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PBIO > SEC Filings for PBIO > Form 10-Q on 15-May-2014All Recent SEC Filings

Show all filings for PRESSURE BIOSCIENCES INC

Form 10-Q for PRESSURE BIOSCIENCES INC


15-May-2014

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, 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 have sufficient liquidity to finance normal operations;

? the options we may pursue in light of our financial condition;

? 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;

? our belief that PCT has achieved initial market acceptance in the mass spectrometry and other markets;

? the expected increase in the number of pressure cycling technology ("PCT")and constant pressure ("CP") based units installed and the increase in revenues from the sale of consumable products and extended service contracts;

? 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;

? 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 in biomarker discovery, forensics, and histology and 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;

? 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.

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, 2013. We qualify all of our forward-looking statements by these cautionary statements.


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, 2014, 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 subsequent to March 31, 2014, we believe we will have the cash resources that will enable us to continue to fund normal operations. Please see Note 6, Subsequent Events.

We need substantial additional capital to fund normal operations in future periods. 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 2014.

? On January 29th, we closed the second tranche of our Series K PIPE, resulting in the receipt of $1,218,750.

? On February 28th, we closed the third tranche of our Series K PIPE, resulting in the receipt of $630,360.

? On March 19th, we announced the release and initial sale of the Barocycler HUB880, a "first-in-kind" ultra high pressure bench-top instrument system.

? On March 30th, we announced our Q4 and FY 2013 financial results, including record quarterly instrumentation and consumables sales, and record annual product and total revenue.

? On March 30th, we reiterated our guidance that the Company is on target to release our cutting-edge, microwell-based, high throughput Barocycler instrument at the annual meeting of the American Society for Mass Spectrometry in mid-June 2014.


RESULTS OF OPERATIONS

Three Months Ended March 31, 2014 and 2013

Revenue

We recognized revenue of $404,147 for the three months ended March 31, 2014 as compared to $370,737 during the three months ended March 31, 2013, an increase of $33,410 or 9%. This increase was due to increased revenues from the sale of products and services as noted below.

Products, Services, Other. Revenue from the sale of products and services was $404,147 for the three months ended March 31, 2014 as compared to $221,569 during the three months ended March 31, 2013, an increase of $182,578 or 82.4 %. Sales of Instruments (including PCT Shredder Kits) were $241,344 in the three months ended March 31, 2014 as compared to $135,939 during the same period in the prior year, an increase of $105,405 or approximately 78%. Sales of consumables were $54,612 for the period ended March 31, 2014 compared to $27,224 in the prior year an increase of $27,388 or 101%. Our customers typically will order a supply of consumables with their initial equipment order and then re-order as needed.

Grant Revenue. During the three months ended March 31, 2014, we recorded $0 of grant revenue compared to $149,168 in the three months ended March 31, 2013. 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. Both of these grants were completed in 2013.

Cost of Products, Services and Grants

The cost of products, services and grants was $177,606 for the three months ended March 31, 2014 compared to $104,544 for the comparable period in 2013. Gross margin was 56% for the period ended March 31, 2014 and 72% for the period ended March 31, 2013. Work on our government grants is typically performed by our research and development staff and their cost is recorded as research and development and not charged to cost of sales. Only third party costs of our grants are charged to cost of sales. Adjusting for the grant revenue and expenses, our gross margin in 2013 would have been 58%.

Research and Development

Research and development expenditures were $231,088 during the three months ended March 31, 2014 as compared to $246,458 in the same period in 2013. 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, 2014 and 2013 included $7,553 and $4,836 of non-cash, stock-based compensation expense, respectively.

Selling and Marketing

Selling and marketing expenses decreased to $170,655 for the three months ended March 31, 2014 from $193,900 for the comparable period in 2013. 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, 2014 and 2013, selling and marketing expense included $5,991 and $3,668 of non-cash, stock-based compensation expense, respectively.

General and Administrative

General and administrative costs totaled $606,479 for the three months ended March 31, 2014 as compared to $550,859 for the comparable period in 2013. The increase in general and administrative expense in 2014 is primarily due to increased investor relations expenses. During the three months ended March 31, 2014 and 2013, general and administrative expense included $5,352 and $10,536 of non-cash, stock-based compensation expense, respectively.

Operating Loss

Our operating loss was $782,366 for the three months ended March 31, 2014 as compared to $725,024 for the comparable period in 2013. The increased operating loss resulted from lower margins due to the loss of grant revenue in 2014.


Other income (expense), net

Interest (Expense) Income

Interest expense totaled $244,612 for the three months ended March 31, 2014 as compared to interest expense of $8,900 for the three months ended March 31, 2013. In the current year period we amortized approximately $210,129 of imputed interest against the debt discount relating to warrants issued and fees incurred with convertible debt.

Change in fair value of warrant derivative liability

During the three months ended March 31, 2014, we recorded a non-cash charge of $495,848 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 at March 31, 2014 as compared to the price on December 31, 2013. 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.

Change in fair value of conversion option liability

During the three months ended March 31, 2014, we recorded a non-cash charge of $236,829 for conversion option revaluation expense in our condensed consolidated statements of operations due to an increase in the fair value of the conversion option liability related to convertible debt issued in 2013. This increase in fair value was primarily due to the increase in price of the Company's common stock on March 31, 2014 as compared to the price on December 31, 2013. The components for determining the fair value of the conversion option liabilities are contained in the table in Note 3 of the accompanying condensed consolidated financial statements.

Net Loss

During the three months ended March 31, 2014, we recorded a net loss to common shareholders of $3,084,708 or $(0.25) per share, as compared to a net loss to common shareholders of $1,394,090 or $(0.11) per share in the three months ended March 31, 2013. The increase in the loss is due primarily to the change in fair value of our warrant derivative and conversion option liabilities as described above. We also recorded a $1,280,066 charge for a beneficial conversion feature related to our Series K Preferred Stock offering in 2014.

LIQUIDITY AND FINANCIAL CONDITION

As of March 31, 2014, we did not have adequate working capital resources to satisfy our current liabilities. Based on our current projections, including equity financing subsequent to March 31, 2014, we believe we will have the cash resources that will enable us to continue to fund normal operations.

We will need substantial additional capital to fund our operations in future periods. 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 operating activities for the three months ended March 31, 2014 was $1,103,916 as compared to $617,494 for the three months ended March 31, 2013. The increase in cash used in operations in 2014 as compared to 2013 is principally due to $342,797 used for an increase in current assets and pay down of operating liabilities in the period ending March 31, 2014 as compared to $29,140 used in 2013.

Cash used in investing activities for the three months ended March 31, 2014 and 2013 was not significant.

Net cash provided by financing activities for the three months ended March 31, 2014 was $1,506,132 as compared to $785,477 for the same period in the prior year. The cash from financing activities in the period ending March 31, 2014 includes $270,000 from convertible debt and $1,456,360 in net proceeds from the second and third tranches of our Series K Convertible Preferred Stock offering.


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