and expected margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation in making these estimates. While changes in the allocation of the SSP between performance obligations will not affect the amount of total revenue recognized for a particular contract, any material changes could impact the timing of revenue recognition, which would have a material effect on our financial position and result of operations. This is because the contract consideration is allocated to each performance obligation, delivered or undelivered, at the inception of the contract based on the SSP of each distinct performance obligation.

 

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.

 

Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are in included in cost of revenues as consistent with treatment in prior periods.

 

Our current Barocycler® instruments require a basic level of instrumentation expertise to set-up for initial operation. To support a favorable first experience for our customers, upon customer request, and for an additional fee, we will send a highly trained technical representative to the customer site to install Barocyclers® that we sell, lease, or rent through our domestic sales force. The installation process includes uncrating and setting up the instrument, followed by introductory user training. Our sales arrangements do not provide our customers with a right of return. Any shipping costs billed to customers are recognized as revenue.

 

The majority of our instrument and consumable contracts contain pricing that is based on the market price for the product at the time of delivery. Our obligations to deliver product volumes are typically satisfied and revenue is recognized when control of the product transfers to our customers. Concurrent with the transfer of control, we typically receive the right to payment for the shipped product and the customer has significant risks and rewards of ownership of the product. Payment terms require customers to pay shortly after delivery and do not contain significant financing components.

 

Revenue from scientific services customers is recognized upon completion of each stage of service as defined in service agreements.

 

We apply ASC 845, “Accounting for Non-Monetary Transactions”, to account for products and services sold through non-cash transactions based on the fair values of the products and services involved, where such values can be determined. Non-cash exchanges would require revenue to be recognized at recorded cost or carrying value of the assets or services sold if any of the following conditions apply:

 

  a) The fair value of the asset or service involved is not determinable.
     
  b) The transaction is an exchange of a product or property held for sale in the ordinary course of business for a product or property to be sold in the same line of business to facilitate sales to customers other than the parties to the exchange.
     
  c) The transaction lacks commercial substance.

 

We recognize revenue for non-cash transactions at recorded cost or carrying value of the assets or services sold.

 

We account for lease agreements of our instruments in accordance with ASC 842, Leases. We record revenue over the life of the lease term, and we record depreciation expense on a straight-line basis over the thirty-six-month estimated useful life of the Barocycler® instrument. The depreciation expense associated with assets under lease agreement is included in the “Cost of PCT products and services” line item in our accompanying consolidated statements of operations. Many of our lease and rental agreements allow the lessee to purchase the instrument at any point during the term of the agreement with partial or full credit for payments previously made. We pay all maintenance costs associated with the instrument during the term of the leases.

 

Deferred revenue represents amounts received from service contracts for which the related revenues have not been recognized because one or more of the revenue recognition criteria have not been met. Revenue from service contracts is recorded ratably over the length of the contract.

 

 

Disaggregation of revenue

 

In the following table, revenue is disaggregated by primary geographical market, major product line, and timing of revenue recognition.

 

In thousands of US dollars ($)   Three Months Ended
June 30,
    Six Months Ended
June 30,
 
Primary geographical markets   2021     2020     2021     2020  
North America   $ 477     $ 162     $ 685     $ 307  
Europe     103       3       187       4  
Asia     29       103       297       211  
Revenue   $ 609     $ 268     $ 1,169     $ 522  

 

    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
Major products/services lines     2021       2020       2021       2020  
Hardware   $ 336     $ 122     $ 713     $ 217  
Consumables     44       51       146       107  
Contract research services     136       34       142       44  
Sample preparation accessories     40       33       69       58  
Technical support/extended service contracts     34       17       58       36  
Shipping and handling     16       6       35       15  
Other     3       5       6       45  
Revenue   $ 609     $ 268     $ 1,169     $ 522  

 

 

    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
Timing of revenue recognition     2021       2020       2021       2020  
Products transferred at a point in time   $ 440     $ 217     $ 969     $ 442  
Services transferred over time     169       51       200       80  
Revenue   $ 609     $ 268     $ 1,169     $ 522  

 

Contract balances

 

In thousands of US dollars ($)   June 30, 2021     December 31, 2020  
Receivables, which are included in ‘Accounts Receivable’   $ 630     $ 131  
Contract liabilities (deferred revenue)     57       67  

 

Transaction price allocated to the remaining performance obligations.

 

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period.

 Schedule of Future Related to Performance Obligations

In thousands of US dollars ($)   2021     2022     Total  
Extended warranty service   $ 49       8     $ 57  

 

All consideration from contracts with customers is included in the amounts presented above.

 

Contract Costs

 

The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in selling, general, and administrative expenses. The costs to obtain a contract are recorded immediately in the period when the revenue is recognized either upon shipment or installation. The costs to obtain a service contract are considered immaterial when spread over the life of the contract so the Company records the costs immediately upon billing.

 

 

Concentrations

 

Credit Risk

 

Our financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents, and trade receivables. We have cash investment policies which, among other things, limit investments to investment-grade securities. We perform ongoing credit evaluations of our customers, and the risk with respect to trade receivables is further mitigated by the fact that many of our customers are government institutions, large pharmaceutical and biotechnology companies, and academic laboratories.

 

The following table illustrates the level of concentration as a percentage of total revenues during the three and six months ended June 30, 2021 and 2020.

 

    For the Three Months Ended  
    June 30,  
    2021     2020  
Top Five Customers     50 %     71 %
Federal Agencies     14 %     2 %

 

    For the Six Months Ended  
    June 30,  
    2021     2020  
Top Five Customers     50 %     70 %
Federal Agencies     8 %     4 %

 

The following table illustrates the level of concentration as a percentage of net accounts receivable balance as of June 30, 2021 and December 31, 2020. The Top Five Customers category may include federal agency receivable balances if applicable.

 

    June 30, 2021     December 31, 2020  
Top Five Customers     56 %     89 %
Federal Agencies     11 %     10 %

 

Product Supply

 

We utilize a contract assembler for our Barocycler® 2320EXT. They provide us with precision manufacturing services that include management support services to meet our specific application and operational requirements. Among the services provided to us are:

 

  CNC Machining
     
  Contract Assembly & Kitting
     
  Component and Subassembly Design
     
  Inventory Management
     
  ISO certification

 

At this time, we believe that outsourcing contract assembly of our Barocycler® 2320EXT is the most cost-effective method for us to obtain ISO Certified, CE and CSA Marked instruments. The Company also continues to evaluate the potential economic benefits of bringing instrument assembly in-house.

 

We currently manufacture and assemble the Barocycler®, HUB440, HUB880, the SHREDDER SG3, and most of our consumables at our South Easton, MA facility. We will regularly reassess the tradeoffs between in-house assembly versus the benefits of outsourced relationships for of the entire Barocycler® product line, and future instruments.

 

 

Investment in Equity Securities

 

As of June 30, 2021, we held 100,250 shares of common stock of Nexity Global SA, (a Polish publicly traded company).

 

We account for this investment in accordance with ASC 320 “Investments — Debt and Equity Securities”. ASC 320 requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income.

 

As of June 30, 2021, our consolidated balance sheet reflected the fair value, determined on a recurring basis based on Level 1 inputs of our investment in Nexity, to be $274,621. We recorded $242,380 as an unrealized loss during the six months ended June 30, 2021 for changes in market value.

 

Computation of Loss per Share

 

Basic loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding. Diluted loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding plus additional common shares that would have been outstanding if dilutive potential common shares had been issued. For purposes of this calculation, convertible preferred stock, common stock dividends, and warrants and options to acquire common stock, are all considered common stock equivalents in periods in which they have a dilutive effect and are excluded from this calculation in periods in which these are anti-dilutive to our net loss.

 

The following table illustrates our computation of loss per share for the three and six months ended June 30, 2021 and 2020:

 

    2021     2020     2021     2020  
    For the Three Months Ended     For the Six Months Ended  
    June 30,     June 30,  
    2021     2020     2021     2020  
Numerator:                                
Net loss attributable to common stockholders   $ (5,149,342 )   $ (4,965,752 )   $ (12,188,028 )   $ (9,244,223 )
                                 
Denominator for basic and diluted loss per share:                                
Weighted average common stock shares outstanding     5,748,711       2,914,659       5,312,172       2,765,132  
                                 
Loss per common share – basic and diluted   $ (0.90 )   $ (1.70 )   $ (2.29 )   $ (3.34 )

 

 

The following table presents securities that could potentially dilute basic loss per share in the future. For all periods presented, the potentially dilutive securities were not included in the computation of diluted loss per share because these securities would have been anti-dilutive to our net loss. The Series D Convertible Preferred Stock, Series G Convertible Preferred Stock, Series H and H2 Convertible Preferred Stock, Series J Convertible Preferred Stock, Series K Convertible Preferred Stock, and Series AA Convertible Preferred Stock are presented below as if they were converted into common shares according to the conversion terms.

 

    As of June 30,  
    2021     2020  
Stock options     1,350,046       1,392,370  
Convertible debt     5,083,187       3,905,867  
Common stock warrants     15,703,807       12,761,126  
Convertible preferred stock:                
Series D Convertible Preferred Stock     25,000       25,000  
Series G Convertible Preferred Stock     26,857       26,857  
Series H Convertible Preferred Stock     33,334       33,334  
Series H2 Convertible Preferred Stock     70,000       70,000  
Series J Convertible Preferred Stock     115,267       115,267  
Series K Convertible Preferred Stock     229,334       229,334  
Series AA Convertible Preferred Stock     8,083,000       7,939,000  
      30,719,832       26,498,155  

 

Accounting for Stock-Based Compensation Expense

 

We maintain equity compensation plans under which incentive stock options and non-qualified stock options are granted to employees, independent members of our Board of Directors and outside consultants. We recognize stock-based compensation expense over the requisite service period using the Black-Scholes formula to estimate the fair value of the stock options on the date of grant.

 

Determining Fair Value of Stock Option Grants

 

Valuation and Amortization Method - The fair value of each option award is estimated on the date of grant using the Black-Scholes pricing model based on certain assumptions. The estimated fair value of employee stock options is amortized to expense using the straight-line method over the vesting period.

 

Expected Term - The Company uses the simplified calculation of expected life, as the Company does not currently have sufficient historical exercise data on which to base an estimate of expected term. Using this method, the expected term is determined using the average of the vesting period and the contractual life of the stock options granted.

 

Expected Volatility - Expected volatility is based on the Company’s historical stock volatility data over the expected term of the award.

 

Risk-Free Interest Rate - The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term.

 

Forfeitures - The Company records stock-based compensation expense only for those awards that are expected to vest. The Company estimated a forfeiture rate of 5% for awards granted based on historical experience and future expectations of options vesting. The Company used this historical rate as our assumption in calculating future stock-based compensation expense.

 

 

The Company recognized stock-based compensation expense of $63,458 and $65,341 for the three months ended June 30, 2021 and 2020, respectively. The Company recognized stock-based compensation expense of $124,695 and $307,110 for the six months ended June 30, 2021 and 2020, respectively. The following table summarizes the effect of this stock-based compensation expense within each of the line items of our costs and expenses within our Consolidated Statements of Operations:

 

    For the Three Months Ended     For the Six Months Ended  
    June 30,     June 30,  
    2021     2020     2021     2020  
Cost of sales   $ 5,107     $ 5,107     $ 10,160     $ 13,063  
Research and development     26,491       26,137       52,353       64,963  
Selling and marketing     5,887       6,358       10,482       20,294  
General and administrative     25,973       27,739       51,700       208,790  
Total stock-based compensation expense   $ 63,458     $ 65,341     $ 124,695     $ 307,110  

 

Fair Value of Financial Instruments

 

Due to their short maturities, the carrying amounts for cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and debt approximate their fair value. Long-term liabilities include debt and deferred revenue with a carrying value that approximates fair value.

 

Fair Value Measurements

 

The Company follows the guidance of FASB ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) as it related to all financial assets and financial liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis.

 

The Company generally defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company uses a three-tier fair value hierarchy, which classifies the inputs used in measuring fair values. These tiers include: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring the Company to develop its own assumptions. A slight change in an unobservable input like volatility could have a significant impact on fair value measurement.

 

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company has determined that its financial assets are classified within Level 1 in the fair value hierarchy. The development of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management.

 

 

The following tables set forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2021:

 

         

Fair value measurements at

June 30, 2021 using:

 
    June 30, 2021    

Quoted

prices in

active

markets

(Level 1)

   

Significant

other

observable

inputs

(Level 2)

   

Significant

unobservable

inputs

(Level 3)

 
Equity Securities   $ 274,621     $ 274,621       -       -  
Total Financial Assets   $ 274,621     $ 274,621     $ -     $ -  

 

The following tables set forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2020:

 

         

Fair value measurements at

December 31, 2020 using:

 
    December 31, 2020    

Quoted

prices in

active

markets

(Level 1)

   

Significant

other

observable

inputs

(Level 2)

   

Significant

unobservable

inputs

(Level 3)

 
Equity Securities     517,001       517,001       -       -  
Total Financial Assets   $ 517,001     $ 517,001     $ -     $ -