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PBIO > SEC Filings for PBIO > Form 10-Q on 7-Nov-2013All Recent SEC Filings

Show all filings for PRESSURE BIOSCIENCES INC

Form 10-Q for PRESSURE BIOSCIENCES INC


7-Nov-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 November 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 September 30, 2013, we did not have adequate working capital resources to satisfy our current liabilities and as a result there is substantial doubt about our ability to continue as a going concern. Based on our current projections, including equity and debt financing completed subsequent to September 30, 2013, we believe our current cash resources will enable us to fund normal operations until the end of November 2013. During the quarter ended September 30, 2013 the Company signed agreements to borrow $160,000 and $75,000 from two lenders on August 8 and August 23, 2013, respectively. We also received $250,000 on a six-month note from an existing shareholder on October 7, 2013. Please see Note 6 of the condensed consolidated financial statements, Subsequent Events.

We need substantial additional capital to fund normal operations in periods beyond November 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 ten 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 Women's 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 has been an advisor and consultant to the Bill and Melinda Gates Foundation Diagnostic Forum.

Results of Operations

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

Revenue

We recognized revenue of $420,762, for the three months ended September 30, 2013 as compared to $391,616 during the three months ended September 30, 2012, an increase of $29,146 or 7%. This increase is due to an increase in PCT products and services revenue, primarily driven by an increase in the sale of consumable products.

PCT Products, Services, Other. Revenue from the sale of PCT products and services increased 10% to $327,958 for the three months ended September 30, 2013 as compared to $297,867 during the three months ended September 30, 2012. Sales of consumables for the three months ended September 30, 2013 were $51,450 compared to $27,993 during the same period in the prior year, an increase of approximately 84%.

Grant Revenue. During the three months ended September 30, 2013, we recorded $92,804 of grant revenue compared to $93,749 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 was completed in July 2013. 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. Work on this grant was completed in September 2013.


Cost of PCT Products and Services

The cost of PCT products and services was $175,995 for the three months ended September 30, 2013 compared to $108,689 for the comparable period in 2012. Our gross profit margin on PCT products and services was 46% for the three months ended September 30, 2013, as compared to 64% for the prior period. In the three months ended September 30, 2013 we sold two Constant Systems ("CS") pressure-based instruments through our recently expanded, strategic alliance with CS. As a value-added distributor of CS equipment, we expect gross margins on their products will be lower, compared to gross margins on our own products. However, we believe the impact of these lower margins added into our product mix will be off set by increased awareness and sales expected in both product lines through the strategic alliance. CS equipment has been part of our product line since the third quarter of 2012. The 2013 cost of PCT products and services include $22,000 in third party costs associated with the DOD grants.

Research and Development

Research and development expenditures were $280,276 during the three months ended September 30, 2013 as compared to $247,717 in the same period in 2012, an increase of 13%. The increase is from an additional $23,025 in stock based compensation and $6,995 in depreciation.

Research and development expense recognized in the three months ended September 30, 2013 and 2012 included $44,658 and $21,633 of non-cash, stock-based compensation expense, respectively.

Selling and Marketing

Selling and marketing expenses increased to $190,882 for the three months ended September 30, 2013 from $164,313 for the comparable period in 2012, an increase of $26,569 or 16%. This increase is primarily attributed to additional, part-time marketing salaries incurred in 2013.

During the three months ended September 30, 2013 and 2012, selling and marketing expense included $17,024 and $17,877 of non-cash, stock-based compensation expense, respectively.

General and Administrative

General and administrative costs totaled $617,642 for the three months ended September 30, 2013 as compared to $557,417 for the comparable period in 2012, an increase of $60,225 or 11%. The increase is primarily related to increases in investor relations and other outside service fees offset by lower legal fees.

During the three months ended September 30, 2013 and 2012, general and administrative expense included $30,549 and $57,216 of non-cash, stock-based compensation expense, respectively.

Operating Loss

Our operating loss was $844,033 for the three months ended September 30, 2013 as compared to $686,520 for the comparable period in 2012, an increase of $157,513 or 23%. The increased operating loss resulted from increased operating expenses, primarily our expanded strategic alliance with CS, our increased marketing efforts, and our expanded investor relations programs.

Other Income (Expense), Net

Interest (Expense) Income

Interest expense totaled $158,162 for the three months ended September 30, 2013 as compared to interest expense of $10,540 for the three months ended September 30, 2012. We recorded $27,292 of accrued interest and $130,870 of amortized debt discount for the three months ended September 30, 2013 related to a series of promissory notes.

Change in Fair Value of Derivative Liabilities

During the three months ended September 30, 2013, we recorded non-cash income of $114,739 versus expense of $98,978 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 D registered direct offering. We also recorded net other income of $216,374 due to the change in fair value of the conversion option liabilities at the end of the period. The change in fair value of the warrants and the conversion option liabilities was primarily due to the stock price at quarter-end and time remaining on the warrants and conversion option. Components of the fair value calculations can be found in Note 3 of these condensed consolidated financial statements.


Net Loss to Common Shareholders

During the three months ended September 30, 2013, we recorded a net loss to common shareholders of $716,152 or $(0.06) per share, as compared to a net loss to common shareholders of $925,827 or $(0.09) per share in the three months ended September 30, 2012. The decrease in net loss per share is primarily due to the gains derived from the reduction of the derivative liabilities in 2013 compared to a loss in 2012. See Note 3 of the Notes to condensed consolidated financial statements under the "Computation of Loss per Share" heading.

Comparison for the nine months ended September 30, 2013 and 2012

Revenue

We recognized revenue of $1,149,236 for the nine months ended September 30, 2013 as compared to $1,022,185 during the nine months ended September 30, 2012, an increase of $127,051 or 12%. 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 $746,050 for the nine months ended September 30, 2013 as compared to $687,023 during the nine months ended September 30, 2012, an increase of $59,027 or 9%. The revenue increase included the sales of the Constant Systems product line in 2013.

Grant Revenue. During the nine months ended September 30, 2013, we recorded $403,186 of grant revenue compared to $335,161 in the nine months ended September 30, 2012. We have finished 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 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 processing of DNA for next generation sequencing systems.

Cost of PCT Products and Services

The cost of PCT products and services was $364,368 for the nine months ended September 30, 2013 compared to $296,086 for the comparable period in 2012. Our gross profit margin on PCT products and services was 51% for the nine months ended September 30, 2013, as compared to 57% for the prior year period. The 2013 cost of PCT products and services include $66,000 of third party costs associated with the DOD grants.

Research and Development

Research and development expenditures were $787,142 for the nine months ended September 30, 2013 as compared to $775,635 in the same period in 2012, an increase of $11,507 or 1%. 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 nine months ended September 30, 2013 and 2012 included $50,161 and $27,758 of non-cash, stock-based compensation expense, respectively.

Selling and Marketing

Selling and marketing expenses increased to $573,174 for the nine months ended September 30, 2013 from $570,578 for the comparable period in 2012, an increase of $2,596, or less than 1%.

During the nine months ended September 30, 2013 and 2012, selling and marketing expense included $21,216 and $24,659 of non-cash, stock-based compensation expense, respectively.


General and Administrative

General and administrative costs totaled $1,851,634 for the nine months ended September 30, 2013 as compared to $1,713,778 for the comparable period in 2012, an increase of $137,856 or 8%. We incurred increased audit, legal, and investor relations fees in the current period, compared the same period in 2012.

During the nine months ended September 30, 2013 and 2012, general and administrative expense included $48,871 and $64,398 of non-cash, stock-based compensation expense, respectively.

Operating Loss

Our operating loss was $2,427,082 for the nine months ended September 30, 2013 as compared to $2,333,893 for the comparable period in 2012, an increase of $93,189 or 4%. The increased operating loss resulted primarily from increased operating expenses of $151,959 offset by increased revenues and profit margins of $58,769.

Other Income (Expense), Net

Interest (Expense) Income

Interest expense totaled $230,176 for the nine months ended September 30, 2013 as compared to interest expense of $71,067 for the nine months ended September 30, 2012. We recorded $47,261 of interest expense for the nine months ended September 30, 2013 related to our convertible loans and promissory note. We also amortized approximately $182,915 of imputed interest against the debt discount on these loans relating to the conversion option, warrants issued with the debt and fees incurred in conjunction with these loans.

Change in Fair Value of Derivative Liabilities

During the nine months ended September 30, 2013, we recorded non-cash expense of $9,325 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. We also recorded net other income of $358,797 due to the change in fair value of the conversion option liabilities at the end of the period. During the nine months ended September 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. Components of the fair value calculations can be found in Note 3 of the condensed consolidated financial statements.

During the nine months ended September 30, 2012, we recorded non-cash income of $36,322 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 to Common Shareholders

During the nine months ended September 30, 2013, we recorded a net loss to common shareholders of $3,284,154 or $(0.28) per share, as compared to a net loss to common shareholders of $3,264,371 or $(0.34) per share in the nine months ended September 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 $190,891 in connection with the Series C Warrants exchange in 2012 compared to a deemed dividend of $651,182 in connection with the issuance of Series J Convertible Preferred Stock in 2013. See Note 3 of the Notes to condensed consolidated 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 September 30, 2013, we did 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. Based on our current projections, including equity and debt financing completed subsequent to September 30, 2013, described in Note 6 of the condensed consolidated financial statements, we believe our current cash resources will enable us to fund normal operations until the end of November 2013.

We will need substantial additional capital to fund our operations in periods beyond November 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 operating activities for the nine months ended September 30, 2013 was $1,561,123 as compared to $1,619,448 for the nine months ended September 30, 2012. Cash used in operations decreased by $125,331in 2013 as compared to 2012, while net cash provided by changes in operating assets and liabilities was down by $67,006 in 2013 as compared with 2012.

Cash used in investing activities, primarily research equipment, for the nine months ended September 30, 2013 was $55,052. Cash used in investing activities in 2012 was not significant.

Net cash provided by financing activities for the nine months ended September 30, 2013 was $1,681,394 as compared to $1,446,962 for the same period in the prior year. The cash from financing activities in the period ending September 30, 2013 included $896,503 from convertible and other debt, net of fees and original note discounts, and $896,595 in equity proceeds, net of $24,405 in legal fees, from our Series J Convertible Preferred Stock offering.

On October 7, 2013 we received $250,000 in a six-month note from an existing shareholder. Terms of the note include 18% annual interest, a right to convert the note into the next equity transaction of the Company, at the conversion rate of the equity offering, and a three-year warrant to purchase 250,000 shares of common stock at an exercise price of $0.40 per share.


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