Pressure BioSciences, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

3. Summary of Significant Accounting Policies (Tables)

3. Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2014

The composition of inventory as of September 30, 2014 and December 31, 2013 is as follows:

	September 30,			December 31,
	2014			2013
Raw materials	$	222,989		$	147,290
Finished goods		679,534			639,386
Inventory reserve		(50,000	)		(50,000	)
Total	$	852,523		$	736,676

Customer Concentration

The following table illustrates the level of concentration as a percentage of total revenues during the three months and nine months ended September 30, 2014 and 2013:

	For the Three Months Ended
	September 30,
	2014			2013
Top Five Customers		53	%		53	%
Federal Agencies		1	%		27	%

	For the Nine Months Ended
	September 30,
	2014			2013
Top Five Customers		31	%		51	%
Federal Agencies		1	%		41	%

The following table illustrates the level of concentration as a percentage of net accounts receivable balance as of September 30, 2014 and December 31, 2013:

	September 30,			December 31,
	2014			2013
Top Five Customers		58	%		76	%
Federal Agencies		1	%		24	%

Computation of Loss per Share

The following table illustrates our computation of loss per share for the three months and nine months ended September 30, 2014 and 2013:

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Numerator:
Net loss	$	(959,050	)	$	(673,214	)	$	(3,321,892	)	$	(2,518,624	)
Accrued dividend for Preferred Stock		(43,362	)		(42,938	)		(97,955	)		(114,348	)
Deemed dividend on Series J Convertible Preferred Stock		-			-			-			(651,182	)
Deemed dividend on Series K Convertible Preferred Stock		-			-			(1,388,062	)		-
Net loss applicable to common shareholders	$	(1,002,412	)	$	(716,152	)	$	(4,807,909	)	$	(3,284,154	)

Denominator for basic and diluted loss per share:
Weighted average common stock shares outstanding		15,238,466			11,664,484			13,648,795			11,776,740

Loss per common share - basic and diluted	$	(0.07	)	$	(0.06	)	$	(0.35	)	$	(0.28	)

Stockholders' Equity Activity Series C Preferred Convertible Securities Exchange

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 Convertible Preferred Stock, Series J Convertible Preferred Stock and Series K Convertible Preferred Stock are presented below as if they were converted into common shares according to the conversion terms in Note 5.

	For the Three and Nine Months Ended
	September 30,
	2014		2013
Stock options		3,356,250		1,793,750
Convertible debt		4,091,151		1,025,000
Common stock warrants		17,895,717		12,034,599
Convertible preferred stock:
Series D Convertible Preferred Stock		750,000		750,000
Series G Convertible Preferred Stock		865,700		1,453,200
Series H Convertible Preferred Stock		1,000,000		1,000,000
Series J Convertible Preferred Stock		3,548,000		5,087,500
Series K Convertible Preferred Stock		11,399,000		-
		42,905,818		23,144,049

Stock based compensation expense

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 Condensed Consolidated Statements of Operations:

	For the Three Months Ended September 30,
	2014		2013
Research and development	$	1,749	$	44,658
Selling and marketing		1,391		17,024
General and administrative		3,247		30,549
Total stock-based compensation expense	$	6,387	$	92,231

We recognized stock-based compensation expense of $46,771 and $120,248 for the nine months ended September 30, 2014 and 2013, 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 Condensed Consolidated Statements of Operations:

	For the Nine Months Ended September 30,
	2014		2013
Research and development	$	19,602	$	50,161
Selling and marketing		13,296		21,216
General and administrative		13,873		48,871
Total stock-based compensation expense	$	46,771	$	120,248

Liabilities measured at fair value on recurring basis

The following tables set forth the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of September 30, 2014.

			Fair value measurements at September 30, 2014 using:
	September 30, 2014		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Series D Preferred Stock Purchase Warrants	$	235,724		-		-	$	235,724

	January 1, 2014		Change in Fair Value		Reclassified to Equity			September 30, 2014
Series D Preferred Stock Purchase Warrants	$	344,570	$	221,559	$	(330,405	)	$	235,724

Fair value assumptions

The assumptions for the binomial pricing model are represented in the table below for the warrants issued in the Series D private placement reflected on a per share common stock equivalent basis.

Assumptions	November 10, 2011			Warrants revalued at December 31, 2013			Warrants revalued at September 30, 2014
Expected life (in months)		60.0			34.0			25.0
Expected volatility		104.5	%		154.8	%		129.3	%
Risk-free interest rate		0.875	%		0.78	%		0.58	%
Exercise price	$	0.81		$	0.25		$	0.25
Fair value per warrant	$	0.54		$	0.21		$	0.22

			Fair value measurements at September 30, 2014 using:
	Sept. 30, 2014		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
June 4, 2014 note, conversion option	$	13,020		-		-	$	13,020
July 7, 2014 note, conversion option		55,917		-		-		55,917
July 7, 2014 note, conversion option		78,284		-		-		78,284
August 28, 2014 note, conversion option		42,156		-		-		42,156
September 3, 2014 note, conversion option		125,927		-		-		125,927
September 10, 2014 note, conversion option		156,376		-		-		156,376
September 26, 2014 note, conversion option		139,632		-		-		139,632
Embedded conversion options	$	611,312		-		-	$	611,312

	Jan. 1, 2014		Issuance fair value		Change in fair value			Reclassification into equity			Sept. 30, 2014
April 11, 2013 note, conversion option	$	130,734	$	-	$	7,348		$	(138,082	)	$	-
June 26, 2013 note, conversion option		55,307		-		6,118			(61,425	)		-
December 4, 2013 note, conversion option		98,129		-		(98,129	)		-			-
December 23, 2013 note, conversion option		72,027		-		48,804			(120,831	)		-
June 4, 2014 note, conversion option		-		57,071		(44,051	)		-			13,020
July 7, 2014 note, conversion option		-		64,233		(8,316	)		-			55,917
July 7, 2014 note, conversion option		-		89,926		(11,642	)		-			78,284
August 28, 2014 note conversion option				36,892		5,264						42,156
September 3 2014 note, conversion option		-		122,340		3,587			-			125,927
September 10, 2014 note, conversion option		-		129,710		26,666			-			156,376
September 26, 2014 note, conversion option		-		140,060		(428	)		-			139,632
Embedded conversion options	$	356,197	$	640,232	$	(64,799	)	$	(320,338	)	$	611,312

The assumptions for the binomial pricing model are represented in the table below for the conversion options reflected on a per share common stock equivalent basis.

Assumptions	April 11, 2013			Conversion options revalued at February 10, 2014
Expected life (in months)		12			2
Expected volatility		206.2	%		116.4	%
Risk-free interest rate		0.10	%		0.04	%
Exercise price	$	0.14		$	0.25
Fair value per conversion option	$	0.29		$	0.20

Assumptions	June 26, 2013			Conversion options revalued at February 10, 2014
Expected life (in months)		12			5
Expected volatility		189.2	%		137.9	%
Risk-free interest rate		0.13	%		0.07	%
Exercise price	$	0.17		$	0.25
Fair value per conversion option	$	0.25		$	0.23

Assumptions	December 4, 2013			Conversion options revalued at June 30, 2014
Expected life (in months)		24			1
Expected volatility		170.3	%		77.1	%
Risk-free interest rate		0.30	%		0.02	%
Exercise price	$	0.40		$	0.40
Fair value per conversion option	$	0.16		$	0.02

Assumptions	December 23, 2013			Conversion options revalued at June 23, 2014
Expected life (in months)		36			30
Expected volatility		151.4	%		159.2	%
Risk-free interest rate		0.77	%		0.73	%
Exercise price	$	0.40		$	0.40
Fair value per conversion option	$	0.17		$	0.32

Assumptions	June 4, 2014			Conversion options revalued at Sept. 30, 2014
Expected life (in months)		8			4
Expected volatility		121.8	%		102.7	%
Risk-free interest rate		0.07	%		0.02	%
Exercise price	$	0.45		$	0.45
Fair value per conversion option	$	0.16		$	0.04

Assumptions	July 7, 2014			Conversion options revalued at Sept. 30, 2014
Expected life (in months)		12			9
Expected volatility		117.9	%		104.9	%
Risk-free interest rate		0.12	%		0.09	%
Exercise price	$	0.21		$	0.20
Fair value per conversion option	$	0.18		$	0.15

Assumptions	July 7, 2014			Conversion options revalued at Sept. 30, 2014
Expected life (in months)		12			9
Expected volatility		117.9	%		104.9	%
Risk-free interest rate		0.12	%		0.09	%
Exercise price	$	0.21		$	0.20
Fair value per conversion option	$	0.18		$	0.15

Assumptions	August 28, 2014			Conversion options revalued at Sept. 30, 2014
Expected life (in months)		6			5
Expected volatility		104.4	%		100.3	%
Risk-free interest rate		0.05	%		0.03	%
Exercise price	$	0.14		$	0.14
Fair value per conversion option	$	0.15		$	0.17

Assumptions	Sept. 3, 2014			Conversion options revalued at Sept. 30, 2014
Expected life (in months)		36			35
Expected volatility		153.8	%		153.4	%
Risk-free interest rate		0.99	%		1.05	%
Exercise price	$	0.35		$	0.35
Fair value per conversion option	$	0.24		$	0.25

Assumptions	Sept. 10, 2014			Conversion options revalued at Sept. 30, 2014
Expected life (in months)		12			11
Expected volatility		117.6	%		116.3	%
Risk-free interest rate		0.12	%		0.11	%
Exercise price	$	0.13		$	0.13
Fair value per conversion option	$	0.12		$	0.21

Assumptions	Sept. 26, 2014			Conversion options revalued at Sept. 30, 2014
Expected life (in months)		12			12
Expected volatility		116.6	%		116.4	%
Risk-free interest rate		0.11	%		0.13	%
Exercise price	$	0.16		$	0.16
Fair value per conversion option	$	0.19		$	0.19

- Definition

Tabular disclosure of liabilities, including [financial] instruments measured at fair value that are classified in stockholders' equity, if any, by class that are measured at fair value on a recurring basis. The disclosures contemplated herein include the fair value measurements at the reporting date by the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3). Where the quoted price in an active market for the identical liability is not available, the Level 1 input is the quoted price of an identical liability when traded as an asset.

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