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PBIO > SEC Filings for PBIO > Form 10-Q on 15-Aug-2013All Recent SEC Filings

Show all filings for PRESSURE BIOSCIENCES INC

Form 10-Q for PRESSURE BIOSCIENCES INC


15-Aug-2013

Quarterly Report


ITEM 2. MANAGEMENTS 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 September 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 June 30, 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 and debt financing completed subsequent to June 30, 2013, we believe our current cash resources will enable us to fund normal operations until the end of September 2013. During the quarter ended June 30, 2013 the Company signed agreements to borrow $275,000, $100,000 and $500,000 from three lenders on April 11, 2013, May 24, 2013 and June 6, 2013, respectively. Through August 1, 2013, we have received $192,500, $100,000, and $250,000 under these agreements. There is no guaranty that the Company will receive the amounts remaining under these agreements. We also received $160,000 in a one year note from an existing shareholder on August 8, 2013. Please see Note 6, Subsequent Events.

We need substantial additional capital to fund normal operations in periods beyond September 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 seven months of 2013.

? On August 1st, we reported that scientists from UCLA presented data at an international scientific symposium on an advanced pressure-based instrument system for biomarker discovery and rational drug design that we believe could offer new insights into protein structure and function.

? On June 14th, we announced the close of the third and final tranche of our Series J $2.0 million Private Placement of Preferred Stock and Warrants; we also announced the closing of a $500,000 one-year convertible debenture with an institutional investor.

? On June 4th, we announced a core technology breakthrough; that we had succeeded in reaching a pivotal development in our PCT platform that will allow the processing of the high throughput multiwell format found in research (and clinical) laboratories worldwide and that we expected this novel design would have a significant impact on our future growth.


? On May 21st, we announced financial results for Q1 2013: total revenue increased 21% over the Q1 2012, consumable sales increased 64% over Q1 2012, and operating loss decreased 24% compared to Q1 2013.

? On May 16th, we reported the publication of a breakthrough method for lipid analysis in fecal material, developed by a team led by Dr. Bruce Kristal (Harvard Medical School and the Brigham and Womens Hospital). We believe that this new method can help increase the understanding of diseases and disorders related to gastrointestinal (GI) disorders.

? On April 4th, 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 19th, 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 12th, 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

Comparison for the three months ended June 30, 2013 and 2012

Revenue

We recognized revenue of $357,736 for the three months ended June 30, 2013 as compared to $324,908 during the three months ended June 30, 2012, an increase of $32,828 or 10%. This increase is due to an increase in grant revenue offset by slightly lower product sales, as noted below.

PCT Products, Services, Other. Revenue from the sale of PCT products and services decreased 12% to $196,522 for the three months ended June 30, 2013 as compared to $224,384 during the three months ended June 30, 2012. Sales of consumables for the three months ended June 30, 2013 were $26,034 compared to $22,255 during the same period in the prior year, an increase of approximately 17%.

Grant Revenue. During the three months ended June 30, 2013, we recorded $161,214 of grant revenue compared to $100,524 in the comparable period in 2012. In February 2013, we began to work on a Phase I SBIR 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. Work on this grant continued throughout the second quarter. 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, such as anthrax.

Cost of PCT Products and Services

The cost of PCT products and services was $83,829 for the three months ended June 30, 2013 compared to $109,203 for the comparable period in 2012. Our gross profit margin on PCT products and services increased to 57% for the three months ended June 30, 2012, as compared to 51% for the prior period. The increase is from a higher portion of direct customer instrument sales rather than to distributors and the continued increase in sales of PCT consumable products.


Research and Development

Research and development expenditures were $260,408 during the three months ended June 30, 2013 as compared to $256,307 in the same period in 2012. Our work on research and development projects remained steady during both periods.

Research and development expense recognized in the three months ended June 30, 2013 and 2012 included $667 and $3,508 of non-cash, stock-based compensation expense, respectively.

Selling and Marketing

Selling and marketing expenses increased to $188,392 for the three months ended June 30, 2013 from $168,173 for the comparable period in 2012, an increase of $20,219 or 12%. This increase is primarily attributed to additional marketing expenses incurred.

During the three months ended June 30, 2013 and 2012, selling and marketing expense included $523 and $3,669 of non-cash, stock-based compensation expense, respectively.

General and Administrative

General and administrative costs totaled $683,133 for the three months ended June 30, 2013 as compared to $474,015 for the comparable period in 2012, an increase of $209,118 or 44%. The increase is primarily related to increases in legal, audit, and investor relations fees.

During the three months ended June 30, 2013 and 2012, general and administrative expense included $7,787 and $4,045 of non-cash, stock-based compensation expense, respectively.

Operating Loss

Our operating loss was $858,026 for the three months ended June 30, 2013 as compared to $682,790 for the comparable period in 2012, an increase of $175,236 or 26%. The increased operating loss resulted primarily from the increased General and Administrative costs.

Other Income (Expense), Net

Interest (Expense) Income

Interest expense totaled $63,110 for the three months ended June 30, 2013 as compared to interest expense of $4,214 for the three months ended June 30, 2012. We recorded $11,066 of accrued interest and $52,044 of amortized debt discount for the three months ended June 30, 2013 related to a series of promissory notes.

Change in Fair Value of Derivative Liabilities

During the three months ended June 30, 2013, we recorded non-cash expense of $144,905 versus income of $177,312 for warrant revaluation in our condensed consolidated statements of operations due to the change in the fair value of the warrant liability related to warrants issued in our Series C private placement and Series D registered direct offering. This change in fair value was primarily due to the stock price at quarter-end and time remaining on the warrants. During the three months ended June 30, 2013 we also recorded a non-cash expense of $208,709 upon issuance of convertible debt to account for the fair value of the conversion option liability embedded in the debt instruments. We also recorded net other income of $142,223 due to the change in fair value of the conversion option liabilities at the end of the period. Components of the fair value calculations can be found in Note 3 of these condensed consolidated financial statements.


Net Loss

During the three months ended June 30, 2013, we recorded a net loss to common shareholders of $1,173,912 or $(0.10) per share, as compared to a net loss to common shareholders of $1,089,666 or $(0.11) per share in the three months ended June 30, 2012. The decrease in net loss per share is primarily due to an increase in the number of outstanding shares of common stock resulting from the issuance of shares of common stock upon conversion of convertible preferred stock. We recorded a deemed dividend of $185,544 in connection with the Series C Warrants exchange in 2012 compared to a deemed dividend of $68,634 during the three months ended June 30, 2013. See Note 3 of the Notes to Consolidated Condensed Financial Statements under the "Computation of Loss per Share" heading.

Comparison for the six months ended June 30, 2013 and 2012

Revenue

We recognized revenue of $728,474 for the six months ended June 30, 2013 as compared to $630,569 during the six months ended June 30, 2012, an increase of $97,905 or 16%. This increase is due to an increase in both product and grant revenue.

PCT Products, Services, Other. Revenue from the sale of PCT products and services was $418,092 for the six months ended June 30, 2013 as compared to $389,156 during the six months ended June 30, 2012, an increase of $28,936 or 7%. Revenue increase included the sale of two Barocycler HUB instrument systems and accessories in the EPR/NMR areas.

Grant Revenue. During the six months ended June 30, 2013, we recorded $310,382 of grant revenue compared to $241,413 in the six months ended June 30, 2012. We continue to work on a Phase II grant received from the Department of Defense, or DOD, to fund the development of a PCT-based system to improve the processing of pathogenic organisms and on the 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 processing of DNA for next generation sequencing systems.

Cost of PCT Products and Services

The cost of PCT products and services was $188,373 for the six months ended June 30, 2013 compared to $187,397 for the comparable period in 2012. Our gross profit margin on PCT products and services increased to 55% for the six months ended June 30, 2013, as compared to 52% for the prior period.

Research and Development

Research and development expenditures were $506,866 for the six months ended June 30, 2013 as compared to $527,918 in the same period in 2012, a decrease of $21,052 or 4%. We capitalized approximately $50,000 of engineering expenses to Inventory as overhead as a one-time implementation charge in 2012.

Research and development expense recognized in the six months ended June 30, 2013 and 2012 included $5,503 and $6,125 of non-cash, stock-based compensation expense, respectively.

Selling and Marketing

Selling and marketing expenses decreased to $382,292 for the six months ended June 30, 2013 from $406,265 for the comparable period in 2012, a decrease of $23,973 or 6%. This decrease was primarily due to employee related savings from a smaller headcount offset by tradeshow and travel related expenses.

During the six months ended June 30, 2013 and 2012, selling and marketing expense included $4,192 and $6,783 of non-cash, stock-based compensation expense, respectively.


General and Administrative

General and administrative costs totaled $1,233,992 for the six months ended June 30, 2013 as compared to $1,156,361 for the comparable period in 2012, an increase of $77,631 or 7%. We increased our investor relations efforts in the current period. We also incurred increased audit and legal fees.

During the six months ended June 30, 2013 and 2012, general and administrative expense included $18,322 and $7,182 of non-cash, stock-based compensation expense, respectively.

Operating Loss

Our operating loss was $1,583,049 for the six months ended June 30, 2013 as compared to $1,647,372 for the comparable period in 2012, a decrease of $64,323 or 4%. The decreased operating loss resulted primarily from increased revenues and profit margins.

Other Income (Expense), Net

Interest (Expense) Income

Interest expense totaled $72,013 for the six months ended June 30, 2013 as compared to interest expense of $60,527 for the six months ended June 30, 2012. We recorded $19,969 of interest expense for the six months ended June 30, 2013 related to our convertible loans and promissory note. We also amortized approximately $52,044 of imputed interest against the debt discount on these loans relating to warrants issued and fees incurred in conjunction with these loans.

Change in Fair Value of Derivative Liabilities

During the six months ended June 30, 2013, we recorded non-cash expense of $124,064 for warrant revaluation in our consolidated statements of operations due to an increase in the fair value of the warrant liability related to warrants issued in Series D registered direct offering. This increase in fair value was primarily due to a higher stock price at quarter-end and time remaining on warrants. During the six months ended June 30, 2013 we also recorded a non-cash expense of $208,709 upon issuance of convertible debt to account for the fair value of the conversion option liability embedded in the debt instruments. We also recorded net other income of $142,223 due to the change in fair value of the conversion option liabilities at the end of the period. Components of the fair value calculations can be found in Note 3 of these condensed consolidated financial statements.

During the six months ended June 30, 2012, we recorded non-cash income of $135,300 for warrant revaluation in our consolidated statements of operations due to a decrease in the fair value of the warrant liability related to warrants issued in Series C and Series D registered direct offering. This decrease in fair value was primarily due to a lower stock price at quarter-end and time remaining on warrants.

Net Loss

During the six months ended June 30, 2013, we recorded a net loss to common shareholders of $2,568,002 or $(0.22) per share, as compared to a net loss to common shareholders of $2,176,987 or $(0.21) per share in the six months ended June 30, 2012. The increase in net loss per share is primarily due to the change in fair value of derivatives offset by an increase in the number of outstanding shares of common stock resulting from the issuance of shares of common stock upon conversion of convertible preferred stock. We recorded a deemed dividend of $185,544 in connection with the Series C Warrants exchange in 2012 compared to a deemed dividend of $68,634 in 2013. See Note 3 of the Notes to Consolidated Condensed Financial Statements under the "Computation of Loss per Share" heading.

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, 2013, 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. Based on our current projections, including equity and debt financing completed subsequent to June 30, 2013, described in Note 6, we believe our current cash resources will enable us to fund normal operations until the end of September 2013.

We will need substantial additional capital to fund our operations in periods beyond September 2013. 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.


Net cash used in operations for the six months ended June 30, 2013 was $1,316,585 as compared to $1,184,248 for the six months ended June 30, 2012. The increase in cash used in operations in 2013 as compared to 2012 is principally due to an increase in accounts receivable and a pay down of outstanding accounts payable.

Cash used in investing activities for the three months ended June 30, 2013 and 2012 was not significant.

Net cash provided by financing activities for the six months ended June 30, 2013 was $1,430,317 as compared to $982,389 for the same period in the prior year. The cash from financing activities in the period ending June 30, 2013 include $640,500 from convertible debt, net of fees and original note discounts and $896,595 in proceeds, net of $24,405 in legal fees, from our Series J Convertible Preferred Stock offering.

We received $160,000 in a one year note from an existing shareholder on August 8, 2013. Terms of the note included 18% annual interest, a three year warrant to purchase 160,000 shares of common stock at an exercise price of $0.40 per share, and a right to convert the note into the next equity transaction of the Company.

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