UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2020

 

or

 

[  ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from _____________ to _____________

 

Commission File Number 001-38185

 

PRESSURE BIOSCIENCES, INC.

(Exact name of registrant as specified in its charter)

 

Massachusetts   04-2652826
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

14 Norfolk Avenue    
South Easton, Massachusetts   02375
(Address of principal executive offices)   (Zip Code)

 

(508) 230-1828

(Registrant’s telephone number, including area code)

 

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.

 

[X] Yes [  ] No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted 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 and post such files).

 

[X] Yes [  ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

  Large accelerated filer [  ] Accelerated filer [  ]
  Non-accelerated filer [X] Smaller reporting company [X]
  Emerging Growth Company [  ]    

 

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

 

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 [X] No

 

The number of shares outstanding of the Issuer’s common stock as of August 11, 2020 was 3,575,469.

 

 

 

   

 

 

TABLE OF CONTENTS

 

  Page
   
PART I - FINANCIAL INFORMATION 3
   
Item 1. Unaudited Financial Statements 3
   
Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 3
   
Consolidated Statements of Operations for the Three- and Six-Months Ended June 30, 2020 and 2019 4
   
Consolidated Statements of Cash Flows for the Six-Months Ended June 30, 2020 and 2019 5
   
Consolidated Statements of Changes in Stockholders’ Deficit for the Six Months Ended June 30, 2020 and 2019 6
   
Notes to Unaudited Consolidated Financial Statements 8
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28
   
Item 3. Quantitative and Qualitative Disclosure About Market Risk 33
   
Item 4. Controls and Procedures 33
   
PART II - OTHER INFORMATION 34
   
Item 1. Legal Proceedings 34
   
Item 1A. Risk Factors 34
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35
   
Item 3. Defaults Upon Senior Securities 35
   
Item 4. Mine Safety Disclosures 35
   
Item 5. Other Information 35
   
Item 6. Exhibits 36
   
SIGNATURES 37

 

 2 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

   June 30, 2020   December 31, 2019 
ASSETS          
CURRENT ASSETS          
Cash and cash equivalents  $41,458   $29,625 
Accounts receivable   121,306    229,402 
Inventories, net of $342,496 reserve at June 30, 2020 and December 31, 2019   614,863    617,716 
Loan receivable   531,250    - 
Prepaid expenses and other current assets   192,605    213,549 
Total current assets   1,501,482    1,090,292 
Investment in equity securities   362,905    16,643 
Property and equipment, net   26,275    55,590 
Right of use asset leases   40,659    76,586 
Intangible assets, net   533,654    576,923 
TOTAL ASSETS  $2,464,975   $1,816,034 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
CURRENT LIABILITIES          
Accounts payable  $809,837   $815,764 
Accrued employee compensation   392,425    451,200 
Accrued professional fees and other   1,866,083    1,658,452 
Accrued interest   5,076,790    2,949,621 
Deferred revenue   36,888    23,248 
Operating lease liability   40,659    76,586 
Convertible debt, net of unamortized discounts of $3,923,549 and $619,227, respectively   6,224,450    6,121,338 
Other debt, net of unamortized discounts of $0 and $1,769, respectively   1,577,328    1,675,667 
Other related party debt   90,000    81,500 
Total current liabilities   16,114,460    13,853,376 
LONG TERM LIABILITIES          
Long term debt  527,039    - 
Deferred revenue   35,462    18,065 
TOTAL LIABILITIES   16,676,961    13,871,441 
COMMITMENTS AND CONTINGENCIES (Note 4)          
STOCKHOLDERS’ DEFICIT          
Series D Convertible Preferred Stock, $.01 par value; 850 shares authorized; 300 shares issued and outstanding on June 30, 2020 and December 31, 2019, respectively (Liquidation value of $300,000)   3    3 
Series G Convertible Preferred Stock, $.01 par value; 240,000 shares authorized; 80,570 shares issued and outstanding on June 30, 2020 and December 31, 2019, respectively   806    806 
Series H Convertible Preferred Stock, $.01 par value; 10,000 shares authorized; 10,000 shares issued and outstanding on June 30, 2020 and December 31, 2019, respectively   100    100 
Series H2 Convertible Preferred Stock, $.01 par value; 21 shares authorized; 21 shares issued and outstanding on June 30, 2020 and December 31, 2019, respectively   -    - 
Series J Convertible Preferred Stock, $.01 par value; 6,250 shares authorized; 3,458 shares issued and outstanding on June 30, 2020 and December 31, 2019, respectively   35    35 
Series K Convertible Preferred Stock, $.01 par value; 15,000 shares authorized; 6,880 shares issued and outstanding on June 30, 2020 and December 31, 2019, respectively   68    68 
Series AA Convertible Preferred Stock, $.01 par value; 10,000 shares authorized; 7,939 shares issued and outstanding on June 30, 2020 and December 31, 2019, respectively   80    80 
Common stock, $.01 par value; 100,000,000 shares authorized; 3,207,285 and 2,549,620 shares issued and outstanding on June 30, 2020 and December 31, 2019 respectively   32,072    25,496 
Warrants to acquire common stock   26,527,615    22,599,177 
Additional paid-in capital   47,413,735    44,261,105 
Accumulated deficit   (88,186,500)   (78,942,277)
Total stockholders’ deficit   (14,211,986)   (12,055,407)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $2,464,975   $1,816,034 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements

 

 3 

 

 

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

  

For the Three Months Ended

June 30,

   For the Six Months Ended
June 30,
 
   2020   2019   2020   2019 
Revenue:                    
Products, services, other  $268,154   $518,663   $522,027   $1,028,903 
Total revenue   268,154    518,663    522,027    1,028,903 
                     
Costs and expenses:                    
Cost of products and services   134,882    304,172    310,028    613,884 
Research and development   294,602    291,538    560,292    556,242 
Selling and marketing   162,098    186,609    351,214    374,824 
General and administrative   1,007,215    1,136,768    2,026,225    2,281,189 
Total operating costs and expenses   1,598,797    1,919,087    3,247,759    3,826,139 
                     
Operating loss   (1,330,643)   (1,400,424)   (2,725,732)   (2,797,236)
                     
Other (expense) income:                    
Interest expense, net   (1,724,879)   (1,074,488)   (3,296,679)   (1,587,194)
Unrealized gain on investment in equity securities   196,891    -   346,262    -
Loss on extinguishment of liabilities   (1,710,151)   (106,461)   (2,846,518)    (147,271)
Other expense   -    (185,469)   -    (290,314)
Total other expense   (3,238,139)   (1,366,418)   (5,796,935)   (2,024,779)
                     
Net loss   (4,568,782)   (2,766,842)   (8,522,667)   (4,822,015)
Deemed dividend on beneficial conversion feature   -    (889,532)   -    (1,949,731)
Preferred stock dividends   (396,970)   (420,489)   (721,556)   (776,099)
Net loss attributable to common stockholders  $(4,965,752)  $(4,076,863)  $(9,244,223)  $(7,547,845)
Basic and diluted net loss per share attributable to common stockholders  $(1.70)  $(2.22)  $(3.34)  $(4.24)
                     
Weighted average common stock shares outstanding used in the basic and diluted net loss per share calculation   2,914,659    1,837,913    2,765,132    1,780,881 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements

 

 4 

 

 

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   For the Six Months Ended 
   June 30, 
   2020   2019 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(8,522,667)  $(4,822,015)
Adjustments to reconcile net loss to net cash used in operating activities:          
Non-cash lease expense   35,927    28,053 
Common stock issued for interest and extension fees   159,784    - 
Depreciation and amortization   74,247    47,180 
Accretion of interest and amortization of debt discount   1,750,911    290,040 
Issuance of incentive shares and common stock warrants   -    168,000 
Loss on extinguishment of accrued liabilities and debt   977,622   147,271 
Stock-based compensation expense   307,110    607,574 
Gain on investment in equity securities   (346,262   - 
Common stock issued for services   87,963    - 
Changes in operating assets and liabilities:          
Accounts receivable   108,096    64,217 
Inventories   2,853    20,673 
Prepaid expenses and other assets   20,944   43,077 
Accounts payable   (5,927)   152,275 
Accrued employee compensation   (58,775)   (18,323)
Operating lease liability   (35,927)   (28,053)
Deferred revenue and other accrued expenses   2,643,607    (172)
Net cash used in operating activities   (2,800,494)   (3,300,203)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Advance on loan receivable   (531,250)   -  
Purchases of property plant and equipment   (1,663)   (28,915)
Net cash used in investing activities   (532,913)   (28,915)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Net proceeds from Series AA Convertible Preferred Stock   -    2,292,300 
Net proceeds from convertible debt   4,422,600    3,339,050 
Net proceeds from non-convertible debt – third party   990,539    1,211,500 
Net proceeds from non-convertible debt – related party   8,500    125,000 
Payments on convertible debt   (1,257,250)   (2,533,985)
Payments on non-convertible debt – related party   -    (125,000)
Payments on non-convertible debt   (819,149)   (964,932)
Net cash provided by financing activities   3,345,240    3,343,933 
           
NET INCREASE IN CASH AND CASH EQUIVALENTS   11,833    14,815 
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR   29,625    103,118 
CASH AND CASH EQUIVALENTS AT END OF PERIOD  $41,458   $117,933 
           
SUPPLEMENTAL INFORMATION          
Interest paid in cash  $419,817   $1,162,557 
NON CASH TRANSACTIONS:          
Interest added to principal  152,552    - 
Common stock issued to settle accrued liabilities   127,855    - 
Common stock issued with debt   -    167,359 
Discount from warrants issued with debt   2,958,693    - 
Common stock issued in lieu of cash for dividend   176,748    151,993 
Preferred stock dividends   721,556    776,099 
Conversion of debt and interest into common stock   1,317,649    - 
Discount due to beneficial conversion feature   982,097    - 
Deemed dividend-beneficial conversion feature   -    1,949,731 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements

 

 5 

 

 

PRESSURE BIOSCIENCES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(UNAUDITED)

 

  

Series D

Preferred Stock

  

Series G

Preferred Stock

  

Series H

Preferred Stock

  

Series H(2)

Preferred Stock

  

Series J

Preferred Stock

  

Series K

Preferred Stock

  

Series AA

Preferred Stock

   Common Stock   Stock   Additional Paid-In   Accumulated  other comprehensive   Accumulated   Total Stockholders’ 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Warrants   Capital   loss   Deficit   Deficit 
BALANCE, December 31, 2018   300   $3    80,570   $806    10,000   $100    21   $-    3,458   $35    6,880    68    6,499    65    1,684,184   $16,842   $19,807,247   $39,777,301   $-   $(65,727,538)  $(6,125,071)
Stock-based compensation   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    245,392    -    -    245,392 
Series AA Preferred Stock dividend   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -              -    -    (355,610)   (355,610)
Issuance of shares for services   -    -    -    -    -    -    -    -    -    -    -    -    -    -    50,000    500         167,500    -    -    168,000 
Beneficial conversion feature on Series AA convertible preferred stock   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    1,060,199    -    -    1,060,199 
Deemed dividend-beneficial conversion feature   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    (1,060,199)   -    -    (1,060,199)
Preferred Stock offering   -    -    -    -    -    -    -    -    -    -    -    -    560    6    -    -    738,528    661,466    -    -    1,400,000 
Offering costs for issuance of preferred stock   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    160,764    (300,764)   -    -    (140,000)
Common Stock issued for debt extension                                                                         16,350     163         38,824    -         38,988 
Stock issued with debt   -    -    -    -    -    -    -    -    -    -    -    -    -    -    17,958    180         50,553    -    -    50,733 
Net loss   -    -    -    -    -    -    -         -    -    -    -    -    -    -    -    -    -    -    -    (2,055,173)   (2,055,173)
BALANCE, March 31, 2019   300   $3    80,570   $806    10,000   $100    21   $-    3,458   $35    6,880   $68    7,059   $71    1,768,492   $17,685   $20,706,539   $40,640,273   $-   $(68,138,321)  $(6,772,741)
Stock-based compensation   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    362,182    -    -    362,182 
Series AA Convertible Preferred Stock dividend   -    -    -    -    -    -    -    -    -    -    -    -    -                             -    (420,489)   (420,489)
Beneficial conversion feature on Series AA Convertible Preferred Stock   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    889,532    -    -    889,532 
Deemed dividend-beneficial conversion feature   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    (889,532)   -    -    (889,532)
Issuance of common stock for dividends paid-in-kind   -    -    -    -    -    -    -    -    -    -    -    -             42,456     425        151,568    -    -    151,993 
Preferred Stock offering   -    -    -    -    -    -    -    -    -    -    -    -    459    5              608,852    538,062    -    -    1,146,919 
Offering costs for issuance of preferred stock   -    -    -    -    -    -    -    -    -    -    -    -    -                   131,251    (245,870)   -    -    (114,619)
Stock issued with debt   -    -    -    -    -    -    -    -    -    -    -    -    -         29,641     296         105,293    -    -    105,589 
Common Stock issued for debt extension   -    -    -    -    -    -    -    -    -    -    -    -    -    -    49,027     490         125,418    -    -    125,908 
Net loss   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    (2,766,842)   (2,766,842)
BALANCE, June 30, 2019   300   $3    80,570   $806    10,000   $100    21   $-    3,458   $35    6,880   $68    7,518   $76    1,889,616   $18,896   $21,446,642   $41,676,926   $-   $(71,325,652)  $(8,182,100)

 

 6 

 

 

   Series D Preferred Stock   Series G Preferred Stock   Series H Preferred Stock   Series H(2) Preferred Stock   Series J Preferred Stock   Series K Preferred Stock   Series AA Preferred Stock   Common Stock   Stock   Additional Paid-In   Accumulated   Total Stockholders’ 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Warrants   Capital   Deficit   Deficit 
BALANCE, December 31, 2019   300   $3    80,570   $806    10,000   $100    21   $-    3,458   $35    6,880   $68    7,939   $80    2,549,620   $25,496   $22,599,177   $44,261,105   $(78,942,277)  $(12,055,407)
Stock-based compensation   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    241,769    -    241,769 
Series AA Preferred Stock dividend   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    (324,586)   (324,586)
Issuance of common stock to settle accrued liabilities   -    -    -    -    -    -    -    -    -    -    -    -    -    -    66,500    665    -    127,190    -    127,855 
Common stock issued for debt settlement   -    -    -    -    -    -    -    -    -    -    -    -    -    -    10,000    100    -    24,900    -    25,000 
Issuance of common stock for debt extension and interest paid in kind   -    -    -    -    -    -    -    -    -    -    -    -    -    -    38,521    385    -    60,175    -    60,560 
Beneficial conversion feature on debt   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    404,608    -    404,608 
Warrants issued with debt   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    1,205,010    -    -    1,205,010 
Warrants issued for debt extension   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    609,143    -        609,143 
Net loss   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    (3,953,885)   (3,953,885)
BALANCE, March 31, 2020   300   $3    80,570   $806    10,000   $100    21    -    3,458   $35    6,880   $68    7,939   $80    2,664,641   $26,646   $24,413,330   $45,119,747   $(83,220,748)  $(13,659,933)
Stock-based compensation   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    65,341    -    65,341 
Series AA Preferred Stock dividend   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    (396,970)   (396,970)
Issuance of common stock for services   -    -    -    -    -    -    -    -    -    -    -    -    -    -    25,000   $250    -    87,713    -    87,963 
Issuance of common stock for interest paid-in-kind   -    -    -    -    -    -    -    -    -    -    -    -    -    -    42,510   $425    -    98,799    -    99,224 
Beneficial conversion feature on debt   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    577,489    -    577,489 
Warrants issued with debt   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    1,753,683    -    -    1,753,683 
Warrants issued for debt extension   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    360,602    -    -    360,602 
Issuance of common stock for dividends paid-in-kind   -    -    -    -    -    -    -    -    -    -    -    -    -    -    64,388    644    -    176,104    -    176,748 

Conversion of debt and interest for common stock

   -    -    -    -    -    -    -    -    -    -    -    -    -    -    410,746   $4,107    -    1,288,542    -    1,292,649 
Net loss   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    (4,568,782)   (4,568,782)
BALANCE, June 30, 2020   300   $3    80,570   $806    10,000   $100    21   $-    3,458   $35    6,880   $68    7,939   $80    3,207,285   $32,072   $26,527,615   $47,413,735   $(88,186,500)  $(14,211,986)

 

The accompanying notes are an integral part of these unaudited consolidated financial statements

 

 7 

 

 

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

  1) Business Overview, Liquidity and Management Plans

 

Pressure Biosciences, Inc. (“we”, “our”, “the Company”) develops and sells innovative, broadly enabling, pressure-based platform solutions for the worldwide life sciences industry. Our solutions are based on the unique properties of both constant (i.e., static) and alternating (i.e., pressure cycling technology, or “PCT”) hydrostatic pressure. PCT is a patented enabling technology platform that uses alternating cycles of hydrostatic pressure between ambient and ultra-high levels to safely and reproducibly control bio-molecular interactions (e.g., cell lysis, biomolecule extraction). Our primary focus is in the development of PCT-based products for biomarker and target discovery, drug design and development, biotherapeutics characterization and quality control, soil & plant biology, forensics, and counter-bioterror applications. Additionally, major new market opportunities have emerged in the use of our pressure-based technologies in the following areas: (1) the use of our recently acquired, patented technology from BaroFold, Inc. (the “BaroFold” technology) to allow entry into the bio-pharma contract services sector, and (2) the use of our recently-patented, scalable, high-efficiency, pressure-based Ultra Shear Technology (“UST”) platform to (i) create stable nanoemulsions of otherwise immiscible fluids (e.g., oils and water) and to (ii) prepare higher quality, homogenized, extended shelf-life or room temperature stable low-acid liquid foods that cannot be effectively preserved using existing non-thermal technologies.

 

  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 negative cash flows from operations with respect to our pressure cycling technology business since our inception. As of June 30, 2020, 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 6 and 7. In addition we raised debt and equity capital after June 30, 2020 as described in Note 8. 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, 2019.

 

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.

 

Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The standard is effective for the Company for interim and annual periods beginning after December 15, 2022. The Company is evaluating the impact of this standard on its Consolidated Financial Statements.

 

In December 2019, the FASB, issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The standard is effective for the Company for interim and annual periods beginning after December 15, 2020 for the Company and for annual periods beginning after December 15, 2021 and interim periods beginning after December 15, 2022. The Company is evaluating the impact of this standard on its Consolidated Financial Statements.

 

 9 

 

 

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, will send a highly trained technical representative to the customer site to install Barocycler®s 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.

 

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 currently record revenue for its non-cash transactions at recorded cost or carrying value of the assets or services sold.

 

In accordance with FASB ASC 842, Leases, we account for our lease agreements under the operating method. The new standard provides a number of optional practical expedients in transition. We elected the ‘package of practical expedients’ for our instrument leases, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs.

 

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.

 

Revenue from government grants is recorded when expenses are incurred under the grant in accordance with the terms of the grant award.

 

Deferred revenue represents amounts received from grants and 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.

 

 10 

 

 

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  2020   2019   2020   2019 
North America  $162   $368   $307   $592 
Europe   3    54    4    94 
Asia   103    97    211    343 
   $268   $519   $522   $1,029 

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
Major products/services lines  2020   2019   2020   2019 
Hardware  $122   $212   $217   $352 
Consumables   51    91    107    153 
Contract research services   34    111    44    349 
Sample preparation accessories   33    35    58    35 
Technical support/extended service contracts   17    28    36    67 
Shipping and handling   6    14    15    19 
Other   5    28    45    54 
   $268   $519   $522   $1,029 

 

 11 

 

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
Timing of revenue recognition  2020   2019   2020   2019 
Products transferred at a point in time  $217   $506   $442   $1,007 
Services transferred over time   51    13    80    22 
   $268   $519   $522   $1,029 

 

Contract balances

 

In thousands of US dollars ($)  June 30, 2020   December 31, 2019 
Receivables, which are included in ‘Accounts Receivable’  $121   $229 
Contract liabilities (deferred revenue)   72    41 

 

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 ($)  2020   2021   2022   Total 
Extended warranty service  $37    35    -   $72 

 

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.

 

 12 

 

 

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 months and six months ended June 30, 2020 and 2019.

 

   For the Three Months Ended 
   June 30, 
   2020   2019 
Top Five Customers   71%   47%
Federal Agencies   2%   9%

 

   For the Six Months Ended 
   June 30, 
   2020   2019 
Top Five Customers   70%   55%
Federal Agencies   4%   14%

 

The following table illustrates the level of concentration as a percentage of net accounts receivable balance as of June 30, 2020 and December 31, 2019. The Top Five Customers category may include federal agency receivable balances if applicable.

 

   June 30, 2020   December, 31, 2019 
Top Five Customers   82%   83%
Federal Agencies   5%   17%

 

Product Supply

 

CBM Industries (Taunton, MA) has recently become the manufacturer of the Barocycler® 2320EXT. CBM is ISO 13485:2003 and 9001:2008 Certified. CBM provides us with precision manufacturing services that include management support services to meet our specific application and operational requirements. Among the services provided by CBM to us are:

 

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

 

At this time, we believe that outsourcing the manufacturing of our new Barocycler® 2320EXT to CBM is the most cost-effective method for us to obtain and maintain ISO Certified, CE and CSA Marked instruments. CBM’s close proximity to our South Easton, MA facility is a significant asset enabling interactions between our Engineering, R&D, and Manufacturing groups and their counterparts at CBM. CBM was instrumental in helping PBI achieve CE Marking on our Barocycler 2320EXT, as announced on February 2, 2017.

 

Although we currently manufacture and assemble the Barozyme HT48, Barocycler® HUB440, the SHREDDER SG3, and most of our consumables at our South Easton, MA facility, we plan to take advantage of outsourced manufacturing relationships such as that with CBM and outsource manufacturing of the entire Barocycler® product line, future instruments, and other products to CBM.

 

 13 

 

 

Investment in Equity Securities

 

As of June 30, 2020, we held 100,250 shares of common stock of Everest Investments Holdings S.A. (“Everest”), a Polish publicly traded company listed on the Warsaw Stock Exchange. We account for this investment in accordance with ASC 321 “Investments —Equity Securities.” ASC 321 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, 2020, our consolidated balance sheet reflected the fair value of our investment in Everest to be approximately $362,905. We recorded $346,262 as an unrealized gain during the six months ended June 30, 2020 for changes in Everest 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 months and six months ended June 30, 2020 and 2019:

 

   For the Three Months Ended   For the Six Months Ended 
   June 30,   June 30, 
   2020   2019   2020   2019 
Numerator:                    
Net loss  $(4,568,782)  $(2,766,842)  $(8,522,667)  $(4,822,015)
Deemed dividend on beneficial conversion feature   -    (889,532)   -    (1,949,731)
Preferred stock dividends   (396,970)   (420,489)   (721,556)   (776,099)
Net loss applicable to common shareholders  $(4,965,752)  $(4,076,863)  $(9,244,223)  $(7,547,845)
                     
Denominator for basic and diluted loss per share:                    
Weighted average common stock shares outstanding   2,914,659    1,837,913    2,765,132    1,780,881 
                     
Loss per common share – basic and diluted  $(1.70)  $(2.22)  $(3.34)  $(4.24)

 

 14 

 

 

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, 
   2020   2019 
Stock options   1,392,370    347,070 
Convertible debt   3,905,867    692,715 
Common stock warrants   12,761,126    8,880,554 
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   7,939,000    7,518,622 
    26,498,155    17,938,753 

 

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.

 

 15 

 

 

The Company recognized stock-based compensation expense of $65,341 and $362,182 for the three months ended June 30, 2020 and 2019, respectively. The Company recognized stock-based compensation expense of $307,110 and $607,574 for the six months ended June 30, 2020 and 2019, 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, 
   2020   2019   2020   2019 
Cost of sales  $5,107   $12,082   $13,063   $20,398 
Research and development   26,137    49,948    64,963    84,573 
Selling and marketing   6,358    28,959    20,294    51,078 
General and administrative   27,739    271,193    208,790    451,525 
Total stock-based compensation expense  $65,341   $362,182   $307,110   $607,574 

 

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 only 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, 2020:

 

 16 

 

 

       Fair value measurements at
June 30, 2020 using:
 
   June 30, 2020   Quoted
prices in
active
markets
(Level 1)
  

Significant
other
observable
inputs

(Level 2)

  

Significant
unobservable
inputs

(Level 3)

 
Equity Securities   362,905    362,905                -                  - 
Total Financial Assets  $362,905   $362,905   $-   $- 

 

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, 2019:

 

       Fair value measurements at
December 31, 2019 using:
 
   December 31, 2019   Quoted
prices in
active
markets
(Level 1)
   Significant
other
observable
inputs
(Level 2)
   Significant
unobservable
inputs
(Level 3)
 
Equity Securities   16,643    16,643                -                  - 
Total Financial Assets  $16,643   $16,643   $-   $- 

 

 17 

 

 

  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. Consequently, as a result of adoption of ASC 842, we recognized an operating liability of $136,385 on our Medford lease with a corresponding Right-Of-Use (“ROU”) asset of the same amount based on present value of the minimum rental payments of the lease. As of June 30, 2020 the Company carries a ROU asset and operating lease liability of $40,659.

 

Our corporate office is currently located at 14 Norfolk Avenue, South Easton, Massachusetts 02375. We are currently paying $6,950 per month, on a lease extension, signed on December 31, 2019, that expires December 31, 2020, for our corporate office. We expanded our space to include offices, warehouse and a loading dock on the first floor starting May 1, 2017 with a monthly rent increase already reflected in the current payments.

 

We extended our lease for our space in Medford, MA to December 30, 2020. The lease requires monthly payments of $7,130 subject to annual cost of living increases. The lease shall be automatically extended for an additional three years unless either party terminates at least six months prior to the expiration of the current lease term.

 

Following is a schedule by years of future minimum rental payments required under operating leases with initial or remaining non-cancelable lease terms as of June 30, 2020:

 

2020  $84,480 
Thereafter   - 
Total Minimum Payments Required  $84,480 

 

  5) Loan Receivable

 

In the six months ended June 30, 2020, the Company issued two loans for $575,000 to its pending merger partner, Cannaworx who agreed to repay the loans directly to the lender, on the Company’s behalf. The Cannaworx loans have one-year terms and interest (12% for a $325,000 note and 18% for a $250,000 note) is only payable upon an event of default. Cannaworx loans receivable are carried on the Company’s balance sheet net of a $43,750 debt discount.

 

  6) Convertible Debt and Other Debt

 

Convertible Debt

 

On various dates during the six months ended June 30, 2020, the Company issued convertible notes for net proceeds of approximately $4.4 million which contained varied terms and conditions as follows: a) 12 month maturity date; b) interest rate of 10%; c) convertible to the Company’s common stock at issuance at a fixed rate of $2.50. These notes were issued with warrants to purchase common stock that were fair valued at issuance date. The aggregate relative fair value of the warrants issued with the notes $2,705,996 was recorded as a debt discount to be amortized over the term of the notes. We then computed the effective conversion price of the notes, and recorded a $982,097 beneficial conversion feature as a debt discount to be amortized over the term of the notes. We also evaluated the convertible notes for derivative liability treatment and determined that the notes did not quality for derivative accounting treatment at June 30, 2020.

 

 18 

 

 

The specific terms of the convertible notes and outstanding balances as of June 30, 2020 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 
February 15, 2018 (2)(3)(4)  6 months  $100,000   $115,000   $-    5%   2.50   $9,000   $17,738 
May 17, 2018 (2)  12 months  $380,000   $166,703   $15,200    8%    2.50   $15,200   $332,407 
June 8, 2018 (1)(4)  6 months  $50,000   $50,000   $2,500    2%   7.50   $2,500   $3,271 
June 16, 2018 (2)  9 months  $130,000   $79,000   $-    5 %    2.50   $-   $- 
June 16, 2018 (2)  6 months  $110,000   $79,000   $-    5%    2.50   $-   $- 
June 26, 2018 (1)(2)(3)(4)  3 months  $150,000   $86,250   $-    5%   2.50   $-   $30,862 
July 17, 2018 (1) (2)(3)(4)  3 months  $100,000   $105,000   $15,000    5%   2.50   $-   $52,897 
July 19, 2018 (2)  12 months  $184,685   $150,000   $34,685    10 %   2.50   $-   $- 
October 19, 2018 (1)  6 months  $100,000   $100,000   $-    5%   7.50   $-   $- 
November 13, 2018 (1) (2)(3)(4)  6 months  $200,000   $220,000   $-    5%   2.50   $-   $168,634 
January 3, 2019 (4)  6 months  $50,000   $50,000   $2,500    24 %   7.50   $2,500   $- 
February 21, 2019 (2)  12 months  $215,000   $215,000   $-    4 %   2.50   $15,000   $107,709 
February 22, 2019 (2)  9 months  $115,563   $115,562   $8,063    7 %   2.50   $2,500   $- 
March 18, 2019 (1)  6 months  $100,000   $100,000   $-    4%   7.50   $-   $10,762 
June 4, 2019 (2)  9 months  $500,000   $302,484   $-    8 %   2.50   $40,500   $70,631 
April 30, 2019 (2)  12 months  $105,000   $80,000   $-    4 %   2.50   $5,000   $3,286 
June 19, 2019 (2)  12 months  $105,000   $105,000   $-    4 %   2.50   $5,000   $2,646 
April 9, 2019 (2)  12 months  $118,800   $88,800   $8,800    4 %   2.50   $3,000   $- 
May 20, 2019 (1) (2)(4)  3 months  $100,000   $100,000   $-    5%   2.50   $-   $13,439 
June 7, 2019 (1) (2)(4)  6 months  $125,000   $125,000   $-    5%   7.50   $-   $18,254 
July 1, 2019 (2)  12 months  $107,500   $107,500   $-    4 %    2.50   $7,500   $85,791 
July 29, 2019 (2)  6 months  $250,000   $250,000   $-    4 %    2.50   $-   $36,835 
July 19, 2019 (2)  12 months  $115,000   $115,000   $-    4%    2.50   $5,750   $15,460 
July 19, 2019 (2)  12 months  $130,000   $130,000   $-    6 %    2.50   $6,500   $- 
August 6, 2019 (2)  12 months  $108,000   $108,000   $-    4 %    2.50   $11,000   $- 
August 14, 2019 (1)(4)  6 months  $50,000   $50,000   $-    2%   7.50   $-   $- 
September 27, 2019 (2)  12 months  $78,750   $78,750   $-    4 %    2.50   $3,750   $13,759 
October 24, 2019 (2)  12 months  $78,750   $78,750   $-    4 %   2.50   $3,750   $- 
October 25, 2019  12 months  $105,000   $105,000   $-    8%   2.50   $5,000   $- 
November 1, 2019 (2)  12 months  $270,000   $270,000   $-    6 %    2.50   $13,500   $- 
October 8, 2019  6 months  $100,000   $100,000   $-    4%   7.50   $-   $5,725 
November 15, 2019  12 months  $385,000   $385,000   $35,000    10%   2.50   $35,000   $90,917 
December 4, 2019  12 months  $495,000   $495,000   $45,000    10%   2.50   $45,000   $56,387 
December 20, 2019  12 months  $275,000   $275,000   $25,000    10%   2.50   $25,000   $40,601 
January 2, 2020  12 months  $330,000   $330,000   $30,000    10%   2.50   $30,000   $91,606 
January 24, 2020  12 months  $247,500   $247,500   $22,500    10%   2.50   $22,500   $89,707 
January 29, 2020  12 months  $363,000   $363,000   $33,000    10%   2.50   $33,000   $297,000 
February 12, 2020  12 months  $275,000   $275,000   $25,000    10%   2.50   $25,000   $225,000 
February 19, 2020  12 months  $165,000   $165,000   $15,000    10%   2.50   $15,000   $135,000 
March 11, 2020  12 months  $330,000   $330,000   $30,000    10%   2.50   $30,000   $232,810 
March 13, 2020  12 months  $165,000   $165,000   $15,000    10%   2.50   $15,000   $60,705 
March 26, 2020  12 months  $111,100   $111,100   $10,100    10%   2.50   $10,100   $90,900 
April 8, 2020  12 months  $276,100   $276,100   $25,100    10%   2.50   $25,000   $221,654 
April 17, 2020  12 months  $143,750   $143,750   $18,750    10%   2.50   $-   $96,208 
April 30, 2020  12 months  $546,250   $546,250   $71,250    10%   2.50   $47,500   $427,500 
May 7, 2020  12 months  $460,000   $460,000   $60,000    10%   2.50   $40,000   $360,000 
May 18, 2020  12 months  $546,250   $546,250   $71,250    10%   2.50   $35,500   $439,500 
June 2, 2020  12 months  $902,750   $902,750   $117,750    10%   2.50   $58,900   $708,500 
May 29, 2020  12 months  $110,000   $110,000   $10,000    10%   2.50   $-   $- 
June 12, 2020  12 months  $57,500   $57,500   $7,500    10%   2.50   $5,000   $45,000 
June 22, 2020  12 months  $138,000   $138,000   $18,000    10%   2.50   $12,000   $108,000 
           $10,147,999   $771,948             $666,450   $4,807,101 

 

  (1) The Note is past due. The Company and the lender are negotiating in good faith to extend the loan.
  (2) As of June 30, 2020 lender entered into a Standstill and Forbearance agreement (as described below). Loan is convertible at $2.50 until the expiration of the agreement.
  (3)

Interest was capitalized and added to outstanding principal.

  (4)

During the six months ended June 30, 2020 the Company entered into Rate Modification Agreements with these lenders. In these agreements five lenders agreed to reduce their interest rate and were granted the right to convert loans using a variable conversion price if more than one other variable rate lender converted at a variable rate.

 

For the six months ended June 30, 2020, the Company recognized amortization expense related to the debt discounts indicated above of $1,397,121. The unamortized debt discounts as of June 30, 2020 related to the convertible debentures and other convertible notes amounted to $3,923,549.

 

 19 

 

 

Standstill and Forbearance Agreements

 

On December 13, 2019, the Company entered into Standstill and Forbearance Agreements with lenders who hold convertible promissory notes with a total principal of $2,267,066. Pursuant to the Standstill and Forbearance Agreements, the lenders agreed to not convert any portion of their notes into shares of common stock at a variable rate until either January 30th or January 31st of 2020, and to waive, through January 30th or January 31st of 2020, all of the Company’s defaults under their notes including, but not limited to, the late filing of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019.

 

On January 31, 2020 and again on March 3, 2020, April 6, 2020, April 30, 2020, May 15, 2020, May 31, 2020 and June 15, 2020 the Company extended these Standstill and Forbearance Agreements until June 30, 2020. For the six months ended June 30, 2020, the Company incurred fees of approximately $1,660,000 to extend the agreements.

 

Convertible Loan Modifications and Extinguishments

 

We refinanced certain convertible loans during the six months ended June 30, 2020 at substantially the same terms for extensions ranging over a period of three to six 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 10% of the remaining cash flows of the original debt on several loans. During the six months ended June 30, 2020 we recorded losses on extinguishment of liabilities of approximately $2.8 million by calculating the difference of the fair value of the new debt and the carrying value of the old debt. The reported loss on extinguishment of liabilities includes $977,622 of non-cash expenses for warrants issued and writeoffs, of any unamortized discount at the date of modification.

 

 20 

 

 

The following table provides a summary of the changes in convertible debt, net of unamortized discounts, during 2020: 

 

   2020 
Balance at January 1,  $6,121,338 
Issuance of convertible debt, face value   5,435,950 
Deferred financing cost   (1,013,350)
Beneficial conversion feature on convertible note   (982,097)
Debt discount from warrants issued with debt   (2,705,996)
Payments   (1,257,250)
Conversion of debt into equity   (771,266)
Accretion of interest and amortization of debt discount to interest expense   1,397,121 
Balance at June 30,   6,224,450 
Less: current portion   6,224,450 
Convertible debt, long-term portion  $ 

 

Other Notes

 

On September 9, 2019 and February 28, 2020 we received a total of $966,500 unsecured non-convertible loans from a private investor with a one-month term. During the six months ended June 30, 2020, the Company received net proceeds of $463,500, issued 150,000 warrants to purchase common stock (five-year term and $3.50 exercise price) and repaid $275,000. The relative fair value of $185,660 of the warrants issued with the note was recorded as a debt discount to be amortized over the term of the notes. As of June 30, 2020 the Company owes $691,500 on these notes which are past due. The Company and the investor are negotiating in good faith to extend the loans.

 

On October 1, 2019, the Company and the holder of the $170,000 non-convertible loan issued in May 2017 agreed to extend the term of the loan to December 31, 2019. The Company agreed to issue 1,200 shares of its common stock per month while the note remains outstanding. The note will continue to earn 10% annual interest. The loan is currently past due and the Company and the investor are negotiating in good faith to extend the loan.

 

On October 11, 2019 we received a non-convertible loan with a one month term and a 2% interest charge for $25,000 from a private investor. The loan is past due and the Company and the investor are negotiating in good faith to extend the loan.

 

For the six months ended June 30, 2020, the Company recognized amortization expense related to debt discounts attributable to other notes of $353,790.

 

 21 

 

 

Merchant Agreements

 

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 6% - 76%. As illustrated in the following table, under the terms of these agreements, we received the disclosed Purchase Price and agreed to repay the disclosed Purchase Amount, which is collected by the Merchant lenders at the disclosed Daily Payment Rate. The following table shows our Merchant Agreements as of June 30, 2020:

 

Inception Date  Purchase Price   Purchased Amount   Outstanding Balance   Daily Payment Rate   Deferred
Finance Fees
 
August 5, 2019  $600,000   $816,000   $174,943   $4,533   $6,000 
August 19, 2019   350,000    479,500    245,355    2,664    3,000 
August 23, 2019   175,000    239,750    87,192    1,410    1,750 
September 19, 2019   275,000    384,275    183,348    2,138    5,000 
   $1,400,000   $1,919,525   $690,838   $10,745   $15,750 

 

The following table shows our Merchant Agreements as of December 31, 2019:

 

Inception Date 

Purchase

Price

   Purchased Amount   Outstanding Balance   Daily Payment Rate   Deferred Finance Fees 
August 5, 2019  $600,000   $816,000   $421,024    4,533   $6,000 
August 19, 2019   350,000    479,500    272,315    2,664    3,000 
August 23, 2019   175,000    239,750    132,284    1,410    1,750 
September 19, 2019   275,000    384,275    256,812    2,138    5,000 
   $1,400,000   $1,919,525   $1,082,435   $10,745   $15,750 

 

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.

 

On November 15, 2019 the Company and its Merchant lenders agreed to a temporary reduction in the Daily Payment Rate. Subsequently, on January 31, 2020, March 2, 2020 and April 6, 2020 the Company and its Merchant lenders agreed to extend the term of the reduction of its Daily Payment Rate, ultimately to April 30, 2020. The Company issued 495,000 warrants to lenders (valued at $969,745) as compensation for these agreements. The warrants have a three year life and a $3.50 exercise Price. During the six months ended June 30, 2020, the Company repaid $544,149 of these loans and capitalized $152,552 of interest into principal (and recorded as interest expense).

 

The Company’s Chief Executive Officer is personally guaranteeing $690,838 of loans outstanding as of June 30, 2020 under our Merchant Agreements.

 

 22 

 

 

Related Party Notes

 

In June 2018, we received a non-convertible loan of $15,000 from a private investor. The loan includes a one-year term and 15% guaranteed interest. This loan remains outstanding at June 30, 2020 and is currently past due.

 

As of June 30, 2020 we also hold $75,000 of short-term non-convertible loans from related parties. These notes bear interest ranging from 0% to 15% interest and are due upon demand.

 

Long term debt

 

During the six months ended June 30, 2020, the Company borrowed $527,039 through COVID-19 programs that were sponsored by the United States and administered by the Small Business Administration (the “SBA”). The most notable programs were the Payroll Protection Program (or “PPP”) and the Economic Injury Disaster Loan program (or “EIDL”). The Company’s PPP loan, $377,039, has a two- year term and bears interest at 1% per annum. Under the PPP, the Company can be granted forgiveness for all or a portion of these loans based on the Company’s spending on payroll, mortgage interest, rent and utilities. The Company’s EIDL loan, $150,000, accrues interest at 3.75% and requires monthly payments of $731 for principal and interest beginning in June 2021. The balance of the principal will be due in 30 years. In connection with the EIDL loan the Company entered into a security agreement with the SBA, whereby the Company granted the SBA a security interest in all of the Company’s right, title and interest in all of the Company’s assets.

 

 23 

 

 

  7) Stockholders’ Deficit

 

Preferred Stock

 

We are authorized to issue 1,000,000 shares of preferred stock with a par value of $0.01. Of the 1,000,000 shares of preferred stock:

 

  1) 20,000 shares have been designated as Series A Junior Participating Preferred Stock (“Junior A”)
     
  2) 313,960 shares have been designated as Series A Convertible Preferred Stock (“Series A”)
     
  3) 279,256 shares have been designated as Series B Convertible Preferred Stock (“Series B”)
     
  4) 88,098 shares have been designated as Series C Convertible Preferred Stock (“Series C”)
     
  5) 850 shares have been designated as Series D Convertible Preferred Stock (“Series D”)
     
  6) 500 shares have been designated as Series E Convertible Preferred Stock (“Series E”)
     
  7) 240,000 shares have been designated as Series G Convertible Preferred Stock (“Series G”)
     
  8) 10,000 shares have been designated as Series H Convertible Preferred Stock (“Series H”)
     
  9) 21 shares have been designated as Series H2 Convertible Preferred Stock (“Series H2”)
     
  10) 6,250 shares have been designated as Series J Convertible Preferred Stock (“Series J”)
     
  11) 15,000 shares have been designated as Series K Convertible Preferred Stock (“Series K”)
     
  12) 10,000 shares have been designated as Series AA Convertible Preferred Stock (“Series AA”)

 

As of June 30, 2020, there were no shares of Junior A, and Series A, B, C and E issued and outstanding. See our Annual Report on Form 10-K for the year ended December 31, 2019 for the pertinent disclosures of preferred stock.

 

 24 

 

 

Stock Options and Warrants

 

At the Company’s December 12, 2013 Special Meeting, the shareholders approved the 2013 Equity Incentive Plan (the “2013 Plan”) pursuant to which 3,000,000 shares of our common stock were reserved for issuance upon exercise of stock options or other equity awards. Under the 2013 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 June 30, 2020, options to acquire 1,392,370 shares were outstanding under the Plan.

 

On November 29, 2015 the Company’s Board of Directors adopted the 2015 Nonqualified Stock Option Plan (the “2015 Plan”) pursuant to which 5,000,000 shares of our common stock were reserved for issuance upon exercise of non-qualified stock options. Under the 2015 Plan, we may award non-qualified stock options in the Company to employees, officers, directors, consultants, and advisors, and to any other persons the Board of Directors deems appropriate.

 

 25 

 

 

As of June 30, 2020, total unrecognized compensation cost related to the unvested stock-based awards was $589,652, which is expected to be recognized over weighted average period of 1.61 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 June 30, 2020, based on the June 30, 2020 closing stock price of $2.30, was $712,250.

 

The following table summarizes information concerning options and warrants outstanding and exercisable:

 

    Stock Options   Warrants         
    Weighted   Weighted         
    Average   Average         
    Shares   price per share   Shares   price per share   Shares   Total
Exercisable
 
Balance outstanding, December 31, 2019    1,396,302   $0.71    9,893,034   $3.52    11,289,336    10,148,543 
Granted    -    -    2,907,870    3.50    2,907,870      
Exercised    -    -    -    -    -      
Expired    -    -    (39,778)  $8.40    (39,778)     
Forfeited    (3,932)   1.68    -    -    (3,932)     
Balance outstanding, June 30, 2020    1,392,370   $0.69    12,761,126   $3.50    14,153,496    13,203,517 

 

As of June 30, 2020, the 1,392,370 stock options outstanding have a $0.69 exercise price and 9.20 weighted average remaining term. Of these options, 442,391 are currently exercisable.

 

 26 

 

 

Common Stock and Warrant Issuances

 

During the six months ended June 30, 2020, we issued to Series AA holders 64,388 shares of common stock for dividends totaling of $176,748 issued in stock in lieu of cash. During this period the Company also issued 593,277 shares of restricted common stock at a fair value of $1,693,251 to accredited investors and consultants. 420,746 of the shares with a fair value of $1,317,649 were issued for conversions of debt principal and interest; 81,031 of the shares with a fair value of $159,784 were issued for debt extensions and interest payments; 66,500 shares with a fair value of $127,855 were issued to settle an accrued liability; and 25,000 shares with a fair value of $87,963 were issued for services rendered.

 

During this period, the Company also issued 2,412,870 warrants to acquire common stock at a fair value of $2,958,693 in conjunction with the signing of new convertible loans and 495,000 warrants to acquire common stock at a fair value of $969,745 to lenders for debt extension.

 

During the six months ended June 30, 2019, we issued to Series AA holders 42,456 shares of common stock for dividends totaling of $105,941 issued in stock in lieu of cash. During this period the Company also issued 205,432 shares of restricted common stock at a fair value of $641,211 to accredited investors. 65,377 of the shares with a fair value of $156,322 were issued to existing holders of convertible loans who agreed to extend the terms of the loans for another six months; 47,599 shares with a fair value of $156,322 were issued in conjunction with the signing of new convertible loans; and 50,000 shares with a fair value of $168,000 were issued for services rendered.

 

  8) Subsequent Events

 

On July 6, 2020, the Company signed an amendment to its binding letter of intent to acquire Cannaworx, Inc. (USA), extending the completion deadline to July 31,2020 with two 30-day automatic extensions. The planned acquisition remains subject to certain closing conditions, including completion of all due diligence and acquisition financing.

 

From July 1, 2020 through August 12, 2020 the Company issued loans convertible into common stock at $2.50 per share for $1.92 million, of which $170,000 was received during the quarter ended June 30, 2020. The loans carry 10% interest rates and one-year terms. To secure these loans, the Company issued 25,500 shares of common stock and warrants exercisable into 664,700 common shares (five-year life and a $3.50 exercise price). During this period, the Company also paid off six convertible loans totaling $782,800. The loans were issued July 19, 2018, April 9, 2019, April 30, 2019, July 29, 2019, August 6, 2019 and October 8, 2019. To retire these loans Company paid $472,371 in cash and issued 282,521 shares of common stock and 103,469 warrants to acquire common stock (three-year life and $3.50 exercise price) in full payment of principal, interest and fees. In this period the Company also issued 24,000 shares of common stock in partial settlement of $60,000 of principal and fees on a loan issued February 22, 2019, extended a loan issued January 3, 2019 to January 3, 2021 and agreed to pay $3,750 and issue 2,400 shares of common stock to consultants for services.

 

From July 1, 2020 to August 12, 2020 the Company entered into Standstill and Forbearance Agreements with lenders who hold convertible notes with a principal balance of approximately $1.89 million. Lenders have agreed with the Company not to convert any portion of their notes at a variable rate until August 15, 2020. In these agreements, the Company incurred fees of approximately $366,285.

 

On July 7, 2020, the Company and its Merchant lenders agreed to a final resolution of their arrangements. In this agreement, Company paid $385,388, issued 112,885 shares of common stock and 131,442 warrants to the Merchant lenders. The warrants have a three-year life and a $3.50 exercise price.

 

 27 

 

 

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 increase in the number of pressure cycling technology (“PCT”) and constant pressure (“CP”) based units that we believe will be installed and the expected increase in 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 focusing our resources 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 and our other products and services.

 

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, 2019 and in this Report. We qualify all of our forward-looking statements by these cautionary statements.

 

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OVERVIEW:

 

We are a leader in the development and sale of innovative, broadly enabling, pressure-based platform solutions for the worldwide life sciences industry. Our solutions are based on the unique properties of both constant (i.e., static) and alternating (i.e., pressure cycling technology, or “PCT”) hydrostatic pressure. PCT is a patented enabling technology platform that uses alternating cycles of hydrostatic pressure between ambient and ultra-high levels to safely and reproducibly control bio-molecular interactions (e.g., cell lysis, biomolecule extraction). Our primary focus has been in the development of PCT-based products for biomarker and target discovery, drug design and development, biotherapeutics characterization and quality control, soil & plant biology, forensics, and counter-bioterror applications. Additionally, major new market opportunities have emerged in the use of our pressure-based technologies in the following areas: (1) the use of our recently acquired, patented technology from BaroFold, Inc. (the “BaroFold” technology platform) to allow entry into the bio-pharma contract services sector, and (2) the use of our recently-patented, scalable, high-efficiency, pressure-based Ultra Shear Technology (“UST”) platform to (i) create stable nanoemulsions of otherwise immiscible fluids (e.g., oils and water) and to (ii) prepare higher quality, homogenized, extended shelf-life or room temperature stable low-acid liquid foods that cannot be acceptably preserved using existing non-thermal technologies.

 

On April 29, 2020, we signed a binding letter of intent to merge with Cannaworx, Inc. (USA), and their portfolio of products and intellectual property (the “Cannaworx LOI” and “Cannaworx merger”). Cannaworx founders Bobby Ghalili, DMD and Adrienne Denese, MD, PhD bring extensive medical expertise and product innovation into the newly combined public company. Post-merger, Cannaworx products will utilize our proprietary UST platform.

 

Subsequently, we announced two letters of intent by Cannaworx which we will assume in the Cannaworx merger. On April 30, 2020 we announced a signed Cannaworx agreement to acquire SkinScience Labs, Inc or “SSL” (the SSL LOI). SSL is the parent company of Dr. Denese’s skin care and anti-aging product lines. Subsequently, on May 7, 2020 we announced a signed Cannaworx agreement to acquire Five Leaf Labs or “FFL” (the FLL LOI). FLL is based in Louisiana and will expand the Cannaworx sales and distribution network to over 50 sales representatives in 21 states.

 

The Cannaworx LOI and SSL LOI are subject to certain closing conditions, including completion of all due diligence and acquisition financing. The FLL LOI is subject to the completion of all due diligence.

 

On May 7, 2020 we also announced that, if the mergers are completed, Jim Morrison would be appointed as the new CEO of the rebranded public company and that following the completion of the Cannaworx merger we would change our name to “Availa Bio”.

 

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Developments and Accomplishments:

 

We reported the following accomplishments during the half of 2020:

 

On June 20, 2020: PBI and Leica Microsystems sign worldwide co-marketing alliance: combination of proprietary technologies expected to accelerate cancer R&D with innovative tumor processing workflow

 

On June 4, PBI announces first manufacturing build completely sold out for revolutionary UST System for processing hemp-derived cannabinoid oil into stable, water-soluble nanoemulsions

 

On May 14, 2020, Pressure BioSciences announced the launch of FDA-registered hand sanitizer as first product developed through pending merger partners.

 

On May 7, 2020, former L’Oreal President Jim Morrison, one of the top brand strategists in the personal care space worldwide, was announced as the person who would become CEO of Availa Bio upon merger completion.

 

On May 5, 2020, PBI announced plans to change name to Availa Bio following completion of the Cannaworx and SkinScience Labs merger.

 

On April 30, 2020, PBI announced plans to acquire SkinScience Labs and their profitable and award-winning Dr. Denese Skin Care and Anti-Aging Lines.

 

On April 29, 2020, PBI announced plans to acquire Cannaworx, Inc. and their portfolio of innovative consumer products.

 

On April 16, 2020, PBI and RedShiftBio demonstrate potential of combining proprietary technologies to enable new tool for development and production of biotherapeutics.

 

On March 12, 2020, PBI announced that it is nearing a complete sellout on its pre-launch offering of game-changing UST Platform for processing CBD Oil into water-soluble nanoemulsions.

 

On February 27, 2020, PBI launched new era in preparation of water-soluble nanoemulsions for CBD and other valuable oils with opening of UST Demonstration Laboratory.

 

On January 30, 2020, PBI announced acceleration of UST Platform rollout for water-soluble CBD with planned release of additional BaroShear product – a benchtop, R&D scale, BaroShear ‘Mini” instrument.

 

On January 24, 2020, PBI announced significant new order and near sellout on revolutionary nanoemulsification system for water-soluble CBD oil. Company said that additional orders are expected shortly.

 

On January 17, 2020, PBI reported the Company’s UST Platform was featured in a leading North American Cannabis Magazine and that the article highlighted the potential of the UST Platform to play a significant role in multiple billion-dollar markets, such as CBD, nutraceuticals, cosmetics, biopharmaceuticals, and food/beverage.

 

On January 9, 2020, PBI reported that the number of published scientific papers in 2019 citing the advantages of the Company’s PCT Platform remained strong, with over 20 journal articles for the second straight year.

 

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Results of Operations

 

The following disclosure compares the results of operations for the quarter ended June 30, 2020 (“Q2 2020”) with June 30, 2019 (“Q2 2019”), and also compares the six months ended June 30, 2020 with June 30, 2019.

 

Products and Services Revenue

 

We recognized total revenue of $268,154 for Q2 2020 compared to $518,663 for Q2 2019. For the year-to-date periods ending on June 30, 2020 and 2019 we recognized total revenue of $522,027 and $1,028,903, respectively. The reported decreases were 48% for the quarterly periods and 49% for the year-to-date periods. These decreases were from a decrease in Scientific Services revenue which was primarily attributable to the negative impact that the COVID-19 pandemic had on our operations and on the operations of our customers.

 

Cost of Products and Services

 

The cost of products and services was $134,882 for Q2 2020 compared to $304,172 for Q2 2019. For the year-to-date periods ending on June 30, 2020 and 2019 our cost of products and services was $310,028 and $613,884, respectively. Gross profit margin on products and services decreased in line with the percentage change in revenue.

 

Research and Development

 

Research and development expenses were $294,602 for Q2 2020 compared to $291,538 for Q2 2019. For the year-to-date periods ending on June 30, 2020 and 2019 these expenses were $560,292 and $556,242, respectively. The reported increases were approximately 1% for the quarterly and year-to-date periods.

 

Selling and Marketing

 

Selling and marketing expenses were $162,098 for Q2 2020 compared to $186,609 for Q2 2019. For the year-to-date periods ending on June 30, 2020 and 2019 these expenses were $351,214 and $374,824, respectively. The reported decreases of 13% for the quarterly periods and 6% for the year-to-date periods were primarily attributable to lower stock-based compensation expense.

 

General and Administrative

 

General and administrative expenses were $1,007,215 for Q2 2020 compared to $1,136,768 for Q2 2019. For the year-to-date periods ending on June 30, 2020 and 2019 these expenses were $2,026,225 and $2,281,189 respectively. The reported decreases of 11% for the quarterly periods and 11% for the year-to-date periods were primarily attributable to lower investor relations and stock-based compensation expense.

 

Operating Loss

 

Operating loss was $1,330,643 for Q2 2020 compared to $1,400,424 for Q2 2019. For the year-to-date periods ending on June 30, 2020 and 2019 the operating loss was $2,725,732 and $2,797,236 respectively. The reported decreases of 5% for the quarterly periods and 3% for the year-to-date periods were primarily attributable to lower operating expenses, which offset the decreases in revenues.

 

Interest Expense, net

 

Interest expense was $1,724,879 for Q2 2020 compared to $1,074,488 for Q2 2019. For the year-to-date periods ending on June 30, 2020 and 2019 these expenses were $3,296,679 and $1,587,194, respectively. The reported increases of 61% for the quarterly periods and 108% for the year-to-date periods were primarily attributable to increases in convertible and other debt.

 

Unrealized gain on investment in equity securities

 

Unrealized gain on investments in equity securities was $196,891 for Q2 2020 compared to zero for Q2 2019. For the year-to-date periods ending on June 30, 2020 and 2019 the unrealized gain was $346,262 and zero, respectively. The reported increases were attributable the increase in the market price of the Company’s investment in Everest.

 

Loss on extinguishment of liabilities

 

In connection with payments of interest in common stock and debt extensions, we recognized losses of $1,710,151 for Q2 2020 compared to $106,461 for Q2 2019. For the year-to-date periods ending on June 30, 2020 and 2019 these losses were $2,846,518 and $147,271, respectively. These increases were related to extension fees incurred and warrants issued for the recent Standstill and Forbearance Agreements and merchant loan extension.

 

Net loss attributable to common stockholders

 

Net loss was $4,965,752 ($1.70 per share) for Q2 2020 compared to $4,076,863 ($2.22 per share) for Q2 2019. For the year-to-date periods ending on June 30, 2020 and 2019 the losses were $9,244,223 ($3.34 per share) and $7,547,845 ($4.24 per share), respectively. The decreases in the loss per share for the quarterly and year-to-date periods was attributable the 2019 deemed dividend on beneficial conversion feature (which did not recur in 2020) and a 59% increase in weighted shares outstanding for the quarterly period and a 55% increase for the year-to-date period.

 

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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 June 30, 2020, 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. We have been successful in raising debt and equity capital and as described in Notes 6 and 7 of the accompanying consolidated financial statements, we received $5.4 million in net proceeds from loans in the first half of 2020. We have efforts in place to continue to raise cash through debt and equity offerings.

 

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 six months ended June 30, 2020 was $2,800,494 as compared to $3,300,203 for the six months ended June 30, 2019.

 

Net cash used in investing activities for the six months ended June 30, 2020 was $532,913 compared to $28,915 in the prior period. Cash capital expenditures in the current year included a loan advance to our pending merger partner and purchases of laboratory equipment and IT equipment.

 

Net cash provided by financing activities for the six months ended June 30, 2020 was $3,345,240 as compared to $3,343,933 for the same period in the prior year. The cash from financing activities in the period ended June 30, 2020 included $4,422,600 from convertible debt and $999,039 from other debt and less debts payments ($1,257,250 of convertible debt and $819,149 of other debt).

 

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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 June 30, 2020, 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 June 30, 2020 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, 2019. 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.

 

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 June 30, 2020, 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 June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

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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, 2019 and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended March 31, 2020 (the “Q1 10-Q”). The risks described in our Form 10-K, the Q1 10-Q 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 or in Part II, Item 1A of our Q1 10-Q Annual Report on Form 10-K for the year ended December 31, 2019 other than the following:

 

During 2019, the Company issued notes to one holder in the principal amount of $1,155,000. Through July 31, 2020, we have issued other Notes to the same holder such that the current gross amount owed to the holder is approximately $7,684,200. 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.

 

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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 June 30, 2020, we had 3,207,285 shares outstanding. As of June 30, 2020, 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 June 30, 2020, an additional 26,498,155 shares of common stock would be issued and outstanding. The full cash exercise of the options and warrants would result in approximately $44.9 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.

 

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.

 

On various dates in the quarter ended June 30, 2020 the Company issued a total of 542,644 shares of restricted common stock at a fair value of approximately $1,656,584 to accredited investors and consultants. 410,746 of the shares with a fair value of $1,292,649 were issued for the conversion of debt and interest for common stock; 64,388 of the shares with a fair value of $176,748 were issued for dividends paid-in-kind; 42,510 of the shares with a fair value of $99,224 were issued for interest paid-in-kind and 25,000 of the shares with a fair value of $87,963 were issued for services.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

We are providing the following disclosure in lieu of filing a Current Report on Form 8-K relating to: “Item 1.01—Entry into a Material Definitive Agreement,” “Item 2.03—Creation of Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant,” and “Item 3.02—Unregistered Sales of Equity Securities,” of Form 8-K.

 

Except where noted, all the securities discussed in this Part II, Item 5 were issued in reliance on the exemption under Section 4(a)(2) of the Securities Act.

 

On June 25, 2020, the Company entered into a promissory note (the “Note”) with the U.S. Small Business Administration, which provides for a loan in the amount of $150,000 (the “Loan”) pursuant to the Economic Injury Disaster Loan program (the “EIDL”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Loan accrues interest at 3.75% and requires monthly payments of $731 for principal and interest beginning in June 2021. The balance of the principal will be due in 30 year. The Loan may be prepaid at any time prior to maturity with no prepayment penalties. In connection with the EIDL loan the Company entered into a security agreement with the SBA, whereby the Company granted the SBA a security interest in all of the Company’s right, title and interest in all of the Company’s assets.

 

On July 7, 2020, the Company and its Merchant lenders agreed to a final resolution of their arrangements. In this agreement, Company paid $385,388, issued 112,885 shares of common stock and 131,442 warrants to the Merchant lenders. The warrants have a three-year life and a $3.50 exercise price.

 

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Item 6. Exhibits

 

Exhibits    
     
10.1*  

Binding Letter of Intent by and between Pressure BioSciences, Inc. and Cannaworx, Inc., dated April 29, 2020

     
10.2*  

First Amendment to Binding Letter of Intent by and between Pressure BioSciences, Inc. and Cannaworx, Inc., dated July 6, 2020

     
10.3*   Economic Injury Disaster Loan Note, dated June 25, 2020, issued to the U.S. Small Business Administration
     
10.4*   Security Agreement, dated June 25, 2020, by and between Pressure BioSciences, Inc. and the U.S. Small Business Administration
     
10.5   Paycheck Protection Program Note, dated April 18, 2020, issued to North Easton Savings Bank (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on June 29, 2020)
     
10.6   Form of Amendment to Standstill and Forbearance Agreement entered into in January, March, April, May and June 2020 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on June 29, 2020)
     
31.1*   Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a))
     
31.2*   Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a))
     
32.1**   Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
     
32.2**   Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
     
101.INS*   XBRL Instance Document
     
101.SCH*   XBRL Taxonomy Extension Schema Document
     
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB*   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document

 

* 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: August 14, 2020 By: /s/ Richard T. Schumacher
    Richard T. Schumacher
    President & Chief Executive Officer
    (Principal Executive Officer and Principal Financial Officer)

 

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