Pressure BioSciences, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Summary of Significant Accounting Policies (Tables)

Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2016

The composition of inventory as of December 31, is as follows:

	2016			2015
Raw materials	$	326,228		$	310,367
Finished goods		599,056			778,004
Inventory reserve		(20,000	)		(50,000	)
Total	$	905,284		$	1,038,371

Summary of Customer Concentration Risk Percentage

The following table illustrates the level of concentration of the below two groups within revenue as a percentage of total revenues during the years ended December 31:

	2016			2015
Top Five Customers		29	%		38	%
Federal Agencies		3	%		23	%

The following table illustrates the level of concentration of the below two groups within accounts receivable as a percentage of total accounts receivable balance as of December 31:

	2016			2015
Top Five Customers		82	%		93	%
Federal Agencies		1	%		1	%

Summary of Computation of Loss per Share

The following table illustrates our computation of loss per share for the years ended December 31:

	2016			2015
Numerator:
Net loss	$	(2,706,984	)	$	(7,415,298	)
Preferred dividends accrued		-			(23,194	)
Net loss applicable to common shareholders	$	(2,706,984	)	$	(7,438,492	)

Denominator for basic and diluted loss per share:
Weighted average common shares outstanding		27,339,362			20,726,205

Loss per common share - basic and diluted	$	(0.10	)	$	(0.36	)

Summary of Anti-dilutive Securities Excluded from Computation of Earnings per Share

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 for the years ended December 31:

	2016		2015
Stock options		5,269,250		5,571,250
Convertible debt		26,733,955		19,689,286
Common stock warrants		26,459,695		29,227,664
Convertible preferred stock:
Series D Convertible Preferred		750,000		750,000
Series G Convertible Preferred		865,700		865,700
Series H Convertible Preferred		1,000,000		1,000,000
Series H2 Convertible Preferred		2,100,000		2,100,000
Series J Convertible Preferred		3,521,000		3,546,000
Series K Convertible Preferred		6,816,000		11,416,000
		73,515,600		74,165,900

Summary of Assumptions for Grants of Stock Options

The following table summarizes the assumptions we utilized for grants of stock options to the three sub-groups of our stock option recipients during the year ended December 31, 2015:

Assumptions	Non-Employee Board Members			CEO, other Officers and Employees
Expected life		6.0 (yrs)			6.0 (yrs)
Expected volatility		116.32%-141.15	%		116.32%-141.15	%
Risk-free interest rate		0.65%-2.54	%		0.65%-2.54	%
Forfeiture rate		5.00	%		5.00	%
Expected dividend yield		0.0	%		0.0	%

Summary of Stock Based Compensation Expense

The following table summarizes the effect of this stock-based compensation expense within each of the line items within our accompanying consolidated statements of operations for the years ended December 31:

	2016		2015
Research and development	$	65,500	$	50,617
Selling and marketing		42,315		32,704
General and administrative		272,149		125,668
Total stock-based compensation expense	$	379,964	$	208,989

Schedule of Liabilities Measured at Fair Value on Recurring Basis

The following tables set forth the Company’s financial assets and financial liabilities that were accounted for at fair value on a recurring basis as of December 31, 2016 and December 31, 2015. The development of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management.

			Fair value measurements at December 31, 2016 using:
	December 31, 2016		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Available-For-Sale Equity Securities		25,865		25,865		-		-
Total Financial Assets	$	25,865	$	25,865	$	-	$	-

	December 31, 2016		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Series D Preferred Stock Purchase Warrants	$	23,313		-		-	$	23,313
Warrants Issued with Convertible Debt		1,661,795		-		-		1,661,795
Conversion Option Derivative Liabilities		951,059		-		-		951,059
Total Derivatives	$	2,636,167	$	-	$	-	$	2,636,167

			Fair value measurements at December 31, 2015 using:
	December 31, 2015		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Available-For-Sale Equity Securities		294,522		294,522		-		-
Total Financial Assets	$	294,522	$	294,522	$	-	$	-

	December 31, 2015		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Series D Preferred Stock Purchase Warrants	$	173,526		-		-	$	173,526
Warrants Issued with Convertible Debt		3,122,450		-		-		3,122,450
Conversion Option Derivative Liabilities		3,940,791		-		-		3,940,791
Total Derivatives	$	7,236,767	$	-	$	-	$	7,236,767

The following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments, measured at fair value on a recurring basis using significant unobservable inputs:

	January 1, 2016		Issuance fair value		Change in fair value			December 31, 2016
Series D Preferred Stock Purchase Warrants	$	173,526	$	-	$	(150,213	)	$	23,313
Warrants Issued with Convertible Debt		3,122,450		1,094,432		(2,555,087	)		1,661,795
Conversion Option Derivative Liabilities		3,940,791		1,547,127		(4,536,859	)		951,059
Total Derivatives	$	7,236,767	$	2,641,559	$	(7,242,159	)	$	2,636,167

	January 1, 2015		Issuance fair value		Change in fair value		Gain on extinguishment of derivative liabilities			December 31, 2015
Series D Preferred Stock Purchase Warrants	$	159,875	$	-	$	13,651	$	-		$	173,526
Warrants Issued with Convertible Debt		-		2,320,021		802,429		-			3,122,450
Conversion Option Derivative Liabilities		590,341		5,305,185		600,445		(2,555,180	)		3,940,791
Total Derivatives	$	750,216	$	7,625,206	$	1,416,525	$	(2,555,180	)	$	7,236,767

Schedule of Fair Value Assumptions

The fair value of the derivative liabilities was determined using a binomial pricing model. 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, 2015			Warrants revalued at December 31, 2016
Expected life (in months)		60.0			11.0			5.0
Expected volatility		104.5	%		104.9	%		83.5	%
Risk-free interest rate		0.875	%		0.65	%		0.62	%
Exercise price	$	0.81		$	0.25		$	0.25
Fair value per warrant	$	0.54		$	0.16		$	0.02

The assumptions for the binomial pricing model are represented in the table below for the warrants issued with the Convertible Debt in 2015 and 2016 reflected on a per share common stock equivalent basis.

Assumptions	At Issuance Fair value			Warrants revalued at December 31, 2015			Warrants revalued at December 31, 2016
Expected life (in months)		60.0			55.0-60.0			43.0-51.0
Expected volatility		118.3-120.1	%		136.3-141.6	%		110.0-116.0	%
Risk-free interest rate		1.48-1.69	%		1.29-1.76	%		1.93	%
Exercise price	$	0.40		$	0.40		$	0.40
Fair value per warrant	$	0.19-$0.21		$	0.30		$	0.12-0.14

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	At Issuance fair value			At Settlement fair value			Conversion options revalued at December 31, 2015			Conversion options revalued at December 31, 2016
Expected life (in months)		6.0-24.0			0-18.0			18-24			6.0-15.0
Expected volatility		104.2-153.8	%		86.9%-142.2	%		112.2-114.7	%		84.4-94.8	%
Risk-free interest rate		0.05-0.99	%		0.01-0.72	%		1.06	%		0.62-0.85	%
Exercise price	$	0.10-$0.35		$	0.10-$0.25		$	0.28		$	0.28
Fair value per conversion option	$	0.09-$0.28		$	0.07-$0.26		$	0.14-$0.33		$	0.03-$0.06

- Definition

Tabular disclosure of all significant concentrations of risk, including credit risk and market risk, arising from all financial instruments (as defined), whether from an individual counterparty or groups of counterparties. The disclosure concerning concentrations of risk may consist of the following information: (1) for concentrations of credit risk disclosure may include: (a) information about the (shared) activity, region, or economic characteristic that identifies the concentration, (b) the maximum amount of loss due to credit risk that, based on the gross fair value of the financial instrument, the entity would incur if parties to the financial instruments that make up the concentration failed completely to perform according to the terms of the contracts and the collateral or other security, if any, for the amount due proved to be of no value to the entity, (c) the policy of requiring collateral or other security to support financial instruments subject to credit risk, information about the entity's access to that collateral or other security, and the nature and a brief description of the collateral or other security supporting those financial instruments, and (d) the policy of entering into master netting arrangements to mitigate the credit risk of financial instruments, information about the arrangements for which the entity is a party, and a brief description of the terms of those arrangements, including the extent to which they would reduce the entity's maximum amount of loss due to credit risk and (2) for disclosure of quantitative information about the market risks of financial instruments that is consistent with the way the company manages or adjusts those risks, disclosure may include: (a) more details about current positions and perhaps activity during the period, (b) the hypothetical effects on comprehensive income (or net assets), or annual income, of several possible changes in market prices, (c) a gap analysis of interest rate re-pricing or maturity dates, (d) the duration of the financial instruments, (e) the entity's value at risk from derivatives and from other positions at the end of the reporting period and the average value at risk during the year, or (f) other ways of reporting quantitative information as internally developed.

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