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PBIO > SEC Filings for PBIO > Form 10-Q on 20-May-2013All Recent SEC Filings

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Form 10-Q for PRESSURE BIOSCIENCES INC


20-May-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SPECIAL 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 and Section 21E of the Securities Exchange Act of 1934. 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 belief that we have sufficient liquidity to finance normal operations until the end of May 2013;
- our need to take additional cost reduction measures, cease operations or sell our operating assets, if we are unable to obtain sufficient additional financing in the future;
- the amount of cash necessary to operate our business;
- the amount of grant revenue and anticipated uses of grant revenue in future periods;
- our plans and expectations with respect to our pressure cycling technology (PCT) operations;
- the potential applications for PCT;
- the expected expenses, benefits and results from our research and development efforts;
- the expected benefits and results from our collaboration efforts, strategic alliances and joint ventures;
- the expected increase in number of PCT units installed and the increase in revenues from sale of consumable products and extended service contracts;
- the potential size of the market for biological sample preparation;
- general economic conditions; and
- the anticipated future financial performance and business operations of our Company.

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 Report. 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 Report 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 or to conform to actual results. We qualify all of our forward-looking statements by these cautionary statements. You should read this section in combination with the section entitled Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2012 included in our Annual Report on Form 10-K for the year ended December 31, 2012.


OVERVIEW

We are focused on solving the challenging problems inherent in biological sample preparation, a crucial laboratory step performed by scientists worldwide working in biological life sciences research. Sample preparation is a term that refers to a wide range of activities that precede most forms of scientific analysis. Sample preparation is often complex, time-consuming and, in our belief, one of the most error-prone steps of scientific research. It is a widely-used laboratory undertaking - the requirements of which drive what we believe is a large and growing worldwide market. We have developed and patented a novel, enabling technology platform that can control the sample preparation process. It is based on harnessing the unique properties of high hydrostatic pressure. This process, called pressure cycling technology, or PCT, uses alternating cycles of hydrostatic pressure between ambient and ultra-high levels i.e., 35,000 pounds per square inch ("psi") or greater to safely, conveniently and reproducibly control the actions of molecules in biological samples, such as cells and tissues from human, animal, plant and microbial sources.

Our pressure cycling technology uses internally developed instrumentation that is capable of cycling pressure between ambient and ultra-high levels at controlled temperatures and specific time intervals, to rapidly and repeatedly control the interactions of bio-molecules, such as deoxyribonucleic acid ("DNA"), ribonucleic acid ("RNA"), proteins, lipids and small molecules. Our laboratory instrument, the BarocyclerŽ, and our internally developed consumables product line, which include our Pressure Used to Lyse Samples for Extraction ("PULSE") tubes, and other processing tubes, and application specific kits such as consumable products and reagents, together make up our PCT Sample Preparation System ("PCT SPS").

We have experienced negative cash flows from operations with respect to our pressure cycling technology business since our inception. As of March 31, 2013, we did not have adequate working capital resources to satisfy our current liabilities and as a result we have substantial doubt about our ability to continue as a going concern. Based on our current projections, including equity financing completed subsequent to March 31, 2013, we believe our current cash resources will enable us to extend our cash resources to fund normal operations until the end of May 2013. Please see Note 6, Subsequent Events.

We need substantial additional capital to fund normal operations in periods beyond the end of May 2013. If we are able to obtain additional capital or otherwise increase our revenues, we may increase spending in specific research and development applications and engineering projects and may hire additional sales personnel or invest in targeted marketing programs. In the event that 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.

We hold 14 United States and 10 foreign patents covering multiple applications of PCT in the life sciences field. Our pressure cycling technology employs a unique approach that we believe has the potential for broad use in a number of established and emerging life sciences areas, including;

- sample preparation for genomic, proteomic, and small molecule studies;
- pathogen inactivation;
- protein purification;
- control of chemical (particularly enzymatic) reactions; and
- Immunodiagnostics (clinical laboratory testing).

We reported a number of accomplishments in the first four months of 2013.

?        On April 4, 2013 we announced that further advances had been made in the
         development of an improved method for rape kit sample testing using
         PBI's PCT Platform by Dr. Bruce McCord and his team at the International
         Forensic Research Institute of Florida International University.



?        On March 19, 2013 we announced that the use and advantages of PBI's PCT
         Platform had been highlighted in cancer, stem cell, and heart disease
         studies at an important protein research conference.  We believe that
         the FDA data indicate that PCT can be used to extract proteins from stem
         cells with consistency and quality; the Johns Hopkins data indicate that
         combining PCT with heat might be a way to recover significantly more
         proteins from FFPE tissues compared to standard (heat) methods,
         especially membrane proteins (this could be very important with
         scientists looking for disease biomarkers); and the ETH Zurich data
         might be significant for extracting proteins from small, needle biopsy
         samples, something that we believe is vitally needed today yet not well
         satisfied at the present time, and (we believe) a significant market
         opportunity.



?        On February 12, 2013, we announced that Dr. Mickey Urdea had been
         appointed to the Board of Directors of PBI.  Dr. Urdea is one of the
         most well-known entrepreneurs and leaders in biotechnology today, having
         founded two successful companies (Halteres Associates and Tethys
         Bioscience) over the past ten years.  Earlier in his career, Dr.
         Urdea led the infectious diseases R&D groups at Chiron Corporation and
         Bayer Diagnostics.  He has also been on the Scientific Advisory Boards
         of numerous life sciences companies and was a member of the Bill and
         Melinda Gates Foundation Diagnostic Forum.


RESULTS OF OPERATIONS

Three Months Ended March 31, 2013 and 2012

Revenue

We recognized revenue of $370,737 for the three months ended March 31, 2013 as compared to $305,661 during the three months ended March 31, 2012, an increase of $65,076 or 21%. This increase was due to increased revenues across both of our primary product lines, as noted below.

PCT Products, Services, Other. Revenue from the sale of PCT products and services was $221,569 for the three months ended March 31, 2013 as compared to $164,772 during the three months ended March 31, 2012. Sales of PCT Instruments and PCT Shredder Kits were $135,939 in the three months ended March 31, 2013 as compared to $94,842 during the same period in the prior year, an increase of approximately 43%.

Grant Revenue. During the three months ended March 31, 2013, we recorded $149,168 of grant revenue compared to $140,889 in the three months ended March 31, 2012. In February 2013, we began to work on a Phase I grant received from the National Institutes of Health, or NIH, to help fund the development of a high pressure-based system to improve the extraction of DNA for next generation sequencing platforms. We also continued to work on a Phase II grant received in October 2011 from the Department of Defense, or DOD, to fund the development of a PCT-based system to improve the processing of pathogenic organisms.

Cost of PCT Products and Services

The cost of PCT products and services was $104,544 for the three months ended March 31, 2013 compared to $78,194 for the comparable period in 2012. Gross margins were 53% for the period ended March 31, 2013 and March 31, 2012. We sold a partially depreciated machine in 2012 which contributed to the gross margin in that period.

Research and Development

Research and development expenditures were $246,458 during the three months ended March 31, 2013 as compared to $271,611 in the same period in 2012. Research and development expenses decreased due to a reduction in spending for outside services and employee related expenses, as compared to the prior year period. Research and development expense in the three months ended March 31, 2013 and 2012 included $4,836 and $2,618 of non-cash, stock-based compensation expense, respectively.

Selling and Marketing

Selling and marketing expenses decreased to $193,900 for the three months ended March 31, 2013 from $238,092 for the comparable period in 2012. This decrease was primarily due to employee related savings from a smaller headcount partially offset by an increase in tradeshow and travel related expenses. During the three months ended March 31, 2013 and 2012, selling and marketing expense included $3,668 and $3,113 of non-cash, stock-based compensation expense, respectively.

General and Administrative

General and administrative costs totaled $550,859 for the three months ended March 31, 2013 as compared to $682,346 for the comparable period in 2012. In the prior year period we incurred increased audit fees relating to accounting matters and legal fees in connection with amendments to our Registration Statement on Form S-1. The Form S-1 was subsequently withdrawn. We also incurred higher investor relations costs in the prior year. During the three months ended March 31, 2013 and 2012, general and administrative expense included $10,536 and $3,137 of non-cash, stock-based compensation expense, respectively.


Operating Loss

Our operating loss was $725,024 for the three months ended March 31, 2013 as compared to $964,582 for the comparable period in 2012. The decreased operating loss resulted from higher sales while, at the same time, lower operating expenses.

Other income (expense), net

Interest (Expense) Income

Interest expense totaled $8,902 for the three months ended March 31, 2013 as compared to interest expense of $56,313 for the three months ended March 31, 2012. In the prior year period we amortized approximately $46,000 of imputed interest against the debt discount relating to warrants issued with convertible debt which was subsequently repaid or converted to Company stock.

Change in fair value of warrant derivative liability

During the three months ended March 31, 2013, we recorded a non-cash charge of $45,445 for warrant revaluation expense in our consolidated statements of operations due to an increase in the fair value of the warrant liability related to warrants issued in our Series D private placement. This increase in fair value was primarily due to the increase in price of the Company's Common Stock on March 31, 2013 as compared to the price on December 31, 2012. The components for determining the fair value of the warrants are contained in the table in Note 3 of the accompanying condensed consolidated financial statements.

Net Loss

During the three months ended March 31, 2013, we recorded a net loss to common shareholders of $1,394,090 or $(0.11) per share, as compared to a net loss to common shareholders of $1,087,321 or $(0.14) per share in the three months ended March 31, 2012. The decrease in the loss per share is attributable to additional common shares outstanding due primarily to the issuance of Common Stock in exchange for the Company's Series C and Series E Convertible Preferred Stock in 2012.

LIQUIDITY AND FINANCIAL CONDITION

As of March 31, 2013, we did not have adequate working capital resources to satisfy our current liabilities. Based on our current projections, including the proceeds from our equity financing described in Note 6 completed subsequent to March 31, 2013, we believe our current cash resources will enable us to extend our cash resources to fund normal operations until the end of May 2013.

We will need substantial additional capital to fund our operations in periods beyond May 2013. In the event that we are unable to obtain financing on acceptable terms, or at all, there is substantial doubt that we can continue as a going concern. 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 three months ended March 31, 2013 was $617,494 as compared to $584,737 for the three months ended March 31, 2012. The increase in cash used in operations in 2013 as compared to 2012 is principally due to a decrease in our accounts payable balance of $140,510 in the period ending March 31, 2013 as compared to an increase in accounts payable in the prior year period.

Cash used in investing activities for the three months ended March 31, 2013 and 2012 was not significant.

Net cash provided by financing activities for the three months ended March 31, 2013 was $785,477 as compared to $377,454 for the same period in the prior year. The cash from financing activities in the period ending March 31, 2013 includes $155,000 from convertible debt and $721,595 in proceeds, net of $24,405 in legal fees, from the first two rounds of our Series J Convertible Preferred Stock offering.

On May 20, 2013, the Company entered into a Securities Purchase Agreement with an existing investor pursuant to which the Company sold an aggregate of 437.5 units for a purchase price of $400.00 per unit or an aggregate Purchase Price of $175,000. This represents the third and final tranche of a $2.0 million private placement. Each unit purchased in the private placement ("Unit") consists of (i) one share of a newly created series of preferred stock, designated Series J Convertible Preferred Stock, par value $0.01 per share convertible into 1,000 shares of the Company's Common Stock, par value $0.01 per share and (ii) a warrant to purchase 1,000 shares of Common Stock at an exercise price equal to $0.40 per share, with a term expiring three years from the respective closing date.


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