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PBIO > SEC Filings for PBIO > Form 10-Q on 14-Aug-2014All Recent SEC Filings

Show all filings for PRESSURE BIOSCIENCES INC

Form 10-Q for PRESSURE BIOSCIENCES INC


14-Aug-2014

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, 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 June 30, 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 June 30, 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 seven 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.


? May 5th, PBI announced its selection to present at the Cavendish Global Health Impact Forum, whose goal was to bring together leading family offices and their foundations seeking impact investment, grant-giving, and philanthropy opportunities within health and life sciences.

? June 15th, PBI launched its much anticipated, first-in-class, bench top, high throughput, PCT-based instrument (Barozyme HT48) at the ASMS Annual Conference. The new Barozyme HT48 system was designed to integrate well with current standardized, high-throughput, liquid-handling laboratory automation and robotics installed in tens of thousands of biological research laboratories worldwide.

? June 19th, PBI announced that scientists from six separate research groups presented data at the ASMS Annual Conference showing the use of PBI's patented PCT Platform for the preparation of samples resulted in significantly improved time and/or cost efficiencies of test results.

? June 23rd, PBI reported the successful launch and meeting of all key objectives for its Barozyme HT48 introduction at the annual meeting of the American Association for Mass Spectrometry ("ASMS"). PBI also reaffirmed its
(i) expectation to secure one or more strategic marketing/sales partners by years' end, and (iii) guidance that sales of its new PCT microplate strip system (Barozyme HT48) will begin in the second half of FY2014.

? June 26th, PBI announced the engagement of IssuWorks and their management team to review strategic and financing alternatives, including the possible spin-off of vertical market applications into new, stand-alone businesses. Issuworks was founded by noted Wall Street executives, including David Weild (former vice chairman of NASDAQ, former head of global equity transactions at Prudential Securities and president of PrudentialSecurities.com, considered the "Father" of the JOBS Act) and Ed Kim (former biotech analyst at major Wall Street firms and former head of new products at NASDAQ).


Results of Operations

Comparison for the three months ended June 30, 2014 and 2013

Revenue

We recognized total revenue of $307,464 for the three months ended June 30, 2014 as compared to $357,736 during the three months ended June 30, 2013, a decrease of $50,272 or 14%. This decrease is solely attributable to our loss of grant revenue in 2014. Although our product sales were up significantly the increase did not offset the entire loss of grant revenue as noted below.

Products, Services, Other. Revenue from the sale of products and services increased 56% to $307,464 for the three months ended June 30, 2014 as compared to $196,522 during the three months ended June 30, 2013. Sales of consumables for the three months ended June 30, 2014 were $48,417 compared to $26,034 during the same period in the prior year, an increase of approximately 86%.

Grant Revenue. During the three months ended June 30, 2014, we did not record any grant revenue compared to $161,214 in the comparable period in 2013. 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 Products and Services

The cost of products and services was $134,453 for the three months ended June 30, 2014 compared to $83,829 for the comparable period in 2013. Our gross profit margin on products and services was 56% for the three months ended June 30, 2014, as compared to 57% for the prior period. We are currently achieving a larger percentage of our sales through our channel partners and recognize lower margins on these sales.

Research and Development

Research and development expenditures were $253,238 during the three months ended June 30, 2014 as compared to $260,408 in the same period in 2013. Our work on research and development projects remained steady during both periods.

Research and development expense recognized in the three months ended June 30, 2014 and 2013 included $10,301 and $667 of non-cash, stock-based compensation expense, respectively.

Selling and Marketing

Selling and marketing expenses increased to $196,074 for the three months ended June 30, 2014 from $188,392 for the comparable period in 2013, an increase of $7,682 or 4%. This increase is primarily attributed to additional marketing expenses incurred to attend trade shows in order to introduce new products.

During the three months ended June 30, 2014 and 2013, selling and marketing expense included $5,914 and $523 of non-cash, stock-based compensation expense, respectively.

General and Administrative

General and administrative costs totaled $570,456 for the three months ended June 30, 2014 as compared to $683,133 for the comparable period in 2013, a decrease of $112,677 or 16%. The decrease is primarily related to decreases in salaries due to reduced staffing levels and temporary help.

During the three months ended June 30, 2014 and 2013, general and administrative expense included $5,273 and $7,787 of non-cash, stock-based compensation expense, respectively.


Operating Loss

Our operating loss was $846,757 for the three months ended June 30, 2014 as compared to $858,026 for the comparable period in 2013, a decrease of $11,269 or 1.3%. Although our overall revenue was down from the same quarter in the previous year, solely because of the loss of grant revenue, we were able to offset the lost margin through continued increase in products revenue and by control of our operating costs.

Other Income (Expense), Net

Interest (Expense) Income

Interest expense totaled $341,649 for the three months ended June 30, 2014 as compared to interest expense of $63,110 for the three months ended June 30, 2013. We recorded $24,551 of accrued interest and $317,098 of amortized debt discount for the three months ended June 30, 2014 related to a series of convertible notes.

Change in fair value of warrant derivative liability

During the three months ended June 30, 2014, we recorded non-cash income of $188,898 for warrant revaluation income in our consolidated statements of operations due to a decrease in the fair value of the warrant liability related to warrants issued in our Series D private placement. This decrease in fair value was primarily due to the decrease in price of the Company's common stock at June 30, 2014 as compared to the price on March 31, 2014. 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 June 30, 2014, we recorded a non-cash income of $396,321 for conversion option revaluation income in our condensed consolidated statements of operations due to a decrease in the fair value of the conversion option liability related to convertible debt. This decrease in fair value was primarily due to the decrease in price of the Company's common stock on June 30, 2014 as compared to the price on March 31, 2014. 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

Other Expense

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. The components for determining the fair value of the warrant liability and can be found in Note 3 of these condensed consolidated financial statements.

Net Loss Applicable to Common Shareholders

During the three months ended June 30, 2014, we recorded a net loss to common shareholders of $720,789 or $(0.05) per share, as compared to a net loss to common shareholders of $1,173,912 or $(0.10) per share in the three months ended June 30, 2013. The decrease in net loss to common shareholders is primarily due to the gain from the fair value of derivative liabilities in the current period vs. other expense of $208,708 in the period ended June 30, 2013. The number of outstanding shares of common stock increased primarily from the issuance of shares of common stock upon conversion of Convertible Preferred Stock. 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, 2014 and 2013

Revenue

We recognized total revenue of $711,611 for the six months ended June 30, 2014 as compared to $728,474 during the six months ended June 30, 2013, a decrease of $16,863 or 2%. This decrease is due solely to the loss of $310,382 in grant revenue offset by a 70% increase in products and services revenue as noted below.

Products, Services, Other. Revenue from the sale of products and services was $711,611 for the six months ended June 30, 2014 as compared to $418,092 during the six months ended June 30, 2013, an increase of $293,519 or 70%. The revenue increase included sales of both PCT and CS products. Sales of consumables increased by $49,771 or 93% to $103,029 compared to $53,258 for the prior year period.

Grant Revenue. During the six months ended June 30, 2014, we did not record any grant revenue compared to $310,382 in the six months ended June 30, 2013. We completed the 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 in the third quarter of 2013 and have not received any grants to replace them at this time. We are actively pursuing additional grants.


Cost of Products and Services

The cost of products and services was $312,059 for the six months ended June 30, 2014 compared to $188,373 for the comparable period in 2013. Our gross profit margin on products and services was 56% and 55% for the six months ended June 30, 2014 and June 30, 2013 respectively.

Research and Development

Research and development expenditures were $484,326 for the six months ended June 30, 2014 as compared to $506,866 in the same period in 2013, a decrease of $22,540 or 4%.

Research and development expense recognized in the six months ended June 30, 2014 and 2013 included $17,854 and $5,503 of non-cash, stock-based compensation expense, respectively.

Selling and Marketing

Selling and marketing expenses decreased to $367,414 for the six months ended June 30, 2014 from $382,292 for the comparable period in 2013, a decrease of $14,878 or 4%. This decrease was primarily due to employee related savings from a smaller part time headcount offset by tradeshow and travel related expenses.

During the six months ended June 30, 2014 and 2013, selling and marketing expense included $11,905 and $4,192 of non-cash, stock-based compensation expense, respectively.

General and Administrative

General and administrative costs totaled $1,176,935 for the six months ended June 30, 2014 as compared to $1,233,992 for the comparable period in 2013, a decrease of $57,057 or 5%. Salaries and temporary help expenses are both down in the current year compared to the prior year period.

During the six months ended June 30, 2014 and 2013, general and administrative expense included $10,625 and $18,322 of non-cash, stock-based compensation expense, respectively.

Operating Loss

Our operating loss was $1,629,123 for the six months ended June 30, 2014 as compared to $1,583,049 for the comparable period in 2013, an increase of $46,074 or 3%. The increased operating loss resulted primarily from the loss of grant revenues which typically are realized with existing staff and do not require significant incremental expenditures.

Other Income (Expense), Net

Interest (Expense) Income

Interest expense totaled $478,313 for the six months ended June 30, 2014 as compared to interest expense of $72,013 for the six months ended June 30, 2013. We recorded $58,121 of interest expense for the six months ended June 30, 2013 related to our convertible loans and promissory note. For the six month period ended June 30, 2014, we also amortized approximately $419,280 of imputed interest against the debt discount on these loans relating to warrants issued, conversion options liabilities and fees incurred in conjunction with these loans.

Change in fair value of warrant derivative liability

During the six months ended June 30, 2014, we recorded non-cash expense of $306,950 for warrant revaluation income 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 June 30, 2014 as compared to the price on December 31, 2013. $330,405 of the warrant liability was reclassified to equity when the underlying warrants were exercised and no longer required revaluation. 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 six months ended June 30, 2014, we recorded a non-cash income of $51,544 for conversion option revaluation income in our condensed consolidated statements of operations due to a decrease in the fair value of the conversion option liability related to convertible debt. This decrease in fair value was primarily due to the decrease in price of the Company's common stock on June 30, 2014 as compared to the price on December 31, 2013. $320,338 of the conversion option liability was reclassified to equity when the underlying convertible debt was paid off and no longer required revaluation. 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.

Other Expense

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. The components for determining the fair value of the warrant liability and can be found in Note 3 of these condensed consolidated financial statements

Net Loss Applicable to Common Shareholders

During the six months ended June 30, 2014, we recorded a net loss to common shareholders of $3,805,497 or $(0.30) per share, as compared to a net loss to common shareholders of $2,568,002 or $(0.22) per share in the six months ended June 30, 2013. The increase in net loss per share is primarily due to the change in fair value of derivatives and amortization of derivatives related to our debt. We recorded a deemed dividend of $1,388,062 in connection with the Series K Convertible Preferred Stock in 2014 compared to a deemed dividend of $651,182 in connection with the Series J Convertible Preferred Stock in 2013. These losses were somewhat 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. 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, 2014, 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 subsequent to June 30, 2014, described in Note 6, we believe our current cash resources 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, 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, 2014 was $1,756,476 as compared to $1,316,584 for the six months ended June 30, 2013. The increase in cash used in operations in 2014 as compared to 2013 is principally due to an increase in the loss from operations and an increase in inventory.

Cash used in investing activities for the six months ended June 30, 2014 and 2013 was not significant.

Net cash provided by financing activities for the six months ended June 30, 2014 was $1,741,567 as compared to $1,430,317 for the same period in the prior year. The cash from financing activities in the period ending June 30, 2014 includes $420,000 from convertible debt, net of fees and original note discounts, $1,476,360 in proceeds, net of $8,000 in legal fees, from our Series K Convertible Preferred Stock offering and $149,154 from the exercise of warrants. We also received $146,250 in a one year note, net of $3,750 in fees, on June 6, 2014.


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