UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
¨
For the fiscal year ended December 31, 2011 or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ___________________ to _______________________
Commission file number 000-21615
PRESSURE BIOSCIENCES, INC.
(Exact Name of Registrant as Specified in its Charter)
Massachusetts
(State or Other Jurisdiction of Incorporation or Organization)
14 Norfolk Avenue
South Easton, Massachusetts
(Address of Principal Executive Offices)
(508) 230-1828
(Registrant’s Telephone Number, Including Area Code)
04-2652826
(I.R.S. Employer Identification No.)
02375
( Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, par value $.01 per share
Preferred Share Purchase Rights
The Nasdaq Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No x
(Title of Class)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that registrant was required to submit and post such files.
Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company x
(Do not check if smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2011 was
$2,609,837 based on the closing price of the common stock as quoted on the NASDAQ Capital Market on that date.
As of February 15, 2012, there were 7,974,321 shares of the registrant’s common stock outstanding.
N/A.
Documents Incorporated by Reference
TABLE OF CONTENTS
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operation
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
PART III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Directors Independence
Item 14.
Principal Accounting Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
PART IV
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Throughout this Annual Report on Form 10-K, the terms “we,” “us,” “our,” “the Company” and “our company” refer to Pressure
BioSciences, Inc., a Massachusetts corporation, and, unless the context indicates otherwise, also includes our wholly-owned subsidiary.
Introductory Comment
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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:
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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 until April 2012;
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 pressure cycling technology (“PCT”) operations;
our belief that PCT has achieved initial market acceptance in the mass spectrometry market;
the expected increase in number of PCT units installed and the increase in revenues from the sale of consumable products and
extended service contracts;
the expected development and success of new product offerings;
the potential applications for PCT;
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 sample extraction and for other applications;
the capabilities and benefits of our PCT sample preparation system and consumable products;
our belief that laboratory scientists will achieve results comparable to those reported to date by certain research scientists who have
published or presented publicly on PCT;
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.
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 Annual Report on Form 10-K. 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 Annual
Report on Form 10-K 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 results include those
discussed in the risk factors set forth in Part I, Item 1A of this Annual Report on Form 10-K as well as those discussed elsewhere in this
Report. We qualify all of our forward-looking statements by these cautionary statements.
ITEM 1.
BUSINESS.
Throughout this document we use the following terms: Barocycler®, PULSE®, and BioSeq®, which are registered trademarks of the
Company. We also use the terms ProteoSolveTM, ProteoSolveLRS
trademarks of the Company.
TM, the Power of PCT TM, the PCT ShredderTM, all of which are unregistered
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 (35,000 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 DNA, RNA, proteins, lipids, and small molecules. Our laboratory instrument, the Barocycler®, and our internally developed
consumables product line, including PULSE (Pressure Used to Lyse Samples for Extraction) Tubes, other processing tubes, and application
specific kits (which include consumable products and reagents) together make up our PCT Sample Preparation System, or PCT SPS.
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;
-Biological sample preparation, which includes sample preparation for genomic, proteomic, lipidomic,
metabolomic, and small molecule studies;
-pathogen inactivation;
-protein purification;
-control of chemical (particularly enzymatic) reactions; and
-immunodiagnostics (clinical laboratory testing).
Within the broad field of biological sample preparation, we focus the majority of our product development efforts in three specific areas:
mass spectrometry, forensics, and histology.
· Mass Spectrometry. A mass spectrometer is a laboratory instrument used in the analysis of biological samples in life sciences
research. We believe that mass spectrometry is a multi-billion dollar market, and that PCT offers significant advantages in
speed and quality compared to current techniques used in the preparation of samples for mass spectrometry analysis.
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Forensics. The detection of DNA has become a part of the analysis of forensic samples by laboratories and criminal justice
agencies worldwide in their efforts to identify the perpetrators of violent crimes and missing persons. Scientists from the
University of North Texas and Florida International University have reported improvements in DNA yield from forensic
samples (e.g., bone, hair) using PCT in the sample preparation process. We believe that PCT may be capable of differentially
extracting DNA from sperm and (female) epithelial cells in swabs collected from rape victims and stored in rape kits. We also
believe that there are many completed but untested rape kits that remain untested for reasons such as cost, time, and quality of
results. We further believe that the ability to differentially extract DNA from sperm and not epithelial cells could reduce the
cost of such testing, while increasing quality, safety, and speed.
· Histology. The most commonly used technique worldwide for the preservation of cancer and other tissues for subsequent
pathology evaluation is formalin-fixation followed by paraffin-embedding
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(“FFPE”). We believe that the quality and analysis of FFPE tissues is highly problematic, and that PCT offers significant
advantages over current processing methods, including standardization, speed, biomolecule recovery, and safety.
Since we began operations as Pressure BioSciences in February 2005, we have installed 209 Barocycler instruments through the end of
December 31, 2011, of which 132 have been purchased or are currently being leased by our customers. Our customers include researchers at
academic laboratories, government agencies, biotechnology, pharmaceutical and other life sciences companies in the United States, and
distribution partners in foreign countries.
Units installed in
year
2005
5
2006
8
2007
20
2008
41
2009
54
2010
50
2011
31
We have experienced negative cash flows from operations with respect to our pressure cycling technology business since our inception.
As of December 31, 2011, we did not have adequate working capital resources to satisfy our current liabilities. Based on our current
projections, including equity financing subsequent to December 31, 2011, we believe our current cash resources will enable us to extend our
cash resources until April 2012.
As a result, the audit report issued by our independent registered public accounting firm on our audited financial statements for the fiscal
year ended December 31, 2011 contains an explanatory paragraph regarding our ability to continue as a going concern. The audit report
issued by our independent registered public accounting firm for our financial statements for the fiscal year ended December 31, 2011 states
that our auditing firm has substantial doubt in our ability to continue as a going concern due to the risk that we may not have sufficient cash
and liquid assets at December 31, 2011 to cover our operating and capital requirements for the next twelve-month period; and if sufficient
cash cannot be obtained, we would have to substantially alter, or possibly even discontinue, operations. The accompanying financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Such an opinion from our independent registered accounting firm could adversely affect our ability to obtain additional financing on
favorable terms, if at all, as such an opinion may cause investors to have reservations about our long-term prospects, and may adversely
affect our relationships with customers. There can be no assurance that our auditing firm will not qualify its opinion in the future. If we
cannot successfully continue as a going concern, our stockholders may lose their entire investment in us.
Management has developed a plan to continue operations. This plan includes further reductions in expenses and obtaining equity or debt
financing including our most recently completed financing in February 2012, in which we sold units consisting of shares of restricted
common stock and warrants to purchase shares of common stock for net aggregate proceeds of approximately $765,000, which included the
conversion of $387,547 in principal and accrued interest from convertible promissory notes. Although we have successfully completed
equity financings and reduced expenses in the past, we cannot assure you that our plans to address these matters in the future will be
successful. Additional financing may not be available to us on a timely basis, if at all, or on terms acceptable to us. In the event we are
unable to raise sufficient funds on terms acceptable to us, we may be required to:
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severely limit or cease our operations or otherwise reduce planned expenditures and forego other business opportunities,
which could harm our business. The accompanying financial statements do not include adjustments that may be required in
the event of the disposal of assets or the discontinuation of the business;
obtain financing with terms that may have the effect of diluting or adversely affecting the holdings or the rights of the holders
of our capital stock; or
obtain funds through arrangements with future collaboration partners or others that may require us to relinquish rights to some
or all of our technologies or products.
Developments
Despite the uncertainty in the capital markets since 2009 and the concomitant decrease in the capital budgets of our existing and
prospective customers and despite our limited financial resources during this time, we reported a number of accomplishments during 2011,
including the following:
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2011
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Sale of Series C Convertible Preferred Stock in a Private Placement. We received approximately $1.1 million from the
sale of securities in a private placement to accredited investors in April and June.
Worldwide e-Commerce Distribution Deal Signed. We signed a worldwide, non-exclusive agreement with KeraFAST
LLC for the e-commerce distribution of our Shredder SG3, related Shredder consumables, our IEF buffer.
Product Pipeline for 2011 – 2013 Announced. We announced our targeted schedule for the release of four new PCT-
based products: the Barocycler HUB440 (released in July 2011), the FFPE Extraction Service (Q4 of 2012), the
XstreamPCT HPLC Digestion Module (Q4 of 2013), and the High Throughput Multi-well System (Q4 2013).
Multiple Presentations on the Advantages of PCT at National and International Meetings. Researchers from academia,
government, pharma, and the biotechnology industry reported advantages when using our PCT Platform in their sample
preparation processes at four scientific conferences between May and December 2011.
100% Conversion of Series A Convertible Preferred Stock and Series B Convertible Preferred Stock. All 87 holders of
our Series A Convertible Preferred Stock and Series B Convertible Preferred Stock voluntarily converted their shares into
our common stock.
We Were Awarded $810,000 in National Institutes of Health and Department of Defense Grants. We were awarded
approximately $160,000 from the National Institutes of Health to help fund the development of a high pressure-based
system to improve the processing of cancer and other samples, and approximately $650,000 from the Department of
Defense to help fund the development of a PCT-based system to improve the processing of pathogenic organisms,
specifically viruses and bacteria.
Co-Marketing/Selling and Research and Development Agreement with Digilab Inc.(“Digilab”) Under this agreement
with Digilab, a provider of products for life sciences, analytical chemistry and diagnostics markets, we intend to co-
market and sell our respective product lines worldwide, including in industry publications, at scientific meetings, on each
company’s website, through common collaborator studies, at key industry trade shows, and in visits to customer sites. We
also intend to explore ways to co-develop new instrumentation, accessories/modules for existing instrumentation, and
consumables that combine the robotics and high throughput capabilities of Digilab products with the extraction, protein
digestion, and other advantages of our PCT platform.
Registered Direct Offering with Net Proceeds of Approximately $843,000. We raised approximately $843,000 through
the sale of Series D Convertible Preferred Stock and warrants to purchase shares of our common stock in a registered
direct offering.
Second half of 2011 Results. We reported an approximate 65% increase in total revenue for the second half of 2011
compared to the first half of 2011, with concomitant reductions in operating loss and cash burn.
In February 2012, we raised an aggregate of $800,000 in a private placement of units consisting of a total of 971,867 shares of restricted
common stock and 485,937 warrants to purchase restricted common stock. Seven current investors, including our President and Chief
Executive Officer, our Chairman of the Board of Directors, and two investors from our November 2011 registered direct offering,
participated in the private placement. The price per unit was $0.8025 for units consisting of 789,350 shares and 394,677 warrants, and was
$0.9125 for units consisting of the remaining 182,517 shares and 91,260 warrants. Of the $800,000 invested in the private placement,
$412,453 was received in cash and $387,547 was from the conversion of outstanding principal and interest on convertible promissory notes
we issued in 2011.
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Corporate Information
We were incorporated in the Commonwealth of Massachusetts in August 1978 as Boston Biomedica, Inc. In September 2004, we
completed the sale of the Boston Biomedica core business units and began to focus exclusively on the development and commercialization
of the PCT platform. Following this change in business strategy, we changed our legal name from Boston Biomedica, Inc. to Pressure
BioSciences, Inc., or PBI, and commenced operations as Pressure BioSciences in February 2005.
Available Information
Our Internet website address is http://www.pressurebiosciences.com. Through our website, we make available, free of charge, reports we
file with the Securities and Exchange Commission (“SEC”) including our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the SEC. These SEC reports can be accessed through the investor relations section of our website. The information
found on our website is not part of this or any other report we file with or furnish to the SEC.
You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC
20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains an Internet website that contains reports, proxy and information statements, and other information regarding Pressure BioSciences
and other issuers that file electronically with the SEC. The SEC’s Internet website address is http://www.sec.gov.
Sample Preparation for Genomic, Proteomic, and Small Molecule Studies
The Market
Since February 2005, we have focused substantially all of our research and development and commercialization efforts on sample
preparation for genomic, proteomic, and small molecule studies. This market is comprised of academic and government research institutions,
biotechnology and pharmaceutical companies, and other public and private laboratories that are engaged in studying genomic, proteomic and
small molecule material within plant and animal cells and tissues.
We elected to initially focus our resources in the market of genomic, proteomic, and small molecule sample preparation because we
believe it is an area that:
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is a rapidly growing market;
has a large and immediate need for better technology;
is comprised mostly of research laboratories, which are subject to minimal governmental regulation;
is the least technically challenging application for the development of our products;
is compatible with our technical core competency; and
is the area in which we currently have strong patent protection.
We believe that our existing Barocycler instrumentation, and PCT consumable products fill an important and growing need in the
sample preparation market for the safe, rapid, versatile, reproducible, and quality extraction of nucleic acids, proteins, and small molecules
from a wide variety of plant and animal cells and tissues.
Mass Spectrometry
Mass spectrometry is frequently used by research scientists to evaluate proteins and nucleic acids (DNA and RNA). We believe that
mass spectrometry is one of the most powerful laboratory tools used today and that it is playing an increasingly important role in the analysis
of biological samples in life sciences research. A number of companies and research laboratories in this market are currently our customers,
or are in the process of evaluating our technology for use in their laboratories.
Our plan is to focus primarily on the application of PCT-enhanced protein digestion for the mass spectrometry market and the
advantages of PCT in this market, and the use of PCT in biomarker discovery, soil and plant biology, counter bio-terror and tissue pathology
applications.
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Forensics
The detection of DNA has become a part of the analysis of forensic samples by laboratories and criminal justice agencies worldwide in
their efforts to identify the perpetrators of violent crimes and missing persons. Scientists from the University of North Texas and Florida
International University have reported improvements in DNA yield from forensic samples (e.g., bone, hair) using PCT in the sample
preparation process. We believe that PCT may be capable of differentially extracting DNA from sperm and (female) epithelial cells in
swabs collected from rape victims and stored in rape kits. We also believe that there are many completed but untested rape kits that remain
untested for reasons such as cost, time, and quality of results. We further believe that the ability to differentially extract DNA from sperm
and not epithelial cells could reduce the cost of such testing, while increasing quality, safety, and speed.
Histology
The most commonly used technique worldwide for the preservation of cancer and other tissues for subsequent pathology evaluation is
formalin-fixation followed by paraffin-embedding, or FFPE. We believe that the quality and analysis of FFPE tissues is highly problematic,
and that PCT offers significant advantages over current processing methods, including standardization, speed, biomolecule recovery, and
safety.
Sample Extraction Process
The process of preparing samples for genomic, proteomic, and small molecule studies includes a crucial step called sample extraction, or
sample disruption. This is the process of extracting nucleic acid (DNA and/or RNA), proteins, or small molecules from the plant or animal
cells and tissues that are being studied. Sample preparation is widely regarded as a significant impediment to research and discovery, and
sample extraction is generally regarded as the key part of sample preparation. Our current commercialization efforts are based upon our
belief that pressure cycling technology provides a superior solution to sample extraction compared to other available technologies or
procedures, and can thus significantly improve the quality of sample preparation.
Collaboration Program
Our collaboration program is an important element of our business strategy. Initiating a collaboration with a researcher involves the
installation of a Barocycler instrument for an agreed upon period of time, generally three to six months, and the execution of an agreed upon
work plan. Our primary objectives for entering into a collaboration agreement include:
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the development of a new application for PCT in sample preparation;
the advancement and validation of our understanding of PCT within an area of life sciences in which we already have
products;
the demonstration of the effectiveness of PCT to specific research scientists who we believe can have a positive impact on
market acceptance of PCT; and
the expectation of peer-reviewed publications and/or presentations at scientific meetings by a third party on the merits of
PCT.
Since we initiated our collaboration program in June 2005, third party researchers have cited the use of our PCT platform in publications
and presentations. We believe that this program has provided, and continues to provide us with independent and objective data about PCT
from well-respected laboratories throughout the United States.
Company Products
We believe our PCT products allow researchers to improve scientific research studies in the life sciences field. Our products are
developed with the expectation of meeting or exceeding the needs of research scientists while enhancing the safety, speed, and quality that is
available to them with existing sample preparation technology.
Barocycler Instrumentation
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Our Barocycler product line consists of laboratory instrumentation that subjects a sample to cycles of pressure from ambient to ultra-high
levels and then back to ambient, all in a precisely controlled manner. Our instruments, the Barocycler NEP3229 and Barocycler NEP2320,
use cycles of high hydrostatic pressure to quickly and efficiently break up the cellular structures of a specimen to release nucleic acids,
proteins, lipids and small molecules from the specimen into our consumable processing tube, referred to as our PULSE Tubes. Our
Barocycler instrumentation is designed to fit on a laboratory bench top, inside a biological safety cabinet, or on the shelf of a laboratory cold
room. Our instruments have an external chiller hook-up (to control temperature during the PCT process), automatic fill and dispensing
valves, and an integrated micro-processor keypad. The microprocessor is capable of saving up to 99 specific PCT protocols, so the
researcher can achieve maximum reproducibility for the extraction of nucleic acids, proteins, lipids, or small molecules from various
biological samples. Our Barocycler instruments, together with our consumable products described below, make up our current PCT Sample
Preparation System (“PCT SPS”).
Barocycler NEP3229 – The Barocycler NEP3229 contains two units, a user interface and a power source, comprised primarily of a 1.5
horsepower motor and pump assembly (hydraulic). Combined, the two components of the NEP3229 weigh approximately 350 pounds. The
Barocycler NEP3229 is capable of processing up to three samples simultaneously using our specially designed, single-use PULSE Tubes.
Barocycler NEP2320 – The Barocycler NEP2320 is a smaller and more compact version of our NEP3229 unit. It weighs approximately
80 pounds (with accessories), processes one sample at a time, and works on compressed air (pneumatic) and not hydraulics like the larger
NEP3229 unit. Because this instrument is pneumatic, the NEP2320 can be easily attached by an air hose to a typical 85 psi air compressor
found in most scientific laboratories to many consumer-sold portable compressors, or even to bottled gas. This instrument is used by our
sales directors as a demonstration instrument and is marketed as a second instrument alternative to our PCT SPS.
Barocycler HUB440 – The Barocycler HUB440, introduced in 2011, is capable of creating and controlling hydrostatic pressure from 35
Bar (500 psi) up to 4,000 Bar (58,000 psi). The Barocycler HUB440 is the first portable, ready to use pressure generator for the laboratory
bench.
PCT MicroTube Adapter Kit – The PCT MicroTube Adapter Kit includes an ergonomically designed, space-saving Workstation, PCT
MicroTubes and MicroCaps, and specialized tools to enable the user to process up to forty-eight samples simultaneously in our PCT SPS, as
compared to three with the Barocycler NEP3229.
The PCT Shredder – The patent-pending PCT Shredder is designed to help research scientists safely, rapidly, and conveniently disrupt
very tough samples, such as ticks, muscle, and seeds, that require homogenization prior to PCT or other sample preparation methods. The
PCT Shredder uses a similar PULSE Tube as the PCT SPS, and allows scientists to homogenize tough samples prior to extraction with the
PCT SPS, but without the need to transfer the sample into a second processing container between steps.
The Shredder SG3 –The Shredder SG3 is a low shear mechanical homogenization system for use with tough, fibrous and other difficult-
to-disrupt tissues and organisms. The Shredder SG3 uses a variety of Shredder PULSE Tubes to directly and rapidly grind a biological
sample which, when combined with selected buffers, can provide effective extraction of proteins, DNA, RNA, lipids and small molecules
from tissues and organisms. The Shredder SG3 is similar in function to The PCT Shredder, but features a three position force setting lever,
which enables the operator to select and apply reproducible force to the sample during the shredding process and eliminates the need for the
operator to exert force for long periods when processing one or more samples.
Consumable Products
PULSE Tubes (FT500) – The FT500 PULSE Tube is a specially-designed, plastic, single-use, processing container with two chambers
separated by a small disk with small holes. This small disk is referred to as a Lysis Disk. PULSE Tubes transmit the power of PCT from the
Barocycler instrument to the sample. In sample extraction, the specimen is placed on the Lysis Disk, buffers are added to the PULSE tube,
the PULSE Tube is capped and placed in the pressure chamber of the Barocycler instrument, pressure chamber fluid is added, and
pressurization begins. As pressure increases, a small moveable piston pushes the specimen from the top (sample) chamber, through the Lysis
Disk and into the bottom (fluid retention) chamber. When pressure is released, the sample (now partially homogenized) is pulled back
through the Lysis Disk by the receding ram. The combination of physical passage through the Lysis Disk, rapid pressure changes, and other
biophysical mechanisms related to cycled pressure break
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up the cellular structures of the specimen to quickly and efficiently release nucleic acids, proteins, lipids, and small molecules.
Non-Disk PULSE Tubes (FT500-ND) – The FT500-ND PULSE Tube is a specially-designed, plastic, single-use, processing container
with one chamber separated by a small disk with small holes. The FT500-ND is similar to the FT500 in look and feel, except there is no Lysis
Disk separating the body of the processing container into two chambers, as in the FT500. The design change was based on market demand
for a new PCT consumable for the rapid and reproducible processing of solutions and suspensions that do not require partial homogenization
by passage through a Lysis Disk, and for a consumable that could accept smaller sample volumes. The FT500-ND offers variable sample
volumes with a range five times that of the existing FT500.
ProteoSolve - SB – (ProteoSolve for Systems Biology) is a PCT-dependent method for the simultaneous extraction, isolation, and
fractionation of nucleic acids (DNA and RNA), proteins, and lipids from animal and plant samples routinely used in laboratory research. This
patent-pending kit contains proprietary reagents, consumable processing containers (PULSE Tubes), and instructions for use, and is intended
to be used with our patented PCT Sample Preparation System. The kit is based on an approach to a "systems biology" sample preparation
method that was first unveiled during early 2008, in collaboration with Dr. Alexander Ivanov of the Harvard School of Public Health.
ProteoSolve - CE – (ProteoSolve for Conventional Extraction) is a PCT-dependent kit for the extraction of proteins from a variety of
samples using optimized detergent-based reagent system compatible with two-dimensional electrophoresis or two-dimensional
chromatographic separation for proteomic analysis. The kit contains the reagents and instructions necessary for the extraction of either
denatured or non-denatured proteins, which can then be used for the analysis of protein structure and function.
Mitochondria Isolation Kits – These kits contain the chemical ingredients necessary for a scientist to extract mitochondria from skeletal
muscle and lung tissue for subsequent analysis. Mitochondria play a major role in generating the energy required to power most cell
processes and are involved in other important cell functions. Mitochondria have been implicated in several human diseases, including heart
disease, stroke, Parkinson's disease, cancer, and other mitochondrial diseases.
We believe our development of these products has helped, and will continue to help, drive the adoption of PCT within the life sciences
market.
Company Services
Government Grants – We view federal agency grants to be an important part of our business plan. These types of grants allow us to bill
the federal agency for work that we are planning to perform as part of the development and commercialization of our technology. We
generally start by submitting initial grant requests that are in response to requests for proposals (“RFPs”) from the federal government
through their Small Business Innovation Research (“SBIR”) program. Initial (“SBIR Phase I”) grants are meant to fund approved research
projects for six months, and generally have budgets of approximately $100,000 to $150,000. Additionally, because our work in SBIR Phase I
grants has been successful, we have applied, and may in the future apply, for larger National Institutes of Health (“NIH”) SBIR Phase II
grants. Such larger grants are typically for a two-year period and are in excess of $750,000 to support significant research projects in areas
we would otherwise expect to support with internal funds should SBIR Phase II grants not be awarded. To date we have been awarded two
NIH SBIR Phase I grants and one SBIR Phase II grant. The data on one of the NIH SBIR Phase I grants was the basis for the submission,
and subsequent award, of the NIH SBIR Phase II grant awarded to us in the approximate amount of $850,000 in August 2008. The Phase II
grant is for work in the area of using PCT to extract protein biomarkers, sub-cellular molecular complexes, and organelles, with the
expectation that these studies will ultimately lead to the release of a new, commercially available PCT-based system, with validated
protocols, end-user kits, and other consumables intended for the extraction of clinically important protein biomarkers, sub-cellular molecular
complexes, and organelles from human and animal tissues. Both of the NIH SBIR Phase I grants have been completed and the NIH SBIR
Phase II grant has been completed.
In March 2010, the U.S. Army Medical Research Acquisition Activity (“USAMRAA”) awarded us an SBIR Phase I grant for
approximately $100,000. We completed the work on the grant in October 2010.
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During the second half of 2011, we commenced work on a new NIH SBIR Phase I grant in the approximate amount of $160,000, and on
a Department of Defense SBIR Phase II grant in the approximate amount of $750,000.
Extended Service Contracts - We offer extended service contracts on our laboratory instrumentation to all of our customers. These
service contracts allow a customer who purchases a Barocycler instrument to receive on-site scheduled preventative maintenance, on-site
repair and replacement of all worn or defective component parts, and telephone support, all at no incremental cost for the life of the service
contract. We offer one-year and four-year extended service contracts to customers who purchase Barocycler instruments.
Other Applications of Pressure Cycling Technology
PCT is an enabling, platform technology based on a physical process that had not previously been used to control bio-molecular
interactions. During its early development, under the legacy business of Boston Biomedica, Inc., our scientists were researching and
developing applications of pressure cycling technology in many areas of the life sciences, including genomic, proteomic, and small molecule
sample preparation. The data generated during these early years, combined with the data generated since we began focusing on PCT
operations in February 2005, form the basis of knowledge that we believe will allow us to successfully commercialize PCT both within and
outside of the sample preparation market.
Our research and development efforts have shown that, in addition to genomic, proteomic and small molecule sample preparation, PCT
is potentially beneficial in a number of other areas of the life sciences, including pathogen inactivation, protein purification, control of
chemical (particularly enzymatic) reactions, and immunodiagnostics. Other applications in the sample preparation market, include forensics
and histology, as we discuss above. Our pursuit of these markets, however, depends on a number of factors, including our success in
commercializing PCT in the area of sample preparation, our judgment regarding the investment required to be successful in these areas, the
value of these markets to our company, and the availability of sufficient financial resources. Below is a brief explanation of each of these
additional potential applications and a short description of why we believe PCT can be used to improve scientific studies in these areas.
Pathogen Inactivation
Biological products manufactured for human use, such as blood, vaccines, and drugs, are put through rigorous processing protocols in an
effort to minimize the potential of that product to transmit disease. These protocols may include methods to remove infectious materials
(such as pre-processing testing, filtration, or chromatography), or methods to inactivate infectious materials that are not captured in the
removal steps (such as pasteurization, irradiation, and solvent detergent inactivation). Notwithstanding current diligence in both the removal
and inactivation steps, significant concern remains that some bacteria and viruses capable of transmitting infection to recipients may not be
removed or inactivated with current procedures. In addition, some removal and inactivation methods may not be useful because of cost,
safety, ease-of-use, or other practical concerns. To that end, we believe that a new inactivation method is needed that can safely, rapidly and
inexpensively inactivate pathogens in blood, vaccines, and drugs without the need for chemical or other potentially toxic additives. We
believe we have successfully generated proof-of-concept that PCT can satisfy this need. We believe that compared to current procedures, a
process that uses PCT has the potential to increase safety and yield, lower cost, and decrease the potential side effects of current methods.
We have been issued US, European, and Japanese patents for this PCT-dependent inactivation technology.
Protein Purification
Many vaccines and drugs are comprised of proteins. These proteins need to be purified from complex mixtures as part of the
manufacturing process. Current purification techniques often result in the loss of a significant amount of the protein. Therefore, any method
that could increase the amount of protein being recovered in the purification step, could subsequently lead to a reduction in cost to the
manufacturer. We believe we have successfully generated proof-of-concept that PCT can satisfy this need. We believe that compared to
current purification procedures, a process that uses PCT has the potential to increase protein recovery, increase the quality of the product,
and lower production costs. We have been issued U.S. and European patents in this area.
Control of Chemical (Particularly Enzymatic) Reactions
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Chemical reactions encompass many important interactions in nature. Methods used to control chemical reactions could have a positive
effect on the quality, speed, and overall result of the reaction. The control and detection of chemical reactions is particularly useful in the
biotechnology field for synthesizing and characterizing such molecules as nucleic acids and polypeptides. We believe that PCT offers
distinct advantages in controlling chemical reactions over current methods, since PCT can provide precise, automated control over the timing
and synchronization of chemical reactions, particularly enzymatic reactions. We have been issued U.S. and European patents in this area.
Immunodiagnostics
Many tests used in the clinical laboratory today are based on the formation of a complex between two proteins, such as an antigen and an
antibody. Such “immunodiagnostic” methods are used for the detection of infectious agents (such as HIV, hepatitis viruses, and West Nile
virus), as well as for endocrine, drug testing, and cancer diagnostics. We have generated proof-of-concept that PCT may be used to control
bio-molecular interactions between proteins, such as antigens and antibodies. We believe this capability may provide a greater degree of
sensitivity and quantitative accuracy in immunodiagnostic testing than that offered by methods that are available today. We have been issued
U.S. and European patents in this area.
Customers
Our customers include researchers at academic laboratories, government agencies, and biotechnology, pharmaceutical, and other life
science companies in the United States. Our customers also include three foreign distribution partners. Our goal is to continue our market
penetration in these target groups and releasing products in our publicized product pipeline. We also believe that there is a significant
opportunity to sell and/or lease additional Barocycler instrumentation to additional laboratories at current customer institutions.
If we are successful in commercializing PCT in applications beyond our current focus area of genomic, proteomic, and small molecule
sample preparation, and if we are successful in our attempts to attract additional capital, our potential customer base could expand to include
hospitals, reference laboratories, blood banks and transfusion centers, plasma collection centers, pharmaceutical manufacturing plants, and
other sites involved in each specific application. If we are successful in forensics, our potential customers could be laboratories, military, and
other government agencies. If we are successful in histology, our potential customers could be pharmaceutical companies, hospitals, and
laboratories focused on drug discovery or correlation of disease states.
Competition
We compete with companies that have existing technologies for the extraction of nucleic acids, proteins, and small molecules from cells
and tissues, including methods such as mortar and pestle grinding, sonication, rotor-stator homogenization, French Press, bead beating,
freezer milling, enzymatic digestion, and chemical dissolution. We believe that there are a number of significant issues related to the use of
these methods, including: complexity, sample containment, cross-contamination, shearing of bio-molecules of interest, limited applicability
to different sample types, ease-of-use, reproducibility, and cost. We believe that our PCT Sample Preparation System offers a number of
significant advantages over these methods, including labor reduction, temperature control, precision, reproducibility, versatility, efficiency,
simplicity, and safety. To compete, we must be able to clearly and conclusively demonstrate to potential customers that our products provide
these improved performance capabilities.
We believe that our PCT Sample Preparation System is a novel and enabling system for genomic, proteomic, and small molecule sample
preparation. As such, many users of current manual techniques will need to be willing to challenge their existing methods of sample
preparation and invest time to evaluate a method that could change their overall workflow in the sample preparation process, prior to
adopting our technology. We are also aware that the cost of the PCT Sample Preparation System may be greater than the cost of many of the
other techniques currently employed. Consequently, we are focusing our sales efforts on those product attributes that we believe will be most
important and appealing to potential customers, namely versatility, reproducibility, quality, and safety.
Manufacturing and Supply
Source Scientific, LLC currently provides all of the manufacturing and assembly services for our instrumentation products under an
informal, unwritten understanding. We plan to continue to utilize Source
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Scientific, LLC as our primary assembler and contract manufacturer of our current, and future, Barocycler instruments. Until we
develop a broader network of manufacturers and subcontractors, obtaining alternative sources of supply or manufacturing services could
involve significant delays and other costs and challenges, and may not be available to us on reasonable terms, if at all. The failure of a
supplier or contract manufacturer to provide sufficient quantities, acceptable quality and timely products at an acceptable price, or an
interruption of supplies from such a supplier could harm our business and prospects.
Research and Development
Our research and development activities are split into two functional areas, applications and engineering.
Applications Research and Development
Our highly educated and trained staff has years of experience in molecular and cellular biology, virology, and proteomics. Our team of
scientists focuses on the development of our PCT Sample Preparation System and further commercialization of PCT-dependent genomic,
proteomic, and small molecule sample preparation methods. Dr. Alexander Lazarev, our Vice President of Research & Development, meets
regularly with our sales, marketing, and engineering staff to discuss market needs and trends. Our applications research and development
team is responsible for the technical review of all scientific collaborations, for the support of our marketing and sales departments through
the generation of internal data in a number of areas of market interest, and in the development of commercially-viable PCT-dependent
products.
Engineering Research and Development
Our engineering research and development team is focused on the design and development of new and improved instrumentation and
consumable products to support the commercialization of PCT. Our engineering department is led by Dr. Edmund Ting, our Senior Vice
President of Engineering. The primary focus of our engineering group is to ensure seamless production processes, perform installations and
field service, and work with our application scientists to complete the development of a high throughput sample processing system for the
mass spectrometry market.
Product Pipeline
The following instruments are in our 2012-2013 research and development pipeline:
·
·
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Barocycler FFPE Protein Extraction Service - A service offering the enhanced extraction of proteins from formalin-
fixed, paraffin-embedded (FFPE) samples using a modified Barocycler instrument that combines the advantages of
pressure cycling, high temperature, and certain reagents. Estimated release: Fourth Quarter of 2012.
XstreamPCT™ HPLC Digestion Module - For automated, in-line, on-demand PCT-enhanced protein digestion; the first
module in PBI's PCT-based HPLC platform. Estimated release: Fourth Quarter of 2013.
Barocycler HT Multiwell (48-384) - For high throughput, PCT-enhanced biomolecule extraction/accelerated enzymatic
digestion; process 48 - 384 samples. Estimated release: Fourth Quarter of 2013.
Sales and Marketing
Our sales and marketing efforts are centered on using the independent data developed and disseminated by our collaboration partners to
help drive the installed base of our PCT Sample Preparation System. The development of scientific data by our partners and our internal
researchers provides our sales and marketing staff with additional tools that are essential in selling a new technology such as PCT.
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Sales
Direct US Sales Force
Our domestic sales force currently consists of three full-time sales directors. We believe that hiring seasoned sales professionals, with
significant industry experience, will allow us to more effectively penetrate the market with a small, focused sales force. We may increase the
number of sales professionals if our financial resources permit and if we believe that doing so will accelerate our commercialization efforts.
Foreign Distributor Network
Currently we have three distribution arrangements covering Japan, Austria, and Germany. Specifically, in June 2008, we entered into a
distribution agreement with Veritas Corporation (“Veritas”) of Tokyo, Japan pursuant to which we granted Veritas exclusive distribution
rights to all of our products in Japan. This agreement extends through December 31, 2013. In October 2011, we entered into a distribution
agreement with IUL Instruments GmbH (“IUL”) of Germany pursuant to which we granted IUL exclusive distribution rights to all of our
products in Germany through March 31, 2013. In November 2011, we entered into a distributor agreement with Oroboros Instruments Corp.
(“Oroboros”) of Austria pursuant to which we granted Oroboros non-exclusive world-wide distribution rights to the PBI Shredder SG3
System and related products through December 31, 2012.
Marketing
Our marketing function includes Dr. Nathan Lawrence, our Vice President of Marketing. Dr. Lawrence oversees and directs marketing
activities such as trade show attendance and sponsorship, on-line advertising, website maintenance and improvement, search engine
optimization, creation and dissemination of a PCT newsletter, market research initiatives, and the arrangement of on-location seminars,
lectures, and demonstrations of PCT capabilities. Our marketing function is also responsible for the overall coordination of our collaboration
programs, from initial set-up, research plan design, and training, service, and data analysis. Some of these responsibilities are shared with
other PBI departments (such as Research and Development), but marketing drives the collaborative process. Dr. Lawrence is also
responsible for the continued coordination and support of our foreign and domestic distribution partners.
In January 2012, we entered a co-marketing/selling and research and development agreement with Digilab, a provider of products for life
sciences, analytical chemistry and diagnostic markets, under which we intend to co-market and sell our respective product lines worldwide,
including in industry publications, at scientific meetings, on each company’s website, through common collaborator studies, at key industry
trade shows, and in visits to customer sites. We also intend to explore ways to co-develop new instrumentation, accessories/modules for
existing instrumentation, and consumables that combine the robotics and high throughput capabilities of Digilab products with the extraction,
protein digestion, and other advantages of our PCT platform.
Intellectual Property
We believe that protection of our patents and other intellectual property is essential to our business. Subject to the availability of
sufficient financial resources, our practice is to file patent applications to protect technology, inventions, and improvements to inventions that
are important to our business development. We also rely on trade secrets, know-how, and technological innovations to develop and maintain
our potential competitive position. To date, we have been granted 14 United States patents, three European patents, three Australian patents,
two Japanese patents, and two Canadian patents. Our issued patents expire between 2015 and 2027. Our failure to obtain and maintain
adequate patent protection may adversely affect our ability to enter into, or affect the terms of, any arrangement for the marketing or sale of
any of our PCT products. It may also allow our competitors to duplicate our products without our permission and without compensation.
License Agreements Relating to Pressure Cycling Technology
BioMolecular Assays, Inc.
In 1996, we acquired our initial equity interest in BioSeq, Inc., which at the time was developing our original pressure cycling
technology. BioSeq, Inc. acquired its pressure cycling technology from BioMolecular Assays, Inc.
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under a technology transfer and patent assignment agreement. In 1998, we purchased all of the remaining outstanding capital stock of
BioSeq, Inc., and at such time, the technology transfer and patent assignment agreement was amended to require us to pay BioMolecular
Assays, Inc. a 5% royalty on our sales of products or services that incorporate or utilize the original pressure cycling technology that BioSeq,
Inc. acquired from BioMolecular Assays, Inc. We are also required to pay BioMolecular Assays, Inc. 5% of the proceeds from any sale,
transfer or license of all or any portion of the original pressure cycling technology. These payment obligations terminate in 2016. During the
year ended December 31, 2011 and 2010, we incurred approximately $21,090 and $36,330, respectively in royalty expense associated with
our obligation to BioMolecular Assays, Inc.
In connection with our acquisition of BioSeq, Inc., we licensed certain limited rights to the original pressure cycling technology back to
BioMolecular Assays, Inc. This license is non-exclusive and limits the use of the original pressure cycling technology by BioMolecular
Assays, Inc. solely for molecular applications in scientific research and development and in scientific plant research and development.
BioMolecular Assays, Inc. is required to pay us a royalty equal to 20% of any license or other fees and royalties, but not including research
support and similar payments, it receives in connection with any sale, assignment, license or other transfer of any rights granted to
BioMolecular Assays, Inc. under the license. BioMolecular Assays, Inc. must pay us these royalties until the expiration of the patents held
by BioSeq, Inc. in 1998, which we anticipate will be 2016. We have not received any royalty payments from BioMolecular Assays, Inc.
under this license.
Battelle Memorial Institute
In December 2008, we entered into an exclusive patent license agreement with the Battelle Memorial Institute ("Battelle"). The licensed
technology is the subject of a patent application filed by Battelle in 2008 and relates to a method and a system for improving the analysis of
protein samples, including through an automated system utilizing pressure and a pre-selected agent to obtain a digested sample in a
significantly shorter period of time than current methods, while maintaining the integrity of the sample throughout the preparatory process.
In addition to royalty payments on net sales on “licensed products”, we are obligated to make minimum royalty payments for each year that
we retain the rights outlined in the patent license agreement and we are required to have our first commercial sale of the licensed products
within one year following the issuance of the patent covered by the licensed technology. The minimum annual royalty for 2010 was $5,000.
Our only obligation for 2011 was a minimum royalty payment of $7,500.
Regulation
Many of our activities are subject to regulation by governmental authorities within the United States and similar bodies outside of the
United States. The regulatory authorities may govern the collection, testing, manufacturing, safety, efficacy, labeling, storage, record
keeping, transportation, approval, advertising, and promotion of our products, as well as the training of our employees.
All of our commercialization efforts to date are focused in the area of genomic, proteomic, and small molecule sample preparation. We
do not believe that our current Barocycler products used in sample preparation are considered “medical devices” under the United States
Food, Drug and Cosmetic Act (the “Act”) and we do not believe that we are subject to the law’s general control provisions that include
requirements for registration, listing of devices, quality regulations, labeling, and prohibitions against misbranding and adulteration. We also
do not believe that we are subject to regulatory inspection and scrutiny. If, however, we are successful in commercializing PCT in
applications beyond our current focus area of genomic, proteomic, and small molecule sample preparation, such as protein purification,
pathogen inactivation and immunodiagnostics, our products may be considered “medical devices” under the Act, at which point we would be
subject to the law’s general control provisions and regulation by the U.S. Food and Drug Administration (the “FDA”) that include
requirements for registration listing of devices, quality regulations, labeling, and prohibitions against misbranding and adulteration. The
process of obtaining approval to market these devices in the other potential applications of PCT would be costly and time consuming and
could prohibit us from pursuing such markets.
We may also become subject to the European Pressure Equipment Directive, which requires certain pressure equipment meet certain
quality and safety standards. We do not believe that we are currently subject to this directive because our Barocycler instruments are below
the threshold documented in the text of the directive. If our interpretation were to be challenged, we could incur significant costs defending
the challenge, and we could face production and selling delays, all of which could harm our business.
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We self-certified that our Barocycler instrumentation was electromagnetically compatible, or CE, compliant, which means that our
Barocycler instruments meet the essential requirements of the relevant European health, safety and environmental protection legislation. In
order to maintain our CE Marking, a requirement to sell equipment in many countries of the European Union, we are obligated to uphold
certain safety and quality standards.
Employees
At January 31, 2012, we had 13 full-time employees and 3 part-time employees. All employees enter into confidentiality agreements
intended to protect our proprietary information. We believe that our relations with our employees are good. None of our employees are
represented by a labor union. Our performance depends on our ability to attract and retain qualified professional, scientific and technical
staff. The level of competition among employers for skilled personnel is high. Subject to our limited financial resources, we attempt to
maintain employee benefit plans to enhance employee morale, professional commitment and work productivity and provide an incentive for
employees to remain with us.
Executive Officers of the Registrant
The following table sets forth the names, ages and positions of our current executive officers as of February 15, 2012:
Name
Richard T. Schumacher
Edmund Ting, Ph.D.
Nathan P. Lawrence, Ph.D.
Alexander Lazarev, Ph.D.
Joseph L. Damasio, Jr.
Age
61
57
57
47
37
Position
President, Chief Executive Officer, Chief Financial Officer,
Treasurer, Secretary and Director
Senior Vice President of Engineering
Vice President of Marketing
Vice President of Research and Development
Vice President of Finance and Administration
Set forth below is biographical information for each of our executive officers.
Mr. Richard T. Schumacher , the founder of the Company, has served as a director of the Company since 1978. He has served as the
Company’s Chief Executive Officer since April 16, 2004 and President since September 14, 2004. He previously served as Chief Executive
Officer and Chairman of the Board of the Company from 1992 to February 2003. From July 9, 2003 until April 14, 2004 he served as a
consultant to the Company pursuant to a consulting agreement. He served as President of the Company from 1986 to August 1999. Mr.
Schumacher served as the Director of Infectious Disease Services for Clinical Sciences Laboratory, a New England-based medical reference
laboratory, from 1986 to 1988. From 1972 to 1985, Mr. Schumacher was employed by the Center for Blood Research, a nonprofit medical
research institute associated with Harvard Medical School. Mr. Schumacher received a B.S. in Zoology from the University of New
Hampshire.
Dr. Edmund Ting joined us as Senior Vice President of Engineering on April 24, 2006. Prior to joining us, Dr. Ting served as the Chief
Research Officer of Avure Technologies, a leading worldwide manufacturer of high pressure hydrostatic processing equipment for the food
and materials processing industry, where he worked from 2001 to 2006. From 1990 to 2001, Dr. Ting was employed by Flow International
Corporation, a world leader in the ultrahigh pressure waterjet cutting technology market, and the parent company of Avure Technologies
until November 2005. Dr. Ting last held the position of Vice President of Engineering Research and Development at Flow International
Corporation. From 1984 to 1990, Dr. Ting was a research scientist and then a group leader at Grumman Aerospace Corporation. Dr. Ting
earned a Bachelor of Science degree in mechanical engineering from Northeastern University and a Science Doctorate in materials science
and engineering from the Massachusetts Institute of Technology.
Dr. Nathan P. Lawrence was appointed as our Vice President of Marketing and Sales on April 1, 2006. Dr. Lawrence joined Pressure
BioSciences Inc. in 2005, serving as Director of Research and Development until his promotion to Vice President of Marketing in 2006. Dr.
Lawrence was responsible for the development of protocols based on Pressure Cycling Technology (PCT). From 2004 through 2005, Dr.
Lawrence worked for 454 Life Sciences Inc. in product development. Prior to 454 Life Sciences, Dr. Lawrence was Director of Research
and Development for Boston Biomedica, Inc. from 1998 to 2004. He was primarily responsible for the development of PCT, as well as the
development of nucleic acid-based diagnostic assays. Prior to joining Boston Biomedica, Inc.,
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Dr. Lawrence held several positions with increasing responsibility in Research and Development and manufacturing at Becton Dickinson
and Gene Trak Systems. Dr. Lawrence holds a BA from the University of Miami, an M.S. from Southern Connecticut State University, and
a Ph.D. from Yale University.
Dr. Alexander Lazarev has served as our Vice President of Research and Development since 2007. Prior to that, he served as our
Director of Research and Development, since joining us in 2006. Prior to joining us, Dr. Lazarev worked as a Visiting Scientist at the
Barnett Institute of Chemical and Biological Analysis at Northeastern University in 2005, and served as a Director of New Technology
Development at Proteome Systems, Inc., where he was involved in research and development of innovative proteomic analysis applications
from 2001 until early 2006. From 1998 to 2001, Dr. Lazarev was employed as Senior Scientist at the Proteomics Division of Genomic
Solutions, Inc. Prior to his employment at Genomic Solutions, Inc., Dr. Lazarev was employed in an analytical contract service startup
company, PhytoChem Technologies, Inc., which was founded as a spin-off from ESA, Inc. in 1997. Previously, Dr. Lazarev held various
scientific positions at the Ohio State University School of Medicine and the Uniformed Services University of Health Sciences. Most of his
scientific career has been dedicated to development of methods and applications for biochemical analysis. Since 2005, Dr. Lazarev has been
elected as an Executive Board member of the MASSEP.org, a non-profit scientific discussion forum dedicated to the promotion and
improvement of chromatography and other analytical technologies. Dr. Lazarev earned his undergraduate and graduate degrees at the
University of Kazan, Russian Federation.
Mr. Joseph L. Damasio, Jr. was appointed as our Vice President of Finance and Administration on December 20, 2011. Mr. Damasio
has more than 13 years of finance and accounting experience, most recently serving as our Controller since November 2008. Mr. Damasio
previously served as Accounting Manager after joining us in January 2007. Before joining us, Mr. Damasio was a senior financial analyst at
BearingPoint Inc, a management and technology consulting firm from January 2004 to January 2007. Before joining BearingPoint Inc., Mr.
Damasio spent three years as an auditor with PricewaterhouseCoopers LLP. Mr. Damasio began his financial career with NEN Life Science
Products Inc., a subsidiary of PerkinElmer Inc. Mr. Damasio earned a bachelor’s degree in accounting, with honors, from the University of
Massachusetts. He holds an MBA and MSF from Boston College. He is a Certified Public Accountant in Massachusetts.
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ITEM 1A.
RISK FACTORS.
This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties, such as statements of our
objectives, expectations and intentions. The cautionary statements made in this Annual Report on Form 10-K should be read as applicable to
all forward-looking statements wherever they appear in this report. Our actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere in this report.
As of February 15, 2012, we had available cash of approximately $430,000. We require additional capital to fund our operations and
cannot ensure that additional capital will be available on acceptable terms or at all.
We have experienced negative cash flows from operations from our pressure cycling technology business since we commenced our pressure
cycling technology operations. As of February 15, 2012, we had available cash of approximately $430,000 which, based on current
projections, will be sufficient to fund operations until April 2012. We need substantial additional capital to fund our operations beyond April
2012.
We have received an opinion from our independent registered public accounting firm expressing doubt regarding our ability to continue
as a going concern.
The audit report issued by our independent registered public accounting firm on our audited consolidated financial statements for the fiscal
year ended December 31, 2011 contains an explanatory paragraph regarding our ability to continue as a going concern. The audit report
states that our auditing firm has substantial doubt in our ability to continue as a going concern due to the risk that we may not have sufficient
cash and liquid assets at December 31, 2011 to cover our operating and capital requirements for the next twelve-month period; and if
sufficient cash cannot be obtained, we would have to substantially alter, or possibly even discontinue, operations. The accompanying
consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Management has developed a plan to continue operations. This plan includes further reductions in expenses and obtaining equity or debt
financing including our most recently completed financing in February 2012, in which we sold units consisting of shares of restricted
common stock and warrants to purchase shares of common stock for net proceeds of approximately $765,000, which included the conversion
of $387,547 in principal and accrued interest from convertible promissory notes. Although we have successfully completed equity financings
and reduced expenses in the past, we cannot assure you that our plans to address these matters in the future will be successful.
Such an opinion from our independent registered accounting firm could adversely affect our ability to obtain additional financing on
favorable terms, if at all, as such an opinion may cause investors to have reservations about our long-term prospects, and may adversely
affect our relationships with customers. There can be no assurance that our auditing firm will not qualify its opinion in the future. If we
cannot successfully continue as a going concern, our stockholders may lose their entire investment in us.
We will need a greater amount of additional capital than we currently expect to need if we experience unforeseen costs or expenses,
unanticipated liabilities or delays in implementing our business plan, developing our products and achieving commercial sales.
We need substantial capital to implement our sales distribution strategy for our current products and to develop and commercialize future
products using our pressure cycling technology products and services in the sample preparation area, as well as for applications in other areas
of life sciences. Our capital requirements will depend on many factors, including but not limited to:
·
·
·
·
the problems, delays, expenses, and complications frequently encountered by early-stage companies;
market acceptance of our pressure cycling technology products and services for sample preparation;
the success of our sales and marketing programs; and
changes in economic, regulatory or competitive conditions in the markets we intend to serve.
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To satisfy our potential capital requirements to cover the cost of implementing our sales distribution strategy for our current products
and services and to develop and commercialize future products and services using our pressure cycling technology relating to sample
preparation and other life science applications, we need to raise additional funds in the public or private capital markets. We may
seek to raise any necessary additional funds through the issuance of warrants, equity or debt financings or executing collaborative
arrangements with corporate partners or other sources, which may be dilutive to existing stockholders or otherwise have a material
effect on our current or future business prospects. Additional financing may not be available to us on a timely basis, if at all, or on
terms acceptable to us. If adequate funds are not available or if we fail to obtain acceptable additional financing, we may be required
to:
·
·
·
severely limit or cease our operations or otherwise reduce planned expenditures and forego other business opportunities,
which could harm our business;
obtain financing with terms that may have the effect of substantially diluting or adversely affecting the holdings or the
rights of the holders of our capital stock; or
obtain funds through arrangements with future collaboration partners or others that may require us to relinquish rights to
some or all of our technologies or products.
Our actual results and performance, including our ability to raise additional capital, may be adversely affected by current economic
conditions.
Our actual results and performance could be adversely affected by the current economic conditions in the global economy, which continue to
pose a risk to the overall demand for our products from our customers who may elect to defer or cancel purchases of, or decide not to
purchase, our products in response to continuing tightness in the credit markets, negative financial news and general uncertainty in the
economy. In addition, our ability to obtain additional financing, on acceptable terms, if at all, may be adversely affected by the uncertainty in
the current economic climate.
We have a history of operating losses, anticipate future losses and may never be profitable.
We have experienced significant operating losses in the area of PCT in each period since we began investing resources in PCT. These losses
have resulted principally from research and development, sales and marketing, and general and administrative expenses associated with the
development of our PCT business. During the year ended December 31, 2011, we recorded a net loss applicable to common shareholders of
($5,107,661) or ($0.77) per share, as compared to ($3,630,826) or ($1.35) per share in 2010. We expect to continue to incur operating losses
until sales of our PCT products increase substantially. We cannot be certain when, if ever, we will become profitable. Even if we were to
become profitable, we might not be able to sustain such profitability on a quarterly or annual basis.
Our financial results depend on revenues from our pressure cycling technology products and services, and from government grants.
We currently rely on revenues from our pressure cycling technology products and services in the sample preparation area and from revenues
derived from grants awarded to us by governmental agencies, such as the National Institutes of Health. We have been unable to achieve
market acceptance of our product offerings to the extent necessary to achieve significant revenue. Competition for government grants is very
intense, and we can provide no assurance that we will continue to be awarded grants in the future. If we are unable to increase revenues from
sales of our pressure cycling technology products and services and government grants, our business will fail.
We may be unable to obtain market acceptance of our pressure cycling technology products and services.
Many of our initial sales of our pressure cycling technology products and services have been to our collaborators, following their use of our
products in studies undertaken in sample preparation for genomics, proteomics and small molecules studies. Our technology requires
scientists and researchers to adopt a method of sample extraction that is different than existing techniques. Our PCT sample preparation
system is also more costly than existing techniques.
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Our ability to obtain market acceptance will depend, in part, on our ability to demonstrate to our potential customers that the benefits and
advantages of our technology outweigh the increased cost of our technology compared to existing methods of sample extraction. If we are
unable to demonstrate the benefits and advantages of our products and technology as compared to existing technologies, we will not gain
market acceptance and our business will fail.
Our business may be harmed if we encounter problems, delays, expenses, and complications that often affect companies that have not
achieved significant market acceptance.
Our pressure cycling technology business continues to face challenges in achieving market acceptance. If we encounter problems, delays,
expenses and complications, many of which may be beyond our control or may harm our business or prospects. These include:
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unanticipated problems and costs relating to the development, testing, production, marketing, and sale of our products;
delays and costs associated with our ability to attract and retain key personnel;
availability of adequate financing; and
competition.
The sales cycle of our pressure cycling technology products is lengthy. We have incurred and may continue to incur significant expenses
and we may not generate any significant revenue related to those products.
Many of our current and potential customers have required between three and six months or more to test and evaluate our pressure cycling
technology products. This increases the possibility that a customer may decide to cancel its order or otherwise change its plans, which could
reduce or eliminate our sales to that potential customer. As a result of this lengthy sales cycle, we have incurred and may continue to incur
significant research and development, selling and marketing, and general and administrative expense related to customers from whom we
have not yet generated any revenue from our products, and from whom we may never generate the anticipated revenue if a customer is not
satisfied with the results of the evaluation of our products or if a customer cancels or changes its plans.
Our business could be harmed if our products contain undetected errors or defects.
We are continuously developing new, and improving our existing, pressure cycling technology products in sample preparation and we expect
to do so in other areas of life sciences depending upon the availability of our resources. Newly introduced products can contain undetected
errors or defects. In addition, these products may not meet their performance specifications under all conditions or for all applications. If,
despite internal testing and testing by our collaborators, any of our products contain errors or defects or fail to meet customer specifications,
then we may be required to enhance or improve those products or technologies. We may not be able to do so on a timely basis, if at all, and
may only be able to do so at considerable expense. In addition, any significant reliability problems could result in adverse customer reaction,
negative publicity or legal claims and could harm our business and prospects.
Our success may depend on our ability to manage growth effectively.
Our failure to manage growth effectively could harm our business and prospects. Given our limited resources and personnel, growth of our
business could place significant strain on our management, information technology systems, sources of manufacturing capacity and other
resources. To properly manage our growth, we may need to hire additional employees and identify new sources of manufacturing
capabilities. Failure to effectively manage our growth could make it difficult to manufacture our products and fill orders, as well as lead to
declines in product quality or increased costs, any of which would adversely impact our business and results of operations.
Our success is substantially dependent on the continued service of our senior management.
Our success is substantially dependent on the continued service of our senior management. We do not have long-term employment
agreements with our key employees. The loss of the services of any of these individuals could make it more difficult to successfully operate
our business and achieve our business goals. In addition, our failure to retain existing engineering, research and development and sales
personnel could harm our product development capabilities and customer and employee relationships, delay the growth of sales of our
products and could result in the loss of key information, expertise or know-how.
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We may not be able to hire or retain the number of qualified personnel, particularly engineering and sales personnel, required for our
business, which would harm the development and sales of our products and limit our ability to grow.
Competition in our industry for senior management, technical, sales, marketing, finance and other key personnel is intense. If we are unable
to retain our existing personnel, or attract and train additional qualified personnel, either because of competition in our industry for such
personnel or because of insufficient financial resources, our growth may be limited. Our success also depends in particular on our ability to
identify, hire, train and retain qualified engineering and sales personnel with experience in design, development and sales of laboratory
equipment.
Our reliance on a single third party for all of our manufacturing, and certain of our engineering, and other related services could harm
our business.
We currently rely on Source Scientific, LLC (“Source Scientific”), a third party contract manufacturer, to manufacture our PCT
instrumentation, provide engineering expertise, and manage the majority of our sub-contractor supplier relationships. Because of our
dependence on one manufacturer, our success will depend, in part, on the ability of Source Scientific to manufacture our products cost
effectively, in sufficient quantities to meet our customer demand, if and when such demand occurs, and meeting our quality requirements. If
Source Scientific experiences manufacturing problems or delays, or if Source Scientific decides not to continue to provide us with these
services, our business may be harmed. While we believe other contract manufacturers are available to address our manufacturing and
engineering needs, if we find it necessary to replace Source Scientific, there will be a disruption in our business and we would incur
additional costs and delays that would harm our business.
Our failure to manage current or future alliances or joint ventures effectively may harm our business.
We have entered into business relationships with three distribution partners and one co-marketing partner, and we may enter into additional
alliances, joint ventures or other business relationships to further develop, market and sell our pressure cycling technology product line. We
may not be able to:
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identify appropriate candidates for alliances, joint ventures or other business relationships;
assure that any candidate for an alliance, joint venture or business relationship will provide us with the support
anticipated;
successfully negotiate an alliance, joint venture or business relationship on terms that are advantageous to us; or
successfully manage any alliance or joint venture.
Furthermore, any alliance, joint venture or other business relationship may divert management time and resources. Entering into a
disadvantageous alliance, joint venture or business relationship, failing to manage an alliance, joint venture or business relationship
effectively, or failing to comply with any obligations in connection therewith, could harm our business and prospects.
We may not be successful in growing our international sales.
We cannot guarantee that we will successfully develop our international sales channels to enable us to generate significant revenue from
international sales. We currently have three international distribution agreements that cover Japan, Austria, and Germany. We have
generated limited sales to date from international sales and cannot guarantee that we will be able to increase our sales. As we expand, our
international operations may be subject to numerous risks and challenges, including:
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multiple, conflicting and changing governmental laws and regulations, including those that regulate high pressure
equipment;
reduced protection for intellectual property rights in some countries;
protectionist laws and business practices that favor local companies;
political and economic changes and disruptions;
export and import controls;
tariff regulations; and
currency fluctuations.
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Our operating results are subject to quarterly variation. Our operating results may fluctuate significantly from period to period depending
on a variety of factors, including the following:
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our ability to increase our sales of our pressure cycling technology products for sample preparation on a consistent
quarterly or annual basis;
the lengthy sales cycle for our products;
the product mix of the Barocycler instruments we install in a given period, and whether the installations are completed
pursuant to sales, rental or lease arrangements, and the average selling prices that we are able to command for our
products;
our ability to manage our costs and expenses;
our ability to continue our research and development activities without unexpected costs and expenses; and
our ability to comply with state and federal regulations without incurring unexpected costs and expenses.
Our instrumentation operates at high pressures and may therefore become subject to certain regulation in the European Community.
Regulation of high pressure equipment may limit or hinder our development and sale of future instrumentation.
Our Barocycler instruments operate at high pressures. If our Barocycler instruments exceed certain pressure levels, our products may
become subject to the European Pressure Equipment Directive, which requires certain pressure equipment meet certain quality and safety
standards. We do not believe that we are subject to this directive because our Barocycler instruments are currently below the threshold
documented in the text of the directive. If our interpretation were to be challenged, we could incur significant costs defending the challenge,
and we could face production and selling delays, all of which could harm our business.
We expect that we will be subject to regulation in the United States, such as the Food and Drug Administration (“FDA”), and overseas, if
and when we begin to invest more resources in the development and commercialization of PCT in applications outside of sample
preparation.
to develop and commercialize pressure cycling
Our current pressure cycling technology products in the area of sample preparation are not regulated by the FDA. Applications in which we
intend
inactivation and
immunodiagnostics, are expected to require regulatory approvals or clearances from regulatory agencies, such as the FDA, prior to
commercialization. We expect that obtaining these approvals or clearances will require a significant investment of time and capital resources
and there can be no assurance that such investments will receive approvals or clearances that would allow us to commercialize the
technology for these applications.
technology, such as protein purification, pathogen
If we are unable to protect our patents and other proprietary technology relating to our pressure cycling technology products, our
business will be harmed.
Our ability to further develop and successfully commercialize our products will depend, in part, on our ability to enforce our patents,
preserve our trade secrets, and operate without infringing the proprietary rights of third parties. We currently have 14 United States patents
issued and several pending patent applications for our pressure cycling technology. Several of these have been followed up with foreign
applications, for which three patents have been issued in Europe and three patents have been issued in Australia, two in Japan, and two in
Canada. We expect to file additional foreign applications in the future relating to our pressure cycling technology, and we will file additional
United States applications as we develop new patentable intellectual property. The patents which have been issued expire between 2015 and
2027.
There can be no assurance that:
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any patent applications filed by us will result in issued patents;
patent protection will be secured for any particular technology;
any patents that have been or may be issued to us will be valid or enforceable;
any patents will provide meaningful protection to us;
others will not be able to design around our patents; or
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our patents will provide a competitive advantage or have commercial value.
The failure to obtain adequate patent protection would have a material adverse effect on us and may adversely affect our ability to enter into,
or affect the terms of, any arrangement for the marketing or sale of any product.
Our patents may be challenged by others.
We could incur substantial costs in patent proceedings, including interference proceedings before the United States Patent and Trademark
Office, and comparable proceedings before similar agencies in other countries, in connection with any claims that may arise in the future.
These proceedings could result in adverse decisions about the patentability of our inventions and products, as well as about the
enforceability, validity, or scope of protection afforded by the patents.
If we are unable to maintain the confidentiality of our trade secrets and proprietary knowledge, others may develop technology and
products that could prevent the successful commercialization of our products.
We rely on trade secrets and other unpatented proprietary information in our product development activities. To the extent we rely on trade
secrets and unpatented know-how to maintain our competitive technological position, there can be no assurance that others may not
independently develop the same or similar technologies. We seek to protect our trade secrets and proprietary knowledge, in part, through
confidentiality agreements with our employees, consultants, advisors and contractors. These agreements may not be sufficient to effectively
prevent disclosure of our confidential information and may not provide us with an adequate remedy in the event of unauthorized disclosure
of such information. If our employees, consultants, advisors, or contractors develop inventions or processes independently that may be
applicable to our products, disputes may arise about ownership of proprietary rights to those inventions and processes. Such inventions and
processes will not necessarily become our property, but may remain the property of those persons or their employers. Protracted and costly
litigation could be necessary to enforce and determine the scope of our proprietary rights. Failure to obtain or maintain trade secret
protection, for any reason, could harm our business.
If we infringe on the intellectual property rights of others, our business will be harmed.
It is possible that the manufacture, use or sale of our pressure cycling technology products or services may infringe patent or other
intellectual property rights of others. We may be unable to avoid infringement of the patent or other intellectual property rights of others and
may be required to seek a license, defend an infringement action, or challenge the validity of the patents or other intellectual property rights
in court. We may be unable to secure a license on terms and conditions acceptable to us, if at all. Also, we may not prevail in any patent or
other intellectual property rights litigation. Patent or other intellectual property rights litigation is costly and time-consuming, and there can
be no assurance that we will have sufficient resources to bring any possible litigation related to such infringement to a successful conclusion.
If we do not obtain a license under such patents or other intellectual property rights, or if we are found liable for infringement, or if we are
unsuccessful in having such patents declared invalid, we may be liable for significant monetary damages, may encounter significant delays
in successfully commercializing and developing our pressure cycling technology products, or may be precluded from participating in the
manufacture, use, or sale of our pressure cycling technology products or services requiring such licenses.
We may be unable to adequately respond to rapid changes in technology and the development of new industry standards.
The introduction of products and services embodying new technology and the emergence of new industry standards may render our existing
pressure cycling technology products and related services obsolete and unmarketable if we are unable to adapt to change. We may be unable
to allocate the funds necessary to improve our current products or introduce new products to address our customers’ needs and respond to
technological change. In the event that other companies develop more technologically advanced products, our competitive position relative
to such companies would be harmed.
We may not be able to compete successfully with others that are developing or have developed competitive technologies and products.
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A number of companies have developed, or are expected to develop, products that compete or will compete with our products. We compete
with companies that have existing technologies for the extraction of nucleic acids, proteins and small molecules from cells and tissues,
including methods such as mortar and pestle, sonication, rotor-stator homogenization, French press, bead beating, freezer milling, enzymatic
digestion, and chemical dissolution.
We are aware that there are additional companies pursuing new technologies with similar goals to the products developed or being developed
by us. Some of the companies with which we now compete, or may compete in the future, have or may have more extensive research,
marketing, and manufacturing capabilities, more experience in genomics and proteomics sample preparation, protein purification, pathogen
inactivation, immunodiagnostics, and DNA sequencing and significantly greater technical, personnel and financial resources than we do, and
may be better positioned to continue to improve their technology to compete in an evolving industry. To compete, we must be able to
demonstrate to potential customers that our products provide improved performance and capabilities. Our failure to compete successfully
could harm our business and prospects.
Provisions in our articles of organization and bylaws and our shareholder rights agreement may discourage or frustrate shareholders’
attempts to remove or replace our current management.
Our articles of organization and bylaws contain provisions that may make it more difficult or discourage changes in our management that
our stockholders may consider to be favorable. These provisions include:
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a classified board of directors;
advance notice for stockholder nominations to the board of directors;
limitations on the ability of stockholders to remove directors; and
a provision that allows a majority of the directors to fill vacancies on the board of directors.
Our shareholders rights agreement, or “poison pill”, may also have the effect of discouraging or preventing a change in control.
These provisions could prevent or frustrate attempts to make changes in our management that our stockholders consider to be beneficial and
could limit the price that our stockholders might receive in the future for shares of our common stock.
The costs of compliance with the reporting obligations of the Exchange Act, and with the requirements of the Sarbanes-Oxley Act of
2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act, may place a strain on our limited resources and our
management’s attention may be diverted from other business concerns.
As a result of the regulatory requirements applicable to public companies, we incur legal, accounting, and other expenses that are significant
in relation to the size of our company. In addition, the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer
Protection Act, as well as rules subsequently implemented by the SEC and NASDAQ, have required changes in corporate governance and
financial disclosure practices of public companies, some of which are currently applicable to us and others will or may become applicable to
us in the future. These rules and regulations will increase our legal and financial compliance costs and may make some activities more time-
consuming. These requirements may place a strain on our systems and on our management and financial resources.
Certain of our net deferred tax assets could be substantially limited if we experience an ownership change as defined in the Internal
Revenue Code.
Certain of our net operating losses (“NOLs”) give rise to net deferred tax assets. Our ability to utilize NOLs and to offset our future taxable
income and/or to recover previously paid taxes would be limited if we were to undergo an “ownership change” within the meaning of Section
382 of the Internal Revenue Code, which we refer to as the Code. In general, an “ownership change” occurs whenever the percentage of the
stock of a corporation owned by “5-percent shareholders” (within the meaning of Section 382 of the Code) increases by more than 50
percentage points over the lowest percentage of the stock of such corporation owned by such “5-percent shareholders” at any time over the
preceding three years.
An ownership change under Section 382 of the Code would establish an annual limitation on the amount of NOLs we could utilize to offset
our taxable income in any single taxable year to an amount equal to (i) the product of a
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specified rate, which is published by the U.S. Treasury, and the aggregate value of our outstanding stock plus (ii) the amount of unutilized
limitation from prior years. The application of these limitations might prevent full utilization of the deferred tax assets attributable to our
NOLs. We may have or will have experienced an ownership change as defined by Section 382 through the sale of equity and, therefore, we
will consider whether the sale of equity units will result in limitations of our net operating losses under Section 382 when we start to
generate taxable income. However, whether a change in ownership occurs in the future is largely outside of our control, and there can be no
assurance that such a change will not occur.
Risks Related to Share Ownership
The holders of our common stock could suffer substantial dilution.
In connection with the private placements and registered direct offering we completed during the past few years, we have issued shares of
Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock, and Series D Convertible
Preferred Stock. In connection with those private placements and registered direct offering, we also issued warrants to purchase shares of
Series A Convertible Preferred Stock, warrants to purchase shares of Series B Convertible Preferred Stock, and warrants to purchase shares
of common stock. Each share of Series A Convertible Preferred Stock and Series B Convertible Preferred Stock was, and each share of
Series C Convertible Preferred Stock is, convertible into 10 shares of common stock. Each share of Series D Convertible Preferred Stock is
convertible into 1,538.46 shares of common stock. As of January 31, 2012, there were no shares of Series A Convertible Preferred Stock or
Series B Convertible Preferred Stock issued and outstanding. If all of the outstanding shares of Series C Convertible Preferred Stock and
Series D Convertible Preferred Stock, together with our outstanding warrants issued in connection with our private placements and registered
direct offering, were converted or exercised into shares of our common stock, an additional 6,344,886 shares of common stock would be
issued and outstanding. The additional issuance of common stock would cause immediate and substantial dilution to our existing
stockholders, and could cause a significant reduction in the market price of our common stock.
Sales of a significant number of shares of our common stock in the public market, or the perception of such possible sales, could depress
the market price of our common stock.
Sales of a substantial number of shares of our common stock or other equity-related securities in the public markets, including in an offering
of our common stock or preferred stock, could depress the market price of our common stock and impair our ability to raise capital through
the sale of additional equity or equity-related securities. We cannot predict the effect that future sales of our common stock or other equity-
related securities would have on the market price of our common stock.
Our share price could be volatile and our trading volume may fluctuate substantially.
The price of our shares of common stock has been and may in the future continue to be extremely volatile, with the sale price fluctuating
from a low of $0.51 to a high of $2.29 since December 31, 2009. Many factors could have a significant impact on the future price of our
shares of common stock, including:
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our inability to raise additional capital to fund our operations, whether through the issuance of equity securities or debt;
our failure to successfully implement our business objectives;
compliance with ongoing regulatory requirements;
market acceptance of our products;
technological innovations and new commercial products by our competitors;
changes in government regulations;
general economic conditions and other external factors;
actual or anticipated fluctuations in our quarterly financial and operating results;
the degree of trading liquidity in our shares of common stock; and
our ability to meet the minimum standards required for remaining listed on the NASDAQ Capital Market.
A decline in the price of our shares of common stock could affect our ability to raise further working capital and adversely impact our
ability to continue operations.
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A decline in the price of our shares of common stock could result in a reduction in the liquidity of our common stock and a reduction in our
ability to raise capital. Because a significant portion of our operations has been and will continue to be financed through the sale of equity
securities, a decline in the price of our shares of common stock could be especially detrimental to our liquidity and our operations. Such
reductions and declines may force us to reallocate funds from other planned uses and may have a significant negative effect on our business
plans and operations, including our ability to continue our current operations. If the price for our shares of common stock declines, it may be
more difficult to raise additional capital. If we are unable to raise sufficient capital, and we are unable to generate funds from operations
sufficient to meet our obligations, we will not have the resources to continue our operations.
The market price for our shares of common stock may also be affected by our ability to meet or exceed expectations of analysts or investors.
Any failure to meet these expectations, even if minor, may have a material adverse effect on the market price of our shares of common stock.
If we issue additional securities in the future, it will likely result in the dilution of our shares of existing stockholders.
Our restated articles of organization, as amended, currently authorize the issuance of up to 20,000,000 shares of common stock and
1,000,000 shares of preferred stock. As of January 31, 2012, we had 6,925,531 shares of common stock issued and outstanding, 88,098
shares of Series C Convertible Preferred Stock issued and outstanding, which shares of Series C Convertible Preferred Stock are convertible
into 880,980 shares of common stock and 677 shares of Series D Convertible Preferred Stock issued and outstanding, which shares of Series
D Convertible Preferred Stock are convertible into 1,041,539 shares of common stock. As of January 31, 2012, we had options and warrants
to purchase an aggregate of approximately 6,270,951 shares of our common stock outstanding, and had an additional 394,500 shares of
common stock reserved for future awards that we may grant under our equity compensation plan. In December 2011, our stockholders
approved an amendment to our restated articles of organization, as amended, to increase the number of our authorized shares of common
stock from 20,000,000 to 50,000,000. We plan to file articles of amendment to increase our authorized common stock prior to completing
any offering requiring additional authorized shares of common stock. From time to time we also may increase the number of shares
available for issuance in connection with our equity compensation plan, we may adopt new equity compensation plans, and we may issue
awards to our employees and others who provide services to us outside the terms of our equity compensation plans. Our board of directors
may fix and determine the designations, rights, preferences or other variations of each class or series of preferred stock and may choose to
issue some or all of such shares to provide additional financing in the future.
The issuance of any securities for acquisition, licensing or financing efforts, upon conversion of any preferred stock or exercise of warrants,
pursuant to our equity compensation plans, or otherwise may result in a reduction of the book value and market price of the outstanding
shares of our common stock. If we issue any such additional securities, such issuance will cause a reduction in the proportionate ownership
and voting power of all current stockholders. Further, such issuance may result in a change in control of our Company.
Financial Industry Regulatory Authority (“FINRA”) sales practice requirements may also limit a stockholder’s ability to buy and sell our
common stock.
FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment
objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-
priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to
recommend that their customers buy our common stock, which may limit your ability to buy and sell our common stock and have an adverse
effect on the market for our shares.
We have never paid dividends on our common stock and do not anticipate paying any in the foreseeable future.
We have never declared or paid a cash dividend on our common stock and we do not expect to pay cash dividends on our common stock in
the foreseeable future.
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Our shares of Series C Convertible Preferred Stock and Series D Convertible Preferred Stock are entitled to certain rights, privileges and
preferences over our common stock, including the right to receive dividends, in the case of the Series C Convertible Preferred Stock, and
a preference upon a liquidation of our company, which will reduce amounts available for distribution to our common stockholders.
The holders of our shares of Series C Convertible Preferred Stock are entitled to receive a cumulative dividend at the rate of 5% per annum
of the purchase price paid for the Series C Convertible Preferred Stock, payable, either in cash or in shares of common stock at our option,
semi-annually within 45 days of each of June 30th and December 31st, which commenced on June 30, 2011. If we elect to pay the dividends
in cash, we will have less cash available for operations, and less cash available to the holders of common stock upon a liquidation of our
company. A payment of dividends in common stock will have a dilutive effect on our common stockholders. Further, the shares of Series C
Convertible Preferred Stock and Series D Convertible Preferred Stock are entitled to payment prior to payment to the holders of common
stock in the event of liquidation of the Company.
Our common stock may be delisted from The NASDAQ Capital Market, which could negatively impact the price of our common stock,
liquidity for our stockholders and our ability to access the capital markets.
Our common stock is listed on The NASDAQ Capital Market. We previously received letters from the NASDAQ Stock Market LLC, or
NASDAQ, on April 13, 2011, advising us that our stockholders’ equity for the year ended December 31, 2010 had fallen below the
minimum requirement for continued inclusion on The NASDAQ Capital Market and on August 15, 2011, advising us that, for the previous
30 consecutive business days, the bid price of our common stock had closed below the minimum $1.00 per share requirement for continued
inclusion on The NASDAQ Capital Market. On October 4, 2011, we received written notification from the Listing Qualifications
Department of the NASDAQ, or NASDAQ, stating that our common stock is subject to delisting from The NASDAQ Capital Market,
pending our opportunity to request a hearing before a NASDAQ Listing Qualifications Panel (the “Panel”). We attended a hearing before
the Panel on November 17, 2011 to consider further our plan to bring the Company into compliance with the stockholders’ equity listing
standard and the minimum $1.00 per share requirement.
On December 7, 2011, we received notice that the Panel granted our request for continued listing on The NASDAQ Capital Market subject
to, among other things, our demonstration of compliance with the applicable minimum stockholders’ equity requirement of $2.5 million by
February 29, 2012. On February 15, 2012, we received notice from NASDAQ that the bid price of our common stock had not regained
compliance with the minimum $1.00 per share requirement as of February 13, 2012, 180 calendar days after NASDAQ’s August 15, 2011
notice. We have submitted a revised plan of compliance for the Panel’s review and have requested a further extension of time. While we
are diligently working to regain compliance with all applicable NASDAQ listing criteria, including the minimum stockholders’ equity and
minimum bid price of $1.00 per share, there can be no assurance that the Panel will grant our request for a further extension of time for
continued listing or that we will be able to successfully complete our plan to achieve compliance.
If we fail to comply with the listing standards applicable to issuers listed on The NASDAQ Capital Market by the deadline set forth above or
any extension of such deadline, our common stock will be delisted from The NASDAQ Capital Market.
If we are unsuccessful in maintaining our NASDAQ listing, then we may pursue listing and trading of our shares of common stock on the
Over-The-Counter Bulletin Board or another securities exchange or association with different listing standards than NASDAQ. We
anticipate the change in listings may result in a reduction in some or all of the following, each of which could have a material adverse effect
on our shareholders:
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the liquidity of our shares of common stock;
the market price of our shares of common stock;
our ability to obtain financing for the continuation of our operations;
the number of institutional and other investors that will consider investing in our shares of common stock;
the number of market markers in our shares of common stock;
the availability of information concerning the trading prices and volume of our shares of common stock; and
the number of broker-dealers willing to execute trades in our shares of common stock.
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Furthermore, if our shares of common stock were removed from listing with The NASDAQ Capital Market and we are unsuccessful
in listing our shares of common stock on another national securities exchange, the shares may be subject to the so-called “penny
stock” rules. The SEC has adopted regulations that define a penny stock to be any equity security that has a market price per share of
less than $5.00, subject to certain exceptions, such as any securities listed on a national securities exchange. For any transaction
involving a penny stock, unless exempt, the rules impose additional sales practice requirements on broker-dealers, subject to certain
exceptions. If our shares of common stock were delisted and determined to be a penny stock, a broker-dealer may find it more
difficult to trade our shares of common stock and an investor may find it more difficult to acquire or dispose of our shares of common
stock on the secondary market. Investors in penny stocks should be prepared for the possibility that they may lose their whole
investment.
ITEM 1B.
UNRESOLVED STAFF COMMENTS.
Not Applicable.
ITEM 2.
PROPERTIES.
Our corporate offices are currently located at 14 Norfolk Avenue, South Easton, Massachusetts 02375. In November 2007, we signed a
lease agreement commencing in February 2008 pursuant to which we lease approximately 5,500 square feet of office space. We renewed the
lease through September 30, 2012 with a monthly payment of $4,800.
Effective January 1, 2010, we entered into a three-year lease agreement with the University of Massachusetts in Boston, pursuant to
which we are leasing laboratory and office space at the Venture Development Center on campus at the university for research and
development activities. We pay $5,000 per month for the use of these facilities at the University of Massachusetts. We believe that our
facilities are adequate for our operations and that suitable additional space will be available if and when needed.
ITEM 3.
LEGAL PROCEEDINGS.
We are not currently involved in any legal proceedings.
ITEM 4.
MINE SAFETY DISCLOSURES.
Not applicable.
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PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIES.
Our common stock is traded on the NASDAQ Capital Market under the trading symbol “PBIO”.
The following table sets forth, for the periods indicated, the high and low sales price per share of common stock, as reported by the
NASDAQ Capital Market from January 1, 2010 through December 31, 2011.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Authorized Capital
Year Ended December 31,
2011
High
Low
$
$
$
$
1.53 $
1.25 $
1.15 $
0.96 $
Year Ended December 31,
2010
High
Low
$
$
$
$
1.97 $
1.84 $
1.77 $
2.29 $
1.11
0.91
0.62
0.51
1.36
1.02
1.09
1.24
As of January 31, 2012, we were authorized to issue 20,000,000 shares of common stock, $.01 par value, and 1,000,000 shares of
preferred stock, $.01 par value. Of the 1,000,000 shares of preferred stock, 20,000 shares have been designated as Series A Junior
Participating Preferred Stock, 313,960 shares have been designated as Series A Convertible Preferred Stock, 279,256 shares have been
designated as Series B Convertible Preferred Stock, 88,098 shares have been designated as Series C Convertible Preferred Stock and 850
shares have been designated as Series D Convertible Preferred Stock. As of January 31, 2012, there were 6,925,531 shares of common stock
issued and outstanding, 88,098 shares of Series C Convertible Preferred Stock outstanding and 677 shares of Series D Convertible Preferred
Stock issued and outstanding. As of January 31, 2012, there were no shares of Series A Junior Participating Preferred Stock, Series A
Convertible Preferred Stock or Series B Convertible Preferred Stock issued and outstanding. In December 2011, our stockholders approved
an amendment to our restated articles of organization, as amended, to increase the number of our authorized shares of common stock from
20,000,000 to 50,000,000. We plan to file articles of amendment to increase our authorized common stock prior to completing any offering
requiring additional authorized shares of common stock.
Dividends
We have never declared or paid any cash dividends on our common stock and do not plan to pay any cash dividends on our common
stock in the foreseeable future. The shares of Series C Convertible Preferred Stock and Series D Convertible Preferred Stock are entitled to
payment prior to payment to the holders of common stock in the event of liquidation of the Company.
Holders of our Series A Convertible Preferred Stock were entitled to receive a cumulative dividend at the rate of 5% per annum of
$11.50, payable semi-annually on June 30 and December 31, which commenced on June 30, 2009. The holders of our Series B Convertible
Preferred Stock issued in November 2009 and March 2010 were entitled to receive a cumulative dividend at the rate of 5% per annum of the
purchase price based on the 10-day volume weighted average stock price, payable semi-annually within 45 days of June 30th and December
31st, which commenced on December 31, 2009. As of December 31, 2011, there were no shares of Series A Convertible Preferred Stock or
Series B Convertible Preferred Stock issued and outstanding. Holders of our Series C Convertible Preferred Stock are entitled to receive a
cumulative dividend at the rate of 5% per annum of the purchase price paid for the Series C Convertible Preferred Stock ($1.25 per share
common stock equivalent), payable semi-annually on June 30 and December 31, commencing on June 30, 2011. Dividends may be paid in
cash
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or in shares of common stock at our option, subject to certain conditions. Dividends issued or to be issued for the years ended December
31, 2011 and 2010 are outlined in the table below.
Common shares issued
Common shares to be issued December 31,
Series A
Series B
Series C
For The Year Ended
December 31,
2011
2010
163,808
-
-
163,808
162,581 Series A
27,486 Series B
- Series C
190,067
Dividends paid in common stock or cash
Dividends payable
For The Year Ended
December 31,
2011
$
188,380
65,543
-
253,923
2010
186,954 Series A
35,975 Series B
- Series C
$
222,929
Series A
Series B
Series C
$
$
Recent Sales of Unregistered Securities
For The Year Ended
2010
2011
-
-
-
-
66,102
30,855
-
96,957
For The Year Ended
December 31,
2011
$
-
56,872
37,673
94,545
$
2010
75,983
42,037
-
118,020
$
$
On October 28, 2011, we issued 32,941 shares of our common stock to holders of Series A Convertible Preferred Stock in payment
of dividends accrued through September 30, 2011. The stock dividends were issued without registration under the Securities Act, in reliance
upon the exemption set forth in Section 4(2) of the Securities Act, for transactions not involving a public offering.
In October 2011, we issued warrants to purchase 47,955 shares of our Common Stock in exchange for the conversion of Series A
Convertible Preferred Stock held by certain individuals who did not also hold warrants issued in connection with the issuance of the Series A
Convertible Preferred Stock. These warrants have an exercise price of $0.90 and a maturity date of August 12, 2016. The warrants were
issued without registration under the Securities Act, in reliance upon the exemption set forth in Section 4(2) of the Securities Act, for
transactions not involving a public offering.
On November 1, 2011, we issued 15,000 shares of our common stock to an investor relations firm for payment of services rendered over
the past three months. The shares were issued without registration under the Securities Act, in reliance upon the exemption set forth in
Section 4(2) of the Securities Act, for transactions not involving a public offering.
On January 31, 2012, we issued 100,000 shares of our common stock to an investor relations firm for payment of services to be rendered
over twelve months. The shares were issued without registration under the Securities Act, in reliance upon the exemption set forth in Section
4(2) of the Securities Act, for transactions not involving a public offering.
On February 7, 2012, we completed a private placement (the “February 2012 Private Placement”) of units consisting of a total of
971,867 shares of restricted common stock and 485,937 warrants to purchase restricted common stock, resulting in net aggregate proceeds of
approximately $765,000, after deducting $35,000 in offering costs. Seven accredited investors, including our President and Chief Executive
Officer, our Chairman of the Board of Directors, and two investors from our November 2011 registered direct offering, participated in the
private placement. The price per unit was $0.8025 for units consisting of 789,350 shares and 394,677 warrants, and was $0.9125 for units
consisting of the remaining 182,517 shares and 91,260 warrants. Of the $800,000 invested in the private placement, $412,453 was received
in cash and $387,547 was from the conversion of outstanding principal and interest on some of the convertible promissory notes we issued in
2011. The securities were issued in the February 2012 Private Placement without registration under the Securities Act, in reliance upon the
exemption from registration set forth in Rule 506 of Regulation D (“Regulation D”) promulgated under the Securities Act. We based our
reliance, in part, upon representations made by each purchaser of shares, including, but not limited to, representations as to the purchaser’s
status as an “accredited investor” (as defined in Rule 501(a) under Regulation D) and the purchaser’s investment intent. The securities were
not offered or sold by any form of general solicitation or general advertising; as such terms are used in Rule 502 under Regulation D. The
securities cannot be reoffered or
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resold in the United States absent an effective registration statement or an exemption from the registration requirements under applicable
federal and state securities laws.
Repurchases by Pressure BioSciences
We did not repurchase any of our equity securities during 2011.
-28-
ITEM 6.
SELECTED FINANCIAL DATA.
Not Applicable.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION.
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 (35,000 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 DNA, RNA, proteins, lipids, and small molecules. Our laboratory instrument, the Barocycler®, and our internally developed
consumables product line, including PULSE (Pressure Used to Lyse Samples for Extraction) Tubes, other processing tubes, and application
specific kits (which include consumable products and reagents) together make up our PCT Sample Preparation System, or PCT SPS.
We have experienced negative cash flows from operations with respect to our pressure cycling technology business since our inception.
As of December 31, 2011, we did not have adequate working capital resources to satisfy our current liabilities. Based on our current
projections, including equity financing subsequent to December 31, 2011, we believe our current cash resources will enable us to extend our
cash resources until April 2012.
As a result, the audit report issued by our independent registered public accounting firm on our audited financial statements for the fiscal
year ended December 31, 2011 contains an explanatory paragraph regarding our ability to continue as a going concern. The audit report
issued by our independent registered public accounting firm for our financial statements for the fiscal year ended December 31, 2011 states
that the auditing firm has substantial doubt in our ability to continue as a going concern due to the risk that we may not have sufficient cash
and liquid assets at December 31, 2011 to cover our operating and capital requirements for the next twelve-month period; and if sufficient
cash cannot be obtained, we would have to substantially alter, or possibly even discontinue, operations. The accompanying financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Such an opinion from our independent registered accounting firm could adversely affect our ability to obtain additional financing on
favorable terms, if at all, as such an opinion may cause investors to have reservations about our long-term prospects, and may adversely
affect our relationships with customers. There can be no assurance that our auditing firm will not qualify its opinion in the future. If we
cannot successfully continue as a going concern, our stockholders may lose their entire investment in us.
Management has developed a plan to continue operations. This plan includes further reductions in expenses and obtaining equity or debt
financing including our most recently completed financing in February 2012, in which we sold units consisting of shares of restricted
common stock and warrants to purchase shares of common stock for net proceeds of approximately $765,000, which included the conversion
of $387,547 in principal and interest from convertible promissory notes. Although we have successfully completed equity financings and
reduced expenses in the past, we cannot assure you that our plans to address these matters in the future will be successful. Additional
financing may not be available to us on a timely basis, if at all, or on terms acceptable to us. In the event we are unable to raise sufficient
funds on terms acceptable to us, we may be required to:
-29-
· severely limit or cease our operations or otherwise reduce planned expenditures and forego other business opportunities, which could
harm our business. The accompanying financial statements do not include adjustments that may be required in the event of the disposal of
assets or the discontinuation of the business;
·
·
obtain financing with terms that may have the effect of diluting or adversely affecting the holdings or the rights of the holders
of our capital stock; or
obtain funds through arrangements with future collaboration partners or others that may require us to relinquish rights to some
or all of our technologies or products.
We currently focus the majority of our resources in the area of biological sample preparation, referring to a wide range of activities that
precede scientific analysis performed by scientists worldwide working in biological life sciences research.
Within the broad field of biological sample preparation, we focus the majority of our product development efforts in three specific areas:
mass spectrometry, forensics, and histology.
· Mass Spectrometry. A mass spectrometer is a laboratory instrument used in the analysis of biological samples in life sciences
research. We believe that mass spectrometry is a several billion dollar market, and that PCT offers significant advantages in
speed and quality compared to current techniques used in the preparation of samples for mass spectrometry analysis.
·
Forensics. The detection of DNA has become a part of the analysis of forensic samples by laboratories and criminal justice
agencies worldwide in their efforts to identify the perpetrators of violent crimes and missing persons. Scientists from the
University of North Texas and Florida International University have reported improvements in DNA yield from forensic
samples (e.g., bone, hair) using PCT in the sample preparation process. We believe that that PCT may be capable of
differentially extracting DNA from sperm and (female) epithelial cells in swabs collected from rape victims and stored in rape
kits. We believe that there are many completed but untested rape kits that remain untested for reasons such as cost, time, and
quality of results. We further believe that the ability to differentially extract DNA from sperm and not epithelial cells could
reduce the cost of such testing, while increasing quality, safety, and speed.
· Histology. The most commonly used technique worldwide for the preservation of cancer and other tissues for subsequent
pathology evaluation is formalin-fixation followed by paraffin-embedding (“FFPE”). We believe that the quality and analysis
of FFPE tissues is highly problematic, and that PCT offers significant advantages over current processing methods, including
standardization, speed, biomolecule recovery, and safety.
We view federal agency grants to be an important part of our business plan. These types of grants allow us to bill the federal agency for
work that we are planning to perform as part of the development and commercialization of our technology. We generally start by submitting
initial grant requests that are in response to requests for proposals (“RFPs”) from the federal government through their Small Business
Innovation Research (“SBIR”) program. Initial (“SBIR Phase I”) grants are meant to fund approved research projects for six months, and
generally have budgets of approximately $100,000 to $150,000. Additionally, because our work in SBIR Phase I grants has been successful,
we have applied, and may in the future apply, for larger National Institutes of Health (“NIH”) SBIR Phase II grants. Such larger grants are
typically for a two-year period and are in excess of $750,000 to support significant research projects in areas we would otherwise expect to
support with internal funds should SBIR Phase II grants not be awarded. To date we have been awarded two NIH SBIR Phase I grants and
one SBIR Phase II grant.
In March 2010, the U.S. Army Medical Research Acquisition Activity (“USAMRAA”) awarded us an SBIR Phase I grant for
approximately $100,000. We completed the work on the grant in October 2010.
During the second half of 2011, we commenced work on a new NIH SBIR Phase I grant in the approximate amount of $160,000, and on
a Department of Defense SBIR Phase II grant in the approximate amount of $750,000.
Adjustment of Amounts Previously Reported on Warrant Valuations
At December 31, 2011, we reviewed our accounting for the valuation of the modifications in the third quarter of 2011 made to the warrants
issued in connection with the Series A and B Convertible Preferred Stock. We
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determined that the valuation methodology used should be adjusted. As a result of the change in methodology, the revised valuations differ
from those previously reported in the unaudited financial statements included in our Quarterly report on Form 10-Q for the period ended
September 30, 2011. There is no material effect on the audited financial statements for the year ended December 31, 2011.
The effect of this adjustment is an increase in a deemed dividend in determining Net loss to Common Shareholders for the period ending
September 30, 2011. There is no material effect on reported Stockholders’ Equity, Net Loss, or Cash Flows. The effect on amounts as
previously reported is as follows:
Balance Sheets (Stockholders’ Equity)
Warrants to acquire preferred stock and common stock
Additional paid-in capital
Accumulated deficit
Stockholders’ equity
Statements of Operations
Net loss
Net loss applicable to common shareholders
Net loss per share attributable to common shareholders
Statements of Operations
Net loss
Net loss applicable to common shareholders
Net loss per share attributable to common shareholders
September 30, 2011
As
Previously
Reported
As Adjusted % Change
1,823,852
12,802,217
(14,545,260) (14,924,509)
2,203,101
12,802,217
145,388
145,388
21%
0%
3%
0%
For the Three Months Ended
September 30, 2011
As
Previously
Reported
As Adjusted % Change
$
(561,723) $
(953,846)
(0.15)
(561,723)
(1,333,095)
(0.21)
0%
40%
42%
For the Nine Months Ended
September 30, 2011
As
Previously
Reported
As Adjusted % Change
$ (2,153,269) $ (2,153,269)
(3,472,092)
(0.56)
(3,092,843)
(0.50)
0%
12%
11%
We have analyzed the impact of these adjustments and concluded that it is not material with respect to any financial reporting
period after taking into consideration the requirements of the SEC Staff Bulletin No. 99. Further, these adjustments do not have an impact
on amounts previously reported, operating trends or publicly reported results such as would have a material effect on investor expectations.
RESULTS OF OPERATIONS
Year Ended December 31, 2011 as compared to 2010
Revenue
We had total revenue of $987,729 in the year ended December 31, 2011 as compared to $1,340,032 in the prior year.
-31-
PCT Products, Services, Other. Revenue from the sale of PCT products and services was $767,765 in 2011 as compared to $877,567 in
2010. We generated consumable sales of $102,209 for the year ended December 31, 2011 compared to $104,924 during the prior year, a
decrease of $2,715 or 2.6%. The number of PCT sales and active leases decreased during 2011 compared to 2010. The decrease in revenue
from PCT sales and leases during 2011 was partially offset by sales of our SG3 Shredder Kit. Our new distributor for the SG3 Shredder Kit
purchased 12 units during 2011. Our domestic and foreign installations of PCT systems as of December 31, 2011 and 2010 are set forth in
the table below.
Unit Installations-Sales and Lease Arrangements
2011
2010
Domestic
International
Total Installations
25
6
31
42
8
50
The decrease in PCT instrument installations and consumables was due to several factors. Our Vice President of Sales resigned in early
May 2011. His responsibilities included direct sales in the New England territory and supervision of three Sales Directors. Sales and
marketing activities were further limited during the first half of 2011 compared to the same period in 2010 as a result of our limited financial
resources. The decrease in PCT consumable sales was due primarily to significant purchases of PULSE Tubes (both Non-Disk and
Shredder) by certain clients during 2010 whose studies ended prior to the second quarter of 2011.
Grant Revenue. During 2011, we recorded $219,964 of grant revenue as compared to $462,465 in 2010. We commenced work in the
third quarter of 2011 on a Phase I grant received from the NIH and a Phase II grant received from the Department of Defense. During 2010,
we completed a SBIR Phase II grant previously granted to us.
Cost of PCT Products and Services
The cost of PCT products and services was $342,865 for the year ended December 31, 2011, compared to $376,514 in 2010. Our gross
profit margin on PCT products and services decreased to 55% for the year ended December 31, 2011, as compared to 57% for 2010. The
decrease in the gross profit margin on PCT products and services was due primarily to sales of some fully depreciated Barocycler units in the
prior year and discounting to our distributors.
The relationship between the cost of PCT products and services and PCT revenue depends greatly on the mix of instruments we sell, the
quantity of such instruments, and the mix of consumable products that we sell in a given period.
Research and Development
Research and development expenditures decreased to $969,473 during 2011 from $1,232,566 in 2010 by $263,093, or 21%. This
decrease resulted primarily from the completion of employee stock option vesting and discontinued research by a collaborative partner
funded through our SBIR Phase II grant, which was completed in 2010.
Research and development expense included $39,375 and $73,097 of non-cash, stock-based compensation in 2011 and 2010,
respectively.
Selling and Marketing
Selling and marketing expenses decreased to $931,073 in 2011 from $1,204,892 in 2010, by $273,819, or 23%. This decrease was
primarily due to the completion of vesting of a significant number of employee stock options, reduced marketing activities and employee
cost savings relating to the departure of our Vice President of Sales.
Selling and marketing expense included $43,201 and $72,609 of non-cash, stock-based compensation expense in 2011 and 2010,
respectively.
General and Administrative
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General and administrative costs were $2,034,458 in the year ended December 31, 2011, as compared to $1,924,814 in 2010, an increase of
$109,644 or 6%. We incurred increased legal fees in 2011 relating to contract negotiations, our securities offerings, and matters relating to
the annual shareholder meeting. We incurred increased audit fees relating to accounting matters associated with our completed private
placements and our Registration Statement on Form S-3 for our registered direct offering completed in November 2011.
During the years ended December 31, 2011 and 2010, general and administrative expense included $39,398 and $127,475 of non-cash,
stock-based compensation expense, respectively.
Operating Loss
Our operating loss was $3,290,140 for the year ended December 31, 2011 as compared to $3,398,754 for the comparable period in 2010,
a decrease of $108,614 or 3%. The decreased operating loss resulted primarily from lower non-cash, stock-based compensation expense, and
reduced spending offset by lower sales activity.
Other income (expense), net
Interest (Expense) Income
Interest expense totaled $138,071 for the year ended December 31, 2011 as compared to interest income of $2,303 for the year ended
December 31, 2010. We recorded $29,071 of interest expense for the year ended December 31, 2011 related to our short-term loans. We
also amortized approximately $109,000 of imputed interest against the debt discount on these short-term loans relating to warrants issued
with these loans.
Therapeutic Discovery Credit
In November 2010, we were awarded a $244,000 grant under the Qualifying Therapeutic Discovery Project (QTDP) program under The
Patient Protection and Affordable Care Act of 2010 (PPACA).
Change in fair value of warrant derivative liability
During the year ended December 31, 2011, we recorded non-cash income of $430,423 for warrant revaluation expense 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 C
private placementand Series D registered direct offering. This decrease in fair value was primarily due to a decrease in the price per share of
our common stock on December 31, 2011 as compared to the date of issuance of the warrants.
Income Taxes
In 2010, we realized a tax benefit of $23,710 related to legislation within the Housing Assistance Tax Act of 2008 which enabled us to
claim a refundable tax credit in exchange for foregoing bonus depreciation.
Net Loss
During the year ended December 31, 2011, we recorded a net loss applicable to common shareholders of $5,107,661 or $(0.77) per
share, as compared to $3,630,826 or $(1.35) per share in 2010. We recorded $1,006,574 in the current year relating to the beneficial
conversion calculation associated with the intrinsic value of the Series C Convertible Preferred Stock and Series D Convertible Preferred
Stock. In the prior year, we recorded $154,389 for a beneficial conversion feature on the Series B Convertible Preferred Stock. We paid
approximately $66,000 in dividends to holders of the Series B Convertible Preferred Stock in the current year. We also recorded a deemed
dividend of $704,844 in connection with warrant modifications done in the third quarter of 2011. See Note 2 of the Notes to Consolidated
Financial Statements under the “Computation of Loss per Share” heading.
LIQUIDITY AND FINANCIAL CONDITION
As of December 31, 2011, we did not have adequate working capital resources to satisfy our current liabilities. In February 2012, we
raised an aggregate of $800,000 in a private placement of units consisting of a total of 971,867 shares of restricted common stock and
485,937 warrants to purchase restricted common stock. Of the $800,000
-33-
invested in the private placement, $412,453 was received in cash and $387,547 was from the conversion of outstanding principal and
interest on convertible promissory notes we issued in 2011. Based on our current projections, including equity financing subsequent to
December 31, 2011, we believe our current cash resources will enable us to extend our cash resources until April 2012.
We will need substantial additional capital to fund our operations in periods beyond April 2012. 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.
Net cash used in operating activities for the year ended December 31, 2011 was $2,141,863 as compared to $2,872,180 for the year
ended December 31, 2010. The prior period cash usage included an increase in Barocycler inventory of $638,900 received from our supplier
due to anticipated sales. Our accounts payable balance was $890,676 as of December 31, 2011, as compared to $234,568 as of December 31,
2010. This increase is due to our efforts to conserve cash for use in operating the business until we secure additional capital.
Net cash used in investing activities for the year ended December 31, 2011 was $2,642 as compared to $92,111 in the prior year. We
purchased computer equipment in 2011 while we purchased tooling and Barocycler equipment for lease arrangements in the prior year.
Net cash provided by financing activities for the year ended December 31, 2011 was $1,814,431 as compared to $1,907,362 in the prior
year. We raised approximately $1.1 million in aggregate gross proceeds in 2011 from our Series C Convertible Preferred Stock private
placement offset by approximately $396,000 in offering costs excluding the issuance of additional warrants to the placement agent. The
Series C Convertible Preferred Stock private placement was completed in two tranches. In April 2011, we completed the first tranche,
pursuant to which we sold an aggregate of 55,048 units for a purchase price of $15.00 per unit, resulting in gross proceeds to us of
$825,720. In June 2011, we completed the second tranche, pursuant to which we reduced the purchase price to $12.50 per unit and we issued
an additional 11,011 units to the purchasers who participated in the first tranche, without any additional gross proceeds to us. In the second
tranche we also sold 22,039 units for a purchase price of $12.50 per unit with gross proceeds of $275,485. Each unit consisted of (i) one
share of Series C Convertible Preferred Stock convertible into 10 shares of our Common Stock (subject to adjustment for stock splits, stock
dividends, recapitalization, etc.), and (ii) a three-year warrant to purchase 10 shares of our Common Stock at a per share exercise price equal
to the sum of (x) the Common Stock equivalent of the Series C Convertible Preferred Stock private placement unit purchase price (y) plus
$0.88. The warrants issued in this private placement are exercisable until the close of business on the third anniversary of the applicable
closing date.
In the second half of 2011, we received six-month loans of $412,000. Each of the loans has a term of six months, which may be
extended with mutual consent of the parties. The interest rate under the promissory notes is 20% per annum. Under another promissory
note, we are required to pay $150,000 to a former placement agent prior to May 5 2012. The promissory note issued to the former placement
agent is interest free, provided that, if the Company does not repay the principal amount on or before the maturity date, it will accrue interest
at a rate of 18% per annum.
In November 2011, we completed a registered direct offering, pursuant to which we sold an aggregate of 843 units for a purchase price
of $1,000 per unit, resulting in gross proceeds to us of $843,000. Each unit consists of (i) one share of Series D Convertible Preferred Stock,
$0.01 par value per share convertible into 1,538.46 shares of our common stock and (ii) a five-year warrant to purchase approximately 614
shares of our common stock (which number of shares is equal to 39.9% of the purchase price of the units divided by $0.65) at a per share
exercise price of $0.81 and will be exercisable beginning on or after May 10, 2012 through and including the close of business on May 10,
2017.
Our common stock is listed on The NASDAQ Capital Market. We previously received letters from the NASDAQ Stock Market LLC,
or NASDAQ, on April 13, 2011, advising us that our stockholders’ equity for the year ended December 31, 2010 had fallen below the
minimum requirement for continued inclusion on The NASDAQ Capital Market and on August 15, 2011, advising us that, for the previous
30 consecutive business days, the bid price of our common stock had closed below the minimum $1.00 per share requirement for continued
-34-
inclusion on The NASDAQ Capital Market. On October 4, 2011, we received written notification from the Listing Qualifications
Department of the NASDAQ, or NASDAQ, stating that our common stock is subject to delisting from The NASDAQ Capital Market,
pending our opportunity to request a hearing before a NASDAQ Listing Qualifications Panel (the “Panel”). We attended a hearing before
the Panel on November 17, 2011 to consider further our plan to bring the Company into compliance with the stockholders’ equity listing
standard and the minimum $1.00 per share requirement.
On December 7, 2011, we received notice that the Panel granted our request for continued listing on The NASDAQ Capital Market
subject to, among other things, our demonstration of compliance with the applicable minimum stockholders’ equity requirement of $2.5
million by February 29, 2012. On February 15, 2012, we received notice from NASDAQ that the bid price of our common stock had not
regained compliance with the minimum $1.00 per share requirement as of February 13, 2012, 180 calendar days after NASDAQ’s August
15, 2011 notice. We have submitted a revised plan of compliance for the Panel’s review and have requested a further extension of
time. While we are diligently working to regain compliance with all applicable NASDAQ listing criteria, including the minimum
stockholders’ equity and minimum bid price of $1.00 per share, there can be no assurance that the Panel will grant our request for a further
extension of time for continued listing or that we will be able to successfully complete our plan to achieve compliance.
If we fail to comply with the listing standards applicable to issuers listed on The NASDAQ Capital Market by the deadline set forth
above or any extension of such deadline, our common stock will be delisted from The NASDAQ Capital Market.
If we are unsuccessful in maintaining our NASDAQ listing, then we may pursue listing and trading of our shares of common stock on
the Over-The-Counter Bulletin Board or another securities exchange or association with different listing standards than NASDAQ. We
anticipate the change in listings may result in a reduction in some or all of the following, each of which could have a material adverse effect
on our shareholders:
·
·
·
·
·
·
·
the liquidity of our shares of common stock;
the market price of our shares of common stock;
our ability to obtain financing for the continuation of our operations;
the number of institutional and other investors that will consider investing in our shares of common stock;
the number of market markers in our shares of common stock;
the availability of information concerning the trading prices and volume of our shares of common stock; and
the number of broker-dealers willing to execute trades in our shares of common stock.
COMMITMENTS AND CONTINGENCIES
Royalty Commitments
In 1996, we acquired our initial equity interest in BioSeq, Inc., which at the time was developing our original pressure cycling
technology. BioSeq, Inc. acquired its pressure cycling technology from BioMolecular Assays, Inc. (“BMA”) under a technology transfer and
patent assignment agreement. In 1998, we purchased all of the remaining outstanding capital stock of BioSeq, Inc., and at such time, the
technology transfer and patent assignment agreement was amended to require us to pay BMA a 5% royalty on our sales of products or
services that incorporate or utilize the original pressure cycling technology that BioSeq, Inc. acquired from BioMolecular Assays, Inc. We
are also required to pay BMA 5% of the proceeds from any sale, transfer or license of all or any portion of the original pressure cycling
technology. These payment obligations terminate in 2016. During the year ended December 31, 2011 and 2010, we incurred approximately
$21,090 and $36,330, respectively in royalty expense associated with our obligation to BMA.
In connection with our acquisition of BioSeq, Inc., we licensed certain limited rights to the original pressure cycling technology back to
BMA. This license is non-exclusive and limits the use of the original pressure cycling technology by BMA solely for molecular applications
in scientific research and development and in scientific plant research and development. BMA is required to pay us a royalty equal to 20% of
any license or other fees and royalties, but not including research support and similar payments, it receives in connection with any sale,
assignment, license or other transfer of any rights granted to BMA under the license. BMA must pay us these
-35-
royalties until the expiration of the patents held by BioSeq, Inc. in 1998, which we anticipate will be 2016. We have not received any
royalty payments from BMA under this license.
Battelle Memorial Institute
In December 2008, we entered into an exclusive patent license agreement with the Battelle Memorial Institute ("Battelle"). The licensed
technology is described in the patent application filed by Battelle on July 31, 2008 (US serial number 12/183,219). This application includes
subject matter related to a method and a system for improving the analysis of protein samples, including through an automated system
utilizing pressure and a pre-selected agent to obtain a digested sample in a significantly shorter period of time than current methods, while
maintaining the integrity of the sample throughout the preparatory process. Pursuant to the terms of the agreement, we paid Battelle a non-
refundable initial fee of $35,000. In addition to royalty payments on net sales on “licensed products”, we are obligated to make minimum
royalty payments for each year that we retain the rights outlined in the patent license agreement and we are required to have our first
commercial sale of the licensed products within one year following the issuance of the patent covered by the licensed technology. The
minimum annual royalty was $5,000 for 2010 and $7,500 for 2011.
Target Discovery Inc.
In March 2010, we signed a strategic product licensing, manufacturing, co-marketing, and collaborative research and development
agreement with Target Discovery Inc. (“TDI”). Under the terms of the agreement, we have been licensed by TDI to manufacture and sell a
highly innovative line of chemicals used in the preparation of tissues for scientific analysis ("TDI reagents"). The TDI reagents were
designed for use in combination with our pressure cycling technology. The companies believe that the combination of PCT and the TDI
reagents can fill an existing need in life science research for an automated method for rapid extraction and recovery of intact, functional
proteins associated with cell membranes in tissue samples. We owe a royalty fee of approximately $1,200 for 2011.
Severance and Change of Control Agreements
Each of Mr. Schumacher, Dr. Ting, Dr. Lazarev, and Dr. Lawrence, executive officers of the Company, is entitled to receive a severance
payment if terminated by us without cause. The severance benefits would include a payment in an amount equal to one year of such
executive officer’s annualized base salary compensation plus accrued paid time off. Additionally, the officer will be entitled to receive
medical and dental insurance coverage for one year following the date of termination.
Each of these executive officers, other than Mr. Schumacher, is entitled to receive a change of control payment in an amount equal to
one year of such executive officer’s annualized base salary compensation, accrued paid time off, and medical and dental coverage, in the
event of a change of control of the Company. In the case of Mr. Schumacher, this payment would be equal to two years of annualized base
salary compensation, accrued paid time off, and two years of medical and dental coverage. The severance payment is meant to induce the
executive to become an employee of the Company and to remain in the employ of the Company, in general, and particularly in the
occurrence of a change in control.
Investment Banking Agreement
On November 4, 2011, the Company entered into an agreement with a former placement agent, pursuant to which the Company and the
placement agent released each other of their respective obligations under a prior investment banking agreement. In connection with this
agreement, the Company issued the placement agent a promissory note with an original principal amount of $150,000 with a maturity date of
May 4, 2012. The promissory note is interest free, provided that, if the Company does not repay the principal amount on or before the
maturity date, it will accrue interest at a rate of 18% per annum.
Lease Commitments
We lease building space under non-cancelable leases in South Easton, MA and in the Venture Development Center at the University of
Massachusetts in Boston.
-36-
Following is a schedule by years of future minimum rental payments required under operating leases with initial or remaining non-
cancelable lease terms in excess of one year as of December 31, 2011:
Year ending December 31:
2012
2013
Thereafter
Total minimum payments required
CRITICAL ACCOUNTING POLICIES
Principles of Consolidation
$
$
$
117,600
121,644
-
239,244
The consolidated financial statements include the accounts of Pressure BioSciences, Inc., and its wholly-owned subsidiary PBI BioSeq, Inc.
Use of Estimates
To prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of
America, we are required to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. In addition, significant estimates were made in projecting future cash flows to quantify impairment of assets,
deferred tax assets, the costs associated with fulfilling our warranty obligations for the instruments that we sell, and the estimates employed
in our calculation of fair value of stock options awarded. We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results could differ from the estimates and assumptions used.
Revenue Recognition
We recognize revenue in accordance with FASB ASC 605, Revenue Recognition. Revenue is recognized when realized or earned when
all the following criteria have been met: persuasive evidence of an arrangement exists; delivery has occurred and risk of loss has passed to
the customer; the seller’s price to the buyer is fixed or determinable; and collectability is reasonably assured.
Our current instruments, the Barocycler NEP3229 and NEP2320, require a basic level of instrumentation expertise to set-up for initial
operation. To support a favorable first experience for our customers, we send a highly trained technical representative to the customer site to
install every Barocycler that we sell, lease, or rent through our domestic sales force. The installation process includes uncrating and setting
up the instrument, followed by introductory user training. Product revenue related to current Barocycler instrumentation is recognized upon
the completion of the installation and introductory training process of the instrumentation at the customer location, for domestic and foreign
installations. Product revenue related to sales of PCT instrumentation to our foreign distributors is recognized upon shipment through a
common carrier. We provide for the expected costs of warranty upon the recognition of revenue for the sales of our instrumentation. Our
sales arrangements do not provide our customers with a right of return. Product revenue related to our consumable products such as PULSE
Tubes, MicroTubes, and application specific kits is recorded upon shipment through a common carrier. Shipping costs are included in sales
and marketing expense. Any shipping costs billed to customers are recognized as revenue.
In accordance with FASB ASC 840, Leases, we account for our lease agreements under the operating method. We record revenue over
the life of the lease term and we record depreciation expense on a straight-line basis over the thirty-six month estimated useful life of the
Barocycler instrument. The depreciation expense associated with assets under lease agreement is included in the “Cost of PCT products and
services” line item in our consolidated statements of operations. Many of our lease and rental agreements allow the lessee to purchase the
instrument at any point during the term of the agreement with partial or full credit for payments previously made. We pay all maintenance
costs associated with the instrument during the term of the leases.
-37-
Revenue from government grants is recorded when expenses are incurred under the grant in accordance with the terms of the grant
award.
Our transactions sometimes involve multiple elements (i.e., products and services). Revenue under multiple element arrangements is
recognized in accordance with FASB ASC 605-25 Multiple-Element Arrangements (“ASC 605”). When vendor specific objective evidence
or third party evidence of selling price for deliverables in an arrangement cannot be determined, the Company develops a best estimate of the
selling price to separate deliverables and allocates arrangement consideration using the relative selling price method. Additionally, this
guidance eliminates the residual method of allocation. If an arrangement includes undelivered elements that are not essential to the
functionality of the delivered elements, we defer the fair value of the undelivered elements with the residual revenue allocated to the
delivered elements. Fair value is determined based upon the price charged when the element is sold separately. If there is not sufficient
evidence of the fair value of the undelivered elements, no revenue is allocated to the delivered elements and the total consideration received
is deferred until delivery of those elements for which objective and reliable evidence of the fair value is not available. We provide certain
customers with extended service contracts with revenue recognized ratably over the life of the contract.
Intangible Assets
We have classified as intangible assets, costs associated with the fair value of certain assets of businesses acquired. Intangible assets
relate to the remaining value of acquired patents associated with PCT. The cost of these acquired patents is amortized on a straight-line basis
over sixteen years. We annually review our intangible assets for impairment. When impairment is indicated, any excess of carrying value
over fair value is recorded as a loss. An impairment analysis of intangible assets as of December 31, 2011 concluded they were not
impaired.
Long-Lived Assets and Deferred Costs
In accordance with FASB ASC 360-10-05, Property, Plant, and Equipment, if indicators of impairment exist, we assess the
recoverability of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through the
undiscounted future operating cash flows related to the long-lived assets. If impairment is indicated, we measure the amount of such
impairment by comparing the carrying value of the asset to the fair value of the asset and record the impairment as a reduction in the carrying
value of the related asset and a charge to operating results. While our current and historical operating losses and cash flow are indicators of
impairment, we performed an impairment analysis at December 31, 2011 and determined that our long-lived assets were not impaired.
Warrant Derivative Liability
The warrants issued in connection with the Series C Convertible Preferred Stock private placement (the “Series C Warrants”) and
warrants issued in connection with the registered direct offering of Series D Convertible Preferred Stock (the (“Series D Warrants”) are
measured at fair value and liability-classified because the Series C Warrants are entitled to certain rights in subsequent financings and the
Series D Warrants contain “down-round protection” and therefore, do not meet the scope exception for treatment as a derivative under ASC
815, Derivatives and Hedging, (“ASC 815”). Since “down-round protection” is not an input into the calculation of the fair value of the
warrants, the warrants cannot be considered indexed to the Company’s own stock which is a requirement for the scope exception as outlined
under ASC 815. The estimated fair value of the warrants was determined using the binomial model, resulting in an allocation of the gross
proceeds of $583,250 to the total warrants issued in the Series C private placement and $283,725 to the warrants issued in the Series D
registered direct offering. The fair value will be affected by changes in inputs to that model including our stock price, expected stock price
volatility, the contractual term, and the risk-free interest rate. We will continue to classify the fair value of the warrants as a liability until the
warrants are exercised, expire or are amended in a way that would no longer require these warrants to be classified as a liability, whichever
comes first. The down-round protection for the Series C Warrants expires 12 months subsequent to the issuance of the Series C Units and
the down-round protection for the Series D Warrants survives for the life of the Series D Warrants which ends in May 2017.
RECENT ACCOUNTING STANDARDS
-38-
The Financial Accounting Standards Board, or “FASB,” issued Accounting Standards Update, or ASU No. 2009-13, Revenue
Recognition (Topic 605) — Multiple-Deliverable Revenue Arrangements, or (“ASU 2009-13”). ASU 2009-13 amends existing revenue
guidance related to revenue arrangements with multiple deliverables to allow the use of companies’ estimated selling prices as the value for
deliverable elements under certain circumstances and to eliminate the use of the residual method for allocation of deliverable elements. ASU
2009-13 is effective for fiscal years beginning on or after June 15, 2010, with earlier adoption permitted. We evaluated the impact of this
standard on the financial statements and determined that there was no material impact.
In January 2010, the FASB issued ASU 2010-06 “Fair Value Measurements and Disclosures” (“ASU 2010-06”). ASU 2010-06 updated
section ASC 820-10, Fair Value Measurements and Disclosures, to require a greater level of disaggregated information and more robust
disclosure about valuation techniques and inputs to fair value measurements. ASU 2010-06 is effective for interim and annual reporting
periods beginning after December 15, 2009, with the exception of the disclosures about purchases, sales, issuances and settlements in the roll
forward of activity in Level 3 fair value measures which are effective for interim and annual reporting periods beginning after December 15,
2010. We have determined that there is no significant impact to our operations from this guidance.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable
-39-
Report of Independent Registered Public Accounting Firm
To the Board of Directors of
Pressure BioSciences, Inc. and Subsidiary:
We have audited the consolidated balance sheets of Pressure BioSciences, Inc. and Subsidiary (the “Company”) as of December 31, 2011
and 2010, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then
ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are
free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Pressure BioSciences, Inc. and Subsidiary as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the
years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company has had recurring net losses and continues to experience negative cash flows from
operations. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those
matters also are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ MARCUM LLP
Boston, Massachusetts
February 27, 2012
-40-
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2011 AND 2010
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Restricted cash
Accounts receivable, net of allowances of $9,600 at December 31, 2011 and $0 at December 31, 2010
Inventories
Prepaid income taxes
Prepaid expenses and other current assets
Total current assets
PROPERTY AND EQUIPMENT, NET
OTHER ASSETS
Deposits
Intangible assets, net
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable
Accrued employee compensation
Accrued professional fees and other
Deferred revenue
Promissory note
Convertible debt, net of unamortized discount of $17,088 as of December 31, 2011
Warrant derivative liability
Total current liabilities
LONG TERM LIABILITIES
Deferred revenue
TOTAL LIABILITIES
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (DEFICIT)
Series A convertible preferred stock, $.01 par value; 313,960 shares authorized; 0 shares issued and
outstanding on December 31, 2011 and 262,135 shares issued and outstanding on December 31, 2010
Series B convertible preferred stock, $.01 par value; 279,256 shares authorized; 0 shares issued and
outstanding on December 31, 2011 and 88,711 shares on December 31, 2010
Series C convertible preferred stock, $.01 par value; 88,098 shares authorized; 88,098 shares issued and
outstanding on December 31, 2011 and 0 shares on December 31, 2010 (Liquidation value of $1,101,225)
Series D convertible preferred stock, $.01 par value; 850 shares authorized; 743 shares issued and
outstanding on December 31, 2011 and 0 shares on December 31, 2010 (Liquidation value of $743,000)
Common stock, $.01 par value; 20,000,000 shares authorized; 6,723,993 shares issued and outstanding on
December 31, 2011 and 2,711,750 shares issued and outstanding on December 31, 2010
Warrants to acquire preferred stock and common stock
Additional paid-in capital
Accumulated deficit
Total stockholders' equity (deficit)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31,
2011
2010
$
$
$
$
$
$
222,775
-
269,237
1,069,013
4,739
143,591
1,709,355
89,171
6,472
133,762
1,938,760
890,676
180,437
247,738
36,669
150,000
394,912
436,553
2,336,985
10,111
2,347,096
-
-
881
7
552,849
20,014
233,846
1,104,056
1,442
296,756
2,208,963
192,777
6,472
182,394
2,590,606
234,568
172,251
337,698
27,153
-
-
-
771,670
9,427
781,097
2,621
887
-
-
27,118
67,240
1,248,909
2,203,101
13,823,875
12,095,237
(16,503,440) (11,565,263)
1,809,509
2,590,606
(408,336)
$
1,938,760
$
The accompanying notes are an integral part of these consolidated financial statements.
-41-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Revenue:
PCT products, services, other
Grant revenue
Total revenue
Costs and expenses:
Cost of PCT products and services
Research and development
Selling and marketing
General and administrative
Total operating costs and expenses
Operating loss
Other income (expense):
Interest (expense) income
Therapeutic discovery credit
Change in fair value of warrant derivative liability
Total other income (expense)
Loss before income taxes
Income tax benefit
Net loss
Accrued interest on convertible debt
Accrued and deemed dividends on convertible preferred stock
Net loss applicable to common shareholders
For the Year Ended
December 31,
2011
2010
$
$
767,765
219,964
987,729
877,567
462,465
1,340,032
342,865
969,473
931,073
2,034,458
4,277,869
376,514
1,232,566
1,204,892
1,924,814
4,738,786
(3,290,140)
(3,398,754)
(136,595)
-
430,423
293,828
2,303
244,479
-
246,782
-
(2,996,312)
(3,151,972)
23,710
(3,128,262)
-
(502,564)
$ (5,107,661) $ (3,630,826)
(2,996,312)
18,896
(2,130,245)
Net loss per share attributable to common stockholders - basic and diluted
$
(0.77) $
(1.35)
Weighted average common stock shares outstanding used in the basic and diluted net loss per share
calculation
6,618,484
2,687,141
The accompanying notes are an integral part of these consolidated financial statements.
-42-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Series A Preferred
Stock
Series C Preferred
Stock
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
Series D Preferred
Stock
Series B Preferred
Stock
Total Preferred
Stock
152,213
$ 1,523
62,039
$
620
-
$
BALANCE, December 31,
2009
Stock-based
compensation
Stock option exercises
Issuance of convertible
preferred stock
Issuance of common
stock for services
Offering costs for
issuance of preferred
stock
Issuance of warrants
Stock warrant exercise
Beneficial conversion of
issued preferred stock
Conversion of preferred
stock to common stock
Common stock paid-in-
kind dividends earned
Series B dividend paid in
cash
Issuance of common
stock for dividends paid-
in-kind
Net loss
BALANCE, December 31,
2010
Stock-based
compensation
Stock option exercises
Issuance of convertible
preferred stock
Issuance of common
stock for services
Offering costs for
issuance of preferred
stock
Issuance of warrants in
connection short-term
loans
Issuance of stock in lieu
of cash for Board of
Director fees
Warrant modifications
Beneficial conversion of
issued preferred stock
Conversion of preferred
stock to common stock
Common stock paid-in-
kind dividends earned
Series B dividend paid in
cash
Issuance of common
stock for dividends paid-
in-kind
Net loss
-
-
-
-
-
-
-
-
-
-
-
26,672
267
-
-
-
125,658
-
-
1,255
-
-
(15,736)
(157)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
262,135
$ 2,621
88,711
$
887
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
88,098
881
843
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
214,252
$ 2,143
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
26,672
267
-
-
-
-
125,658
-
-
1,255
-
-
(15,736)
(157)
-
-
-
-
-
-
-
-
-
$
-
350,846
$ 3,508
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8
-
-
-
-
-
-
-
-
-
-
88,941
889
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7
-
-
-
-
-
-
-
-
88,841
$
888
(262,135) (2,621) (88,711)
(887)
(100)
(1) (350,946) (3,509)
BALANCE, December 31,
2011
-
$
-
$
-
88,098
$
881
743
$
The accompanying notes are an integral part of these consolidated financial statements.
-43-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Common Stock
Shares
2,328,426
-
18,897
$
Amount
Stock
Warrants
$
23,284
-
189
$
1,352,165
-
-
BALANCE, December 31, 2009
Stock-based compensation
Stock option exercises
Issuance of convertible preferred
stock
Issuance of common stock for
services
Offering costs for issuance of
preferred stock
Issuance of warrants
Stock warrant exercise
Beneficial conversion of issued
preferred stock
Conversion of preferred stock to
common stock
Common stock paid-in-kind
dividends earned
Series B dividend paid in cash
Issuance of common stock for
dividends paid-in-kind
Net loss
BALANCE, December 31, 2010
Stock-based compensation
Stock option exercises
Issuance of convertible preferred
stock
Issuance of common stock for
services
Offering costs for issuance of
preferred stock
Issuance of warrants in connection
short-term loans
Issuance of stock in lieu of cash for
Board of Director fees
Warrant modifications
Beneficial conversion of issued
preferred stock
Conversion of preferred stock to
common stock
Common stock paid-in-kind
dividends earned
Series B dividend paid in cash
Issuance of common stock for
-
17,000
-
-
-
-
-
170
-
-
-
-
157,360
1,573
-
-
-
-
-
20,000
-
-
124,996
-
-
-
200
-
-
1,250
-
-
3,662,336
36,623
-
-
-
-
Additional
Paid-In
Accumulated
Deficit
$ (7,986,620) $
Capital
9,297,115
273,182
20,031
328,107
25,800
-
-
Total
Stockholders'
(Deficit)
Equity
2,688,087
273,182
20,220
328,374
25,970
(53,689)
307,416
1,421,275
-
-
-
-
-
-
-
-
307,416
(410,671)
(53,689)
-
1,830,691
-
-
-
-
154,389
(154,389)
(1,416)
-
-
-
-
-
(118,020)
(7,212)
(118,020)
(7,212)
52,169
(3,128,262)
1,809,509
121,974
43,980
1,077,247
17,000
(794,012)
249,348
104,997
-
-
-
-
-
-
-
-
(704,844)
-
-
-
1,076,359
16,800
(794,012)
249,348
-
704,844
-
103,747
-
-
-
-
-
1,006,574
(1,006,574)
(33,114)
-
-
-
-
-
(164,904)
(65,543)
(164,904)
(65,543)
190,067
-
2,711,750
-
41,103
$
1,902
-
27,118
-
411
$
-
-
1,248,909
-
-
221,027
-
$ 12,095,237
121,974
43,569
(170,760)
(3,128,262)
$ (11,565,263) $
dividends paid-in-kind
Net loss
BALANCE, December 31, 2011
163,808
-
6,723,993
$
1,638
-
67,240
$
-
-
2,203,101
186,741
-
$ 13,823,875
-
(2,996,312)
$ (16,503,440) $
188,379
(2,996,312)
(408,336)
The accompanying notes are an integral part of these consolidated financial statements.
-44-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization
Accretion of interest and amortization of debt issue costs
Stock-based compensation expense
Borrowings on promissory note
Change in fair value of warrant derivative liability
Bad debt expense
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Deposits
Accounts payable
Accrued employee compensation
Deferred revenue and other accrued expenses
Prepaid expenses and other current assets
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock option exercises
Decrease in restricted cash
Proceeds from stock warrant exercises
Borrowings on convertible debt
Net proceeds from the issuance of preferred stock
Net cash provided by financing activities
Change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
SUPPLEMENTAL INFORMATION:
Income taxes paid
Income tax refund received
Issuance of common stock dividend on preferred stock
Issuance of preferred stock warrants to placement agent
Issuance of common stock warrants for services
Issuance of common stock for services
Issuance of common stock for deferred board fees
Series B dividend paid in cash
Warrant modifications
Beneficial conversion feature on convertible preferred stock
For the Year Ended
December 31,
2011
2010
$ (2,996,312) $ (3,128,262)
141,315
108,876
121,974
150,000
(430,423)
9,600
197,431
-
273,181
-
-
-
(44,991)
48,608
-
763,849
8,186
(78,500)
55,955
(2,141,863)
(30,635)
(465,706)
175,538
86,481
66,427
67,912
(114,547)
(2,872,180)
(2,642)
(2,642)
(92,111)
(92,111)
43,980
20,014
-
412,000
1,338,437
1,814,431
20,220
-
1,421,275
-
465,867
1,907,362
(330,074)
552,849
222,775
$
(1,056,929)
1,609,778
552,849
$
1,900
23,710
188,379
94,313
-
4,999
104,997
65,543
704,844
1,006,574
-
244,479
222,931
18,122
116,234
25,970
-
7,212
-
154,389
$
$
The accompanying notes are an integral part of these consolidated financial statements.
-45-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Business Overview and Management Plans
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 (35,000 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 DNA, RNA, proteins, lipids, and small molecules. Our laboratory instrument, the Barocycler®, and our internally developed
consumables product line, including PULSE (Pressure Used to Lyse Samples for Extraction) Tubes, other processing tubes, and application
specific kits (which include consumable products and reagents) together make up our PCT Sample Preparation System, or PCT SPS.
We have experienced negative cash flows from operations with respect to our pressure cycling technology business since our inception.
As of December 31, 2011, we did not have adequate working capital resources to satisfy our current liabilities. Based on our current
projections, including equity financing subsequent to December 31, 2011, we believe our current cash resources will enable us to extend our
cash resources until April 2012.
As a result, the audit report issued by our independent registered public accounting firm on our audited financial statements for the fiscal
year ended December 31, 2011 contains an explanatory paragraph regarding our ability to continue as a going concern due to the risk that we
may not have sufficient cash and liquid assets at December 31, 2011 to cover our operating and capital requirements for the next twelve-
month period; and if sufficient cash cannot be obtained, we would have to substantially alter, or possibly even discontinue, operations. The
accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Such an opinion from our independent registered accounting firm could adversely affect our ability to obtain additional financing on
favorable terms, if at all, as such an opinion may cause investors to have reservations about our long-term prospects, and may adversely
affect our relationships with customers. There can be no assurance that our auditing firm will not qualify its opinion in the future. If we
cannot successfully continue as a going concern, our stockholders may lose their entire investment in us.
Management has developed a plan to continue operations. This plan includes further reductions in expenses and obtaining equity or debt
financing including our most recently completed financing in February 2012, in which we sold units consisting of shares of restricted
common stock and warrants to purchase shares of common stock for net aggregate proceeds of approximately $765,000, which included the
conversion of $387,457 in principal and interest from convertible promissory notes. Although we have successfully completed equity
financings and reduced expenses in the past, we cannot assure you that our plans to address these matters in the future will be
successful. Additional financing may not be available to us on a timely basis, if at all, or on terms acceptable to us. In the event we are
unable to raise sufficient funds on terms acceptable to us, we may be required to:
·
·
·
severely limit or cease our operations or otherwise reduce planned expenditures and forego other business opportunities,
which could harm our business. The accompanying financial statements do not include adjustments that may be required in
the event of the disposal of assets or the discontinuation of the business;
obtain financing with terms that may have the effect of diluting or adversely affecting the holdings or the rights of the holders
of our capital stock; or
obtain funds through arrangements with future collaboration partners or others that may require us to relinquish rights to some
or all of our technologies or products.
-46-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our common stock is listed on The NASDAQ Capital Market. We previously received letters from the NASDAQ Stock
Market LLC, or NASDAQ, on April 13, 2011, advising us that our stockholders’ equity for the year ended December 31,
2010 had fallen below the minimum requirement for continued inclusion on The NASDAQ Capital Market and on August 15,
2011, advising us that, for the previous 30 consecutive business days, the bid price of our common stock had closed below the
minimum $1.00 per share requirement for continued inclusion on The NASDAQ Capital Market. On October 4, 2011, we
received written notification from the Listing Qualifications Department of the NASDAQ, or NASDAQ, stating that our
common stock is subject to delisting from The NASDAQ Capital Market, pending our opportunity to request a hearing before
a NASDAQ Listing Qualifications Panel (the “Panel”). We attended a hearing before the Panel on November 17, 2011 to
consider further our plan to bring the Company into compliance with the stockholders’ equity listing standard and the
minimum $1.00 per share requirement.
On December 7, 2011, we received notice that the Panel granted our request for continued listing on The NASDAQ Capital Market
subject to, among other things, our demonstration of compliance with the applicable minimum stockholders’ equity requirement of $2.5
million by February 29, 2012. On February 15, 2012, we received notice from NASDAQ that the bid price of our common stock had not
regained compliance with the minimum $1.00 per share requirement as of February 13, 2012, 180 calendar days after NASDAQ’s August
15, 2011 notice. While we are working toward regaining compliance with all applicable requirements for continued listing on The
NASDAQ Capital Market, including both minimum stockholders’ equity and minimum bid price of $1.00 per share, there can be no
assurance that we will be able to demonstrate compliance by the February 29, 2012 deadline or that the Panel will grant us an extension in
the event compliance is not timely achieved.
The Company identified errors in its calculation of the incremental value of the warrants issued to holders of Series A and B Convertible
Preferred Stock. As a result of this correction, the Company has identified an additional $379,000 that has been recorded as a deemed
dividend. The Company has analyzed the impact of this item and concluded that it would not be material with respect to any reporting
period after taking into consideration the requirements of the Securities and Exchange Commission (“SEC”) Staff Bulletin No. 99.
(2) Summary of Significant Accounting Policies
(i) Principles of Consolidation
The consolidated financial statements include the accounts of Pressure BioSciences, Inc., and its wholly-owned subsidiary PBI BioSeq,
Inc. All intercompany accounts and transactions have been eliminated in consolidation.
(ii) Use of Estimates
To prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of
America, we are required to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. In addition, significant estimates were made in projecting future cash flows to quantify impairment of assets,
deferred tax assets, the costs associated with fulfilling our warranty obligations for the instruments that we sell, and the estimates employed
in our calculation of fair value of stock options awarded and warrant derivative liability. We base our estimates on historical experience and
on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from
the estimates and assumptions used.
(iii) Revenue Recognition
Revenue is recognized when realized or earned when all the following criteria have been met: persuasive evidence of an arrangement
exists; delivery has occurred and risk of loss has passed to the customer; the seller’s price to the buyer is fixed or determinable; and
collectability is reasonably assured.
-47-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our current instruments, the Barocycler NEP3229 and NEP2320, require a basic level of instrumentation expertise to set-up for initial
operation. To support a favorable first experience for our customers, we send a highly trained technical representative to the customer site to
install every Barocycler that we sell, lease, or rent through our domestic sales force. The installation process includes uncrating and setting
up the instrument, followed by introductory user training. Product revenue related to current Barocycler instrumentation is recognized upon
the completion of the installation and introductory training process of the instrumentation at the customer location, for domestic
installations. Product revenue related to sales of PCT instrumentation to our foreign distributors is recognized upon shipment through a
common carrier. We provide for the expected costs of warranty upon the recognition of revenue for the sales of our instrumentation. Our
sales arrangements do not provide our customers with a right of return. Product revenue related to the HUB440 and our consumable products
such as PULSE Tubes, MicroTubes, and application specific kits is recorded upon shipment through a common carrier. Shipping costs are
included in sales and marketing expense. Any shipping costs billed to customers are recognized as revenue.
We account for our lease agreements under the operating method. We record revenue over the life of the lease term and we record
depreciation expense on a straight-line basis over the thirty-six month estimated useful life of the Barocycler instrument. The depreciation
expense associated with assets under lease agreement is included in the “Cost of PCT products and services” line item in our consolidated
statements of operations. Many of our lease and rental agreements allow the lessee to purchase the instrument at any point during the term
of the agreement with partial or full credit for payments previously made. We pay all maintenance costs associated with the instrument
during the term of the leases.
Revenue from government grants is recorded when expenses are incurred under the grant in accordance with the terms of the grant
award.
Our transactions sometimes involve multiple elements (i.e., products and services). Revenue under multiple element arrangements is
recognized in accordance with FASB ASC 605-25 Multiple-Element Arrangements (“ASC 605”). When vendor specific objective evidence
or third party evidence of selling price for deliverables in an arrangement cannot be determined, the Company develops a best estimate of the
selling price to separate deliverables and allocates arrangement consideration using the relative selling price method. Additionally, this
guidance eliminates the residual method of allocation. If an arrangement includes undelivered elements that are not essential to the
functionality of the delivered elements, we defer the fair value of the undelivered elements with the residual revenue allocated to the
delivered elements. Fair value is determined based upon the price charged when the element is sold separately. If there is not sufficient
evidence of the fair value of the undelivered elements, no revenue is allocated to the delivered elements and the total consideration received
is deferred until delivery of those elements for which objective and reliable evidence of the fair value is not available. We provide certain
customers with extended service contracts with revenue recognized ratably over the life of the contract.
(iv) Cash and Cash Equivalents
Our policy is to invest available cash in short-term, investment grade interest-bearing obligations, including money market funds, and
bank and corporate debt instruments. Securities purchased with initial maturities of three months or less are valued at cost plus accrued
interest, which approximates fair value, and are classified as cash equivalents. As of December 31, 2010, we held $20,000 in a restricted
account as collateral for our corporate credit card and therefore classified this balance as short-term restricted cash on our consolidated
balance sheet. The restricted account was liquidated in early 2011.
(v) Research and Development
Research and development costs, which are comprised of costs incurred in performing research and development activities including
wages and associated employee benefits, facilities, consumable products and overhead costs that are expensed as incurred. In support of our
research and development activities we utilize our Barocycler instruments that are capitalized as fixed assets and depreciated over their
expected useful life.
(vi) Inventories
-48-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventories are valued at the lower of cost (average cost) or market (sales price). The cost of Barocyclers consists of the cost charged by the
contract manufacturer. The cost of manufactured goods includes material, freight-in, direct labor, and applicable overhead. The composition
of inventory as of December 31, 2011 and 2010 is as follows:
Raw materials
Finished goods
Total
(vii) Property and Equipment
December 31,
2011
$
$
193,121
875,892
1,069,013
$
$
2010
198,534
905,522
1,104,056
Property and equipment are stated at cost, less accumulated depreciation. For financial reporting purposes, depreciation is recognized
using the straight-line method, allocating the cost of the assets over their estimated useful lives of three years for certain laboratory
equipment, from three to five years for management information systems and office equipment, and three years for all PCT finished units
classified as fixed assets.
(viii) Intangible Assets
We have classified as intangible assets, costs associated with the fair value of acquired intellectual property. Intangible assets, including
patents, are being amortized on a straight-line basis over sixteen years. We perform an annual review of our intangible assets for
impairment. When impairment is indicated, any excess of carrying value over fair value is recorded as a loss. An impairment analysis of
intangible assets was performed as of December 31, 2011. Based on this analysis, we have concluded that no impairment of intangible assets
had occurred.
(ix) Long-Lived Assets and Deferred Costs
The Company’s long-lived assets and other assets are reviewed for impairment in accordance with the guidance of the FASB ASC 360-
10-05, Property, Plant, and Equipment, whenever events or changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future
undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the asset exceeds its fair value. Through December 31, 2011, the Company had
not experienced impairment losses on its long-lived assets. While our current and historical operating losses and cash flow are indicators of
impairment, we performed an impairment test at December 31, 2011 and determined that such long-lived assets were not impaired.
(x) Concentrations
Credit Risk
Our financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents and trade
receivables. We have cash investment policies which, among other things, limit investments to investment-grade securities. We perform
ongoing credit evaluations of our customers, and the risk with respect to trade receivables is further mitigated by the fact that many of our
customers are government institutions and university labs.
The following table illustrates the level of concentration of the below two groups within revenue as a percentage of total revenues during
the years ended December 31, 2011 and 2010:
Top Five Customers
Federal Agencies
For the Year Ended
December 31,
2011
2010
37%
26%
The following table illustrates the level of concentration of the below two groups within accounts receivable as a percentage of total
accounts receivable balance as of December 31, 2011 and 2010:
Top Five Customers
Federal Agencies
December 31,
2011
2010
89%
42%
47%
38%
72%
29%
Product Supply
Source Scientific, LLC has been our sole contract manufacturer for all of our PCT instrumentation. Until we develop a broader network
of manufacturers and subcontractors, obtaining alternative sources of supply or manufacturing services could involve significant delays and
other costs and challenges, and may not be available to us on reasonable terms, if at all. The failure of a supplier or contract manufacturer to
provide sufficient quantities, acceptable quality and timely products at an acceptable price, or an interruption of supplies from such a supplier
could harm our business and prospects.
(xi) Computation of Loss per Share
Basic loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares
outstanding. Diluted loss per share is computed by dividing loss available to common shareholders by the weighted average number of
common shares outstanding plus additional common shares that would have been outstanding if dilutive potential common shares had been
issued. For purposes of this calculation, convertible preferred stock, common stock dividends, warrants to acquire preferred stock
convertible into common stock, and warrants and options to acquire common stock, are all considered common stock equivalents in periods
in which they have a dilutive effect and are excluded from this calculation in periods in which these are anti-dilutive. The following table
illustrates our computation of loss per share for the years ended December 31, 2011 and 2010.
For the Year Ended
December 31,
2011
2010
Numerator:
Net loss
Accrued interest on convertible debt, after tax
Accrued dividend for Preferred Stock
Deemed dividend on warrant modifications
Beneficial conversion feature for Preferred Stock
Series A Preferred dividends paid in Common Stock
Series B Preferred dividends paid in Common Stock
Series B Preferred dividends paid in cash
Net loss applicable to common shareholders
Denominator for basic and diluted loss per share:
Weighted average common stock shares outstanding
Loss per common share - basic and diluted
18,896
(164,904)
(704,844)
(1,006,574)
(188,380)
$ (2,996,312) $ (3,128,262)
-
(118,020)
-
(154,389)
(186,968)
(35,975)
(7,212)
$ (5,107,661) $ (3,630,826)
(65,543)
-
6,618,484
2,687,141
$
(0.77) $
(1.35)
The following table presents securities that could potentially dilute basic loss per share in the future. For all periods presented, the
potentially dilutive securities were not included in the computation of diluted loss per share because these securities would have been anti-
dilutive.
Stock options
Convertible debt
Common stock warrants
Preferred stock warrants
Convertible preferred stock:
Series A Convertible Preferred
Series B Convertible Preferred
Series C Convertible Preferred
Series D Convertible Preferred
(xii) Accounting for Income Taxes
For the Year Ended
December 31,
2011
2010
1,508,500
412,000
4,775,501
-
-
-
880,980
1,143,077
8,720,058
201,110
-
1,740,800
940,550
2,621,350
887,110
-
-
6,390,920
We account for income taxes under the asset and liability method, which requires recognition of deferred tax assets, subject to valuation
allowances, and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax
returns. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting and income tax purposes. The Company considers many factors when assessing the likelihood of future realization of
our deferred tax assets, including recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income or loss,
the carry-forward periods available to us for tax reporting purposes, and other relevant factors. A valuation allowance is established if it is
more likely than not that all or a portion of the net deferred tax assets will not be realized. If substantial changes in the company’s
ownership should occur, as defined in Section 382 of the Internal Revenue Code, there could be significant limitations on the amount of net
loss carry forwards that could be used to offset future taxable income.
-49-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The benefit of $23,710 that was realized in 2010 relates to legislation within the Housing Assistance Tax Act of 2008 which provided
the Company the option to claim a refundable tax credit in exchange for foregoing bonus depreciation.
(xiii) Accounting for Stock-Based Compensation
We maintain equity compensation plans under which incentive stock options and non-qualified stock options are granted to employees,
independent members of our Board of Directors and outside consultants. We recognize equity compensation expense over the requisite
service period using the Black-Scholes formula to estimate the fair value of the stock options on the date of grant.
Determining Fair Value of Stock Option Grants
Valuation and Amortization Method - The fair value of each option award is estimated on the date of grant using the Black-Scholes
pricing model based on certain assumptions. The estimated fair value of employee stock options is amortized to expense using the straight-
line method over the vesting period, which generally is over three years.
Expected Term - The Company uses the simplified calculation of expected life, described in the FASB ASC 718, Compensation-Stock
Compensation, as the Company does not currently have sufficient historical exercise data on which to base an estimate of expected
term. Using this method, the expected term is determined using the average of the vesting period and the contractual life of the stock options
granted.
Expected Volatility - Expected volatility is based on the Company’s historical stock volatility data over the expected term of the award.
Risk-Free Interest Rate - The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield
currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term.
Forfeitures - As required by FASB ASC 718, Compensation-Stock Compensation, the Company records stock-based compensation
expense only for those awards that are expected to vest. The Company estimated a forfeiture rate of 5% for awards granted based on
historical experience and future expectations of options vesting. We used this historical rate as our assumption in calculating future stock-
based compensation expense.
The following table summarizes the assumptions we utilized for grants of stock options to the three sub-groups of our stock option
recipients during the twelve months ended December 31, 2011 and 2010:
Assumptions
Expected life
Expected volatility
Risk-free interest rate
Forfeiture rate
Expected dividend yield
Outside
Consultants
2.0 (yrs)
79.60%
1.27%
0.00%
0.0%
Non-Employee Board
Members
5.0 (yrs)
55.66% - 77.86%
2.60% - 4.94%
5.00%
0.0%
CEO and other Officers and Employees
6.0 (yrs)
55.66% - 101.83%
1.00% - 4.94%
5.00%
0.0%
We recognized stock-based compensation expense of $121,974 and $273,181 for the years ended December 31, 2011 and 2010,
respectively. The following table summarizes the effect of this stock-based compensation expense within each of the line items within our
Consolidated Statement of Operations:
Research and development
Selling and marketing
General and administrative
Total stock-based compensation expense
For the Year Ended,
December 31,
2011
2010
$
$
39,375
43,201
39,398
121,974
$
$
73,097
72,609
127,475
273,181
During the years ended December 31, 2011 and 2010, the total fair value of stock options awarded was $135,403 and $64,248,
respectively.
As of December 31, 2011, the total estimated fair value of unvested stock options to be amortized over their remaining vesting period
was $99,547. The non-cash, stock based compensation expense associated with the vesting of these options will be $31,695 in 2012,
$26,244 in 2013, $24,467 in 2014 and $17,141 in 2015.
(xiv) Fair Value of Financial Instruments
Due to their short maturities, the carrying amounts for cash and cash equivalents, accounts receivable, accounts payable, and accrued
expenses approximate their fair value. Short-term and long-term liabilities are primarily related to liabilities transferred under contractual
arrangements with carrying values that approximate fair value.
(xv) Reclassifications
Certain prior year amounts have been reclassified to conform to our current year presentation. Deposits were moved to long-term assets
to be consistent with the lease term of our headquarters.
(xvi) Recent Accounting Standards
The Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2009-13, Revenue Recognition
(Topic 605) — Multiple-Deliverable Revenue Arrangements, or ASU 2009-13. ASU 2009-13 amends existing revenue guidance related to
revenue arrangements with multiple deliverables to allow the use of companies’ estimated selling prices as the value for deliverable elements
under certain circumstances and to eliminate the use of the residual method for allocation of deliverable elements. ASU 2009-13 was
effective for fiscal years beginning on or after June 15, 2010, with earlier adoption permitted. We evaluated the impact of this standard on
the financial statements and determined that there was no material impact on adoption.
In January 2010, the FASB issued ASU 2010-06 “Fair Value Measurements and Disclosures” (“ASU2010-06”). ASU 2010-06 updated
section ASC 820-10 to require a greater level of disaggregated information and more robust disclosure about valuation techniques and inputs
to fair value measurements. ASU 2010-06 was effective for interim and annual reporting periods beginning after December 15, 2009, with
the exception of the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value
measures which are effective for interim and annual reporting periods beginning after December 15, 2010. The Company determined that
there was no significant impact to its operations from this guidance.
(xvii) Advertising
Advertising costs are expensed as incurred. During 2010 we incurred $23,545 in advertising expense. We did not purchase any
advertising, print or otherwise, in 2011.
(xviii) Rent Expense
Rental costs are expensed as incurred. During 2011 and 2010 we incurred $132,648 and $140,789, respectively in rent expense for the
use of our corporate office and research and development facilities.
(xix) Fair Value Measurements
-50-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company adopted the guidance of FASB ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) as of June 30,
2011, as it related to all financial assets and financial liabilities that are recognized or disclosed at fair value in the financial statements on a
recurring basis.
The Company generally defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (exit price). The Company uses a three-tier fair value hierarchy, which
classifies the inputs used in measuring fair values. These tiers include: Level 1, defined as observable inputs such as quoted prices for
identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or
indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to
develop its own assumptions.
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value
measurement. The Company has determined that it does not have any financial assets measured at fair value and that its financial liabilities
are currently all classified within Level 3 in the fair value hierarchy.
The following tables set forth the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of
December 31, 2011. The Company did not have financial liabilities measured at fair value in 2010.
Series C Common Stock Purchase Warrants
Series D Common Stock Purchase Warrants
$
$
Quoted prices in
active
Fair value measurements at December 31, 2011 using:
Significant
unobservable
inputs (Level
3)
205,353
231,200
436,553
markets (Level 1)
-
-
-
inputs (Level 2)
-
-
-
Significant other
observable
$
$
$
$
$
$
December
31, 2011
205,353
231,200
436,553
Series C Common Stock Purchase Warrants
Series D Common Stock Purchase Warrants
(3) Property and Equipment, net
January 1, 2011
-
$
-
-
$
Property and equipment as of December 31, 2011 and 2010 consisted of the following components:
Change in
Fair Value
205,353
231,200
436,553
$
$
December
31, 2011
205,353
231,200
436,553
$
$
Laboratory and manufacturing equipment
Office equipment
Leasehold improvements
PCT collaboration, demonstration and leased systems
Total property and equipment
Less accumulated depreciation
Net book value
December 31,
2011
2010
$
172,560
137,093
8,117
461,858
779,628
(690,457)
$
89,171
172,560
134,451
8,117
513,256
828,384
(635,607)
192,777
$
$
Depreciation expense for the years ended December 31, 2011 and 2010 was $92,683 and $148,799, respectively.
(4) Intangible Assets, net
Intangible assets as of December 31, 2011 reflect an estimate of purchase price attributable to patents in connection with the 1998
acquisition of BioSeq, Inc. and the PCT business. Acquired PCT patents are being amortized to expense on a straight line basis at the rate of
$48,632 per year over their estimated remaining useful lives of approximately 6 years. We performed a review of our intangible assets for
impairment. When impairment is indicated, any excess of carrying value over fair value is recorded as a loss. An impairment analysis of
intangible assets was performed as of December 31, 2011. We have concluded that there is no impairment of intangible assets. Intangible
assets at December 31, 2011 and 2010 consisted of the following:
December 31,
PCT Patents
Less accumulated amortization
Net book value
2011
$
$
778,156
$
(644,394)
$
133,762
2010
778,156
(595,762)
182,394
Amortization expense for each of the years ended December 31, 2011 and 2010 was $48,632 and is expected to be $48,632 per year
during the next three years.
(5) Retirement Plan
We provide all of our employees with the opportunity to participate in our retirement savings plan. Our retirement savings plan has been
qualified under Section 401(k) of the Internal Revenue Code. Eligible employees are permitted to contribute to the plan through payroll
deductions within statutory limitations and subject to any limitations included in the plan. During 2011 and 2010 we contributed $13,156 and
$11,232, respectively, in the form of discretionary company matching contributions.
(6) Income Taxes
The components of the benefit for income taxes are as follows:
Current benefit: federal
Current benefit: state
Total current benefit
Deferred provision: federal
Deferred provision: state
Total deferred provision
Total benefit for income taxes
$
For the Year Ended
December 31,
2011
2010
$
-
-
-
-
-
-
23,710
-
23,710
-
-
-
$
-
$
23,710
Significant items making up the deferred tax assets and deferred tax liabilities as of December 31, 2011 and 2010 are as follows:
Current deferred taxes:
Accounts receivable allowance
Other accruals
Less: valuation allowance
Total current deferred tax assets (liabilities)
Long term deferred taxes:
Accelerated tax depreciation
Non-cash, stock-based compensation, nonqualified
Goodwill and intangibles
Operating loss carryforwards and tax credits
Less: valuation allowance
Total long term deferred tax assets (liabilities), net
Total net deferred tax liabilities
$
$
$
$
December 31,
2011
2010
$
3,787
47,631
(51,418)
$
-
-
56,344
(56,344)
-
$
29,524
387,676
(52,763)
6,519,386
(6,883,823)
-
-
$
29,472
389,975
(73,450)
5,357,221
(5,703,218)
-
-
A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be
realized. Accordingly, a valuation allowance was established in 2011 and 2010 for the full amount of our deferred tax assets due to the
uncertainty of realization. We believe based on our projection of future taxable operating income for the foreseeable future, it is more likely
than not that we will not be able to realize the benefit of the deferred tax asset at December 31, 2011. The benefit that was realized in 2010
related to legislation within the Housing Assistance Tax Act of 2008 which provided taxpayers the option to elect to claim refundable tax
credits in exchange for foregoing bonus depreciation.
We had net operating loss carry-forwards for federal income tax purposes of $10,921,054 as of December 31, 2011. Included in these
numbers are loss carry-forwards that were obtained through the acquisition of BioSeq, Inc. and are subject to Section 382 NOL
limitations. These net operating loss carry-forwards expire at various dates from 2012 through 2031. We have not performed a Section 382
analysis but we estimate that approximately $50,000 of the restricted net operating loss carry-forwards will become available each year until
2031 once we generate taxable income.
We are considering whether the sale of capital stock and warrants in connection with our private placements and registered direct
offering completed in 2009, 2010 and 2011 will result in further limitations of our net operating losses under Section 382.
We had net operating loss carry-forwards for state income tax purposes of approximately $18,986,747 at December 31, 2011. These net
operating loss carry-forwards expire at various dates from 2012 through 2031.
Our effective income tax (benefit) provision rate was different than the statutory federal income tax (benefit) provision rate as follows:
Federal tax benefit rate
Permanent differences
State tax expense
Refundable AMT and R&D tax credit
Net operating loss carryback
Valuation allowance
Effective income tax benefit (provision) rate from continuing operations
-51-
For the Year Ended
December 31,
2011
2010
34 %
2 %
0 %
0 %
0 %
(36) %
0 %
34 %
1 %
0 %
(1) %
0 %
(35) %
(1) %
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) Commitments and Contingencies
Operating Leases
Our corporate offices are currently located at 14 Norfolk Avenue, South Easton, Massachusetts 02375. In November 2007, we signed a
lease agreement commencing in February 2008 pursuant to which we lease approximately 5,500 square feet of office space. We extended the
lease term until September 30, 2012 with a monthly payment of $4,800.
Effective January 1, 2010, we entered into a three-year lease agreement with the University of Massachusetts in Boston, pursuant to
which we are leasing laboratory and office space on campus at the university for research and development activities. We pay $5,000 per
month for the use of these facilities.
Following is a schedule by years of future minimum rental payments required under operating leases with initial or remaining non-
cancelable lease terms in excess of one year as of December 31, 2011:
Year ending December 31:
Thereafter
Total minimum payments required
Royalty Commitments
BioMolecular Assays, Inc.
2012 $
2013
$
117,600
121,644
-
239,244
In 1996, we acquired our initial equity interest in BioSeq, Inc., which at the time was developing our original pressure cycling
technology. BioSeq, Inc. acquired its pressure cycling technology from BioMolecular Assays, Inc. under a technology transfer and patent
assignment agreement. In 1998, we purchased all of the remaining outstanding capital stock of BioSeq, Inc., and at such time, the
technology transfer and patent assignment agreement was amended to require us to pay BioMolecular Assays, Inc. a 5% royalty on our sales
of products or services that incorporate or utilize the original pressure cycling technology that BioSeq, Inc. acquired from BioMolecular
Assays, Inc. We are also required to pay BioMolecular Assays, Inc. 5% of the proceeds from any sale, transfer or license of all or any
portion of the original pressure cycling technology. These payment obligations terminate in 2016. During the fiscal years ended December
31, 2011 and 2010, we incurred $21,090 and $36,330 in royalties, respectively.
In connection with our acquisition of BioSeq, Inc., we licensed certain limited rights to the original pressure cycling technology back to
BioMolecular Assays, Inc. This license is non-exclusive and limits the use of the original pressure cycling technology by BioMolecular
Assays, Inc. solely for molecular applications in scientific research and development and in scientific plant research and development.
BioMolecular Assays, Inc. is required to pay us a royalty equal to 20% of any license or other fees and royalties, but not including research
support and similar payments, it receives in connection with any sale, assignment, license or other transfer of any rights granted to
BioMolecular Assays, Inc. under the license. BioMolecular Assays, Inc. must pay us these royalties until the expiration of the patents held
by BioSeq, Inc. in 1998, which we anticipate will be 2016. We have not received any royalty payments from BioMolecular Assays, Inc.
under this license.
Battelle Memorial Institute
In December 2008, we entered into an exclusive patent license agreement with the Battelle Memorial Institute ("Battelle"). The licensed
technology is described in the patent application filed by Battelle on July 31, 2008 (US serial number 12/183,219). This application includes
subject matter related to a method and a system for improving the analysis of protein samples, including through an automated system
utilizing pressure and a pre-selected agent to obtain a digested sample in a significantly shorter period of time than current methods, while
maintaining the integrity of the sample throughout the preparatory process. Pursuant to the terms of the agreement, we paid Battelle a non-
refundable initial fee of $35,000. In addition to royalty payments on net sales on “licensed products”, we are obligated to make minimum
royalty payments for each year that we retain the rights outlined in the patent license
-52-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
agreement and we are required to have our first commercial sale of the licensed products within one year following the issuance of the
patent covered by the licensed technology. The minimum annual royalty was $5,000 for 2010. Our only obligation for 2011 was a minimum
royalty payment of $7,500.
Target Discovery Inc.
In March 2010, we signed a strategic product licensing, manufacturing, co-marketing, and collaborative research and development
agreement with Target Discovery Inc. (“TDI”). Under the terms of the agreement, we have been licensed by TDI to manufacture and sell a
highly innovative line of chemicals used in the preparation of tissues for scientific analysis ("TDI reagents"). The TDI reagents were
designed for use in combination with our pressure cycling technology. The companies believe that the combination of PCT and the TDI
reagents can fill an existing need in life science research for an automated method for rapid extraction and recovery of intact, functional
proteins associated with cell membranes in tissue samples. We owe a royalty of approximately $1,200 for 2011.
Severance and Change of Control Agreements
Each of Mr. Schumacher, Dr. Ting, Dr. Lazarev, and Dr. Lawrence, executive officers of the Company, is entitled to receive a severance
payment if terminated by us without cause. The severance benefits would include a payment in an amount equal to one year of such
executive officer’s annualized base salary compensation plus accrued paid time off. Additionally, the officer will be entitled to receive
medical and dental insurance coverage for one year following the date of termination.
Each of these executive officers, other than Mr. Schumacher, is entitled to receive a change of control payment in an amount equal to
one year of such executive officer’s annualized base salary compensation, accrued paid time off, and medical and dental coverage, in the
event of a change of control of the Company. In the case of Mr. Schumacher, this payment would be equal to two years of annualized base
salary compensation, accrued paid time off, and two years of medical and dental coverage. The severance payment is meant to induce the
executive to become an employee of the Company and to remain in the employ of the Company, in general, and particularly in the
occurrence of a change in control.
Investment Banking Agreement
On November 4, 2011, the Company entered into an agreement with a former placement agent, pursuant to which the Company and the
placement agent released each other of their respective obligations under a prior investment banking agreement. In connection with this
agreement, the Company issued the placement agent a promissory note with an original principal amount of $150,000 with a maturity date of
May 4, 2012. The promissory note is interest free, provided that, if the Company does not repay the principal amount on or before the
maturity date, it will accrue interest at a rate of 18% per annum.
(8) Stockholders’ Equity (Deficit)
Preferred Stock
We are authorized to issue 1,000,000 shares of preferred stock with a par value of $0.01. Of the 1,000,000 shares of preferred stock,
20,000 shares have been designated as Series A Junior Participating Preferred Stock, 313,960 shares have been designated as Series A
Convertible Preferred Stock, 279,256 shares have been designated as Series B Convertible Preferred Stock, 88,098 shares have been
designated as Series C Convertible Preferred Stock and 850 shares have been designated as Series D Convertible Preferred Stock. As of
December 31, 2011, there were 88,098 shares of Series C Convertible Preferred Stock outstanding and 743 shares of Series D Convertible
Preferred Stock issued and outstanding. As of December 31, 2011, there were no shares of Series A Junior Participating Preferred Stock,
Series A Convertible Preferred Stock or Series B Convertible Preferred Stock issued and outstanding.
Series A Convertible Preferred Stock
On February 12, 2009, we completed a private placement, pursuant to which we sold an aggregate of 156,980 units (the “Series A
Units”) for a purchase price of $11.50 per unit (the “Series A Purchase Price”), resulting in
-53-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
gross proceeds to us of $1,805,270 (the “Series A Private Placement”). Each Series A Unit consisted of (i) one share of Series A
Convertible Preferred Stock convertible into 10 shares of our common stock, (ii) a warrant to purchase one share of Series A Convertible
Preferred Stock at an exercise price equal to $12.50 per share, with a term expiring 15 months after the date of closing (“15-Month Series A
Preferred Stock Warrant”); and (iii) a warrant to purchase 10 shares of common stock at an exercise price equal to $2.00 per share, with a
term expiring 30 months after the date of closing (the “30-Month Common Stock Warrants”). We did not pay any placement fees associated
with this transaction but the expenses related to the offering totaled approximately $233,000.
As a result of the issuance of Common Stock in connection with dividends paid on the Series A Preferred Stock and the Series B
Preferred Stock, the exercise price of the 30-Month Common Stock Warrants has been adjusted from $2.00 to $1.72 in accordance with the
terms of the 30-Month Common Stock Purchase Warrants.
On or about August 10, 2011, holders of 30-Month Common Stock Warrants to purchase 1,569,800 shares of Common Stock entered
into an amendment to the 30-Month Common Stock Warrants which extended the expiration date of the warrants to August 11, 2012. On or
about September 30, 2011, 30-Month Common Stock Warrants to purchase 1,556,750 shares of Common Stock were further amended to
reduce the exercise price from $1.74 to $0.90 and to extend the term until August 12, 2016 and, with respect to affiliates, August 12,
2015. A 30-Month Common Stock Warrant to purchase 13,050 shares of Common Stock was not amended and was further adjusted by
common stock dividends issued in October 2011 resulting in an effective exercise price of $1.72 per share, subject to future adjustment, with
a term expiring on August 11, 2012.
The proceeds from the sale of each Series A Unit was allocated between the Series A Convertible Preferred Stock, the 15-Month Series
A Preferred Stock Warrant and the 30-Month Common Stock Warrant based on the residual method. The estimated fair value of the
warrants was determined using the Black-Scholes formula, resulting in an allocation of the gross proceeds of $882,253 to the total warrants
issued. The allocation of the gross proceeds to the Series A Convertible Preferred Stock was $923,017. In accordance with the provisions of
ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”), an additional adjustment between Additional Paid in Capital and
Accumulated Deficit of $489,803 was recorded to reflect an implicit non-cash dividend related to the allocation of proceeds between the
stock and warrants issued. The $489,803 represents the value of the adjustment to additional paid in capital related to the beneficial
conversion feature of the Series A Convertible Preferred Stock. The value adjustment was calculated by subtracting the fair market value of
the underlying common stock on February 12, 2009 issuable upon conversion of the Series A Convertible Preferred Stock from the fair
market value of the Series A Convertible Preferred Stock as determined when the Company performed a fair market value allocation of the
proceeds to the Series A Convertible Preferred Stock and warrants.
In September and October 2011, all shares of the outstanding shares of Series A Convertible Preferred Stock were voluntarily
converted. The Company has no obligation or intention to issue any more shares of Series A Convertible Preferred Stock.
Each share of Series A Convertible Preferred Stock received a cumulative dividend at the rate of 5% per annum of the Series A Purchase
Price, payable semi-annually on June 30 and December 31, commencing on June 30, 2009 (with the first payment being pro-rated based on
the number of days occurring between the date of issuance and June 30, 2009). The Company was permitted to pay dividends in cash or in
shares of common stock at our option, subject to certain conditions. The shares of Series A Convertible Preferred Stock were also entitled to
a liquidation preference, such that in the event of any voluntary or involuntary liquidation, dissolution or winding up of our Company, the
holders of Series A Convertible Preferred Stock would have been paid out of the assets of the Company available for distribution to our
stockholders before any payment was paid to the holders of common stock, an amount per share equal to the Series A Purchase Price, plus
accrued and unpaid dividends. The Series A Convertible Preferred Stock would have been treated on an equivalent basis with the holders of
the Series B Convertible Preferred Stock and Series C Convertible Preferred Stock with respect to payments made in connection with a
liquidation. The Board approved the final payment to Series A holders in the form of common stock for accrued dividends through
September 30, 2011.
Each share of Series A Convertible Preferred Stock was convertible into 10 shares of common stock at any time at the option of the
holder, subject to adjustment for stock splits, stock dividends, recapitalizations and similar transactions (the “Series A Conversion Ratio”).
Unless waived under certain circumstances by the holder of Series A
-54-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Convertible Preferred Stock, such holder’s shares of Series A Convertible Preferred Stock could not have been converted if upon such
conversion the holder’s beneficial ownership would exceed certain thresholds. Each share of Series A Convertible Preferred Stock would
have been automatically converted into shares of common stock at the Series A Conversion Ratio then in effect: (i) if, after 12 months from
the closing of the Series A Private Placement, the common stock traded on the NASDAQ Capital Market (or other primary trading market or
exchange on which the common stock was then traded) at a price equal to $4.00 for 20 out of 30 consecutive trading days with average daily
trading volume of at least 10,000 shares or (ii) upon a registered public offering by the Company at a per share price equal to $2.30 with
aggregate gross proceeds to the Company of not less than $10 million.
The holders of Series A Convertible Preferred Stock were not entitled to vote on any matters presented to the stockholders of the
Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of
meeting), except that the holders of Series A Convertible Preferred Stock would have been entitled to vote separately as a class on any
matters that would amend, alter or repeal any provision of our Restated Articles of Organization, as amended, in a manner that adversely
affects the powers, preferences or rights of the Series A Convertible Preferred Stock and such holders would have been entitled to vote on
any matters required by law.
At any time after February 11, 2014, upon 30 days written notice, we would have had the right to redeem the outstanding shares of
Series A Convertible Preferred Stock at a price equal to the Series A Purchase Price, plus all accrued and unpaid dividends thereon. The
redemption price could have also been paid in two annual installments.
On or about September 30, 2011, 46 of the 47 holders of both the outstanding Series A Convertible Preferred Stock and Series A 30-
Month Common Stock Purchase Warrants, issued in the Series A Convertible Preferred Stock financing completed by the Company in
February 2009, voluntarily converted an aggregate of 247,187 shares of Series A Preferred Stock into 2,471,870 shares of the Company’s
Common Stock.
15-Month Series A Preferred Stock Warrants and 30-Month Common Stock Warrants
Subject to the terms and conditions of the applicable warrants, the Company had the right to call for cancellation of the 15-Month Series
A Preferred Stock Warrants if the volume weighted average price of our common stock on the NASDAQ Capital Market (or other primary
trading market or exchange on which our common stock is then traded) equaled or exceeded $1.75 for either (i) 10 consecutive trading days
or (ii) 15 out of 25 consecutive trading days. Pursuant to these provisions, on March 30, 2010, the Company called all of the 15-Month
Series A Preferred Stock Warrants.
The 15-Month Series A Preferred Stock Warrants had an exercise price equal to $12.50 per share, with a term expiring on May 12,
2010. Each of the 15-Month Series A Preferred Stock Warrants were exercised in connection with the warrant call and, therefore, there are
no longer any 15-Month Series A Preferred Stock Warrants outstanding. The amended 30-Month Common Stock Warrants have an exercise
price equal to $0.90 per share, with a term expiring on August 12, 2016 (August 12, 2015 for Affiliates). Unless waived under certain
circumstances by the holder of the 30-Month Common Stock Warrant, such holder’s 30-Month Common Stock Warrants may not be
exercised if upon such exercise the holder’s beneficial ownership would exceed certain thresholds. Each of the 15-Month Series A Preferred
Stock Warrants permitted, and each of the 30-Month Common Stock Warrants permit the holder to conduct a “cashless exercise” at any time
the holder of the warrant is an “affiliate” as defined in the applicable Securities Purchase Agreement of the Company.
The warrant exercise price and/or number of shares issuable upon exercise of the applicable warrant were subject to adjustment for stock
dividends, stock splits or similar capital reorganizations, as set forth in the warrants. The 30-Month Common Stock Warrants that were
amended as described above, no longer provide for adjustment to the exercise price and/or number of shares issuable upon exercise of the
applicable warrant for stock dividends.
Subject to the terms and conditions of the 30-Month Common Stock Warrant, the Company has the right to call for cancellation the 30-
Month Common Stock Warrant if the volume weighted average price for our common stock on the NASDAQ Capital Market (or other
primary trading market or exchange on which our common stock is then traded) equals or exceeds $2.80 for either (i) 10 consecutive trading
days or (ii) 15 out of 25 consecutive trading days.
-55-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The warrants granted in connection with the Series A Units were valued based on a Black-Scholes pricing model at the date of the
grant. The 15-Month Series A Preferred Stock Warrants and 30-Month Common Stock Warrants were granted with an exercise price of
$12.50 per share of Series A Convertible Preferred Stock and $2.00 per share of common stock, respectively. The 15-Month Series A
Preferred Stock Warrants and 30-Month Common Stock Warrants vested immediately. The relative fair value of the warrants was
calculated to be $882,253 and was recorded to stockholders’ equity in the first quarter of 2009. The assumptions for the Black-Scholes
pricing model are represented in the table below with the 15-month Series A Preferred Stock Warrants being reflected on a per share
common stock equivalent basis.
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Stock price
Fair value per warrant
Preferred
Common
15.0
142.0%
0.875%
$
1.25
$
0.90
$
0.45
30.0
109.0%
1.375%
2.00
0.90
0.41
$
$
$
On March 30, 2010, the Company called for cancellation any 15-Month Series A Preferred Stock Warrants that remained unexercised as
of April 28, 2010. In connection with this warrant call, 15-Month Series A Preferred Stock Warrants to purchase 98,372 shares of Series A
Convertible Preferred Stock were exercised at $12.50 per share, for gross proceeds to the Company of $1,229,650, before deducting
expenses associated with the warrant call notice. 15-Month Series A Preferred Stock Warrants to purchase an additional 10,150 shares of
Preferred Stock were exercised on a cashless basis, resulting in the net issuance of 2,883 shares of Series A Convertible Preferred
Stock. Pursuant to the terms of the 15-Month Series A Preferred Stock Warrants, upon exercise of such warrants, the holders became
entitled to receive an aggregate of 57,390 shares of common stock in payment of dividends on the Series A Convertible Preferred Stock paid
on June 30, 2009 and December 31, 2009.
Series B Convertible Preferred Stock
On November 18, 2009, we sold an aggregate of 62,039 units (the “Series B Units”) for a purchase price of $18.80 per unit (the “Series
B Purchase Price”), resulting in gross proceeds to us of $1,166,333. This was the first tranche of a $2.5 million private placement. The
second tranche closed on March 18, 2010 for the sale of 26,672 Series B Units with gross proceeds of $501,434 (collectively the two
tranches are referred to as the “Series B Private Placements”). Each Series B Unit consisted of (i) one share of Series B Convertible
Preferred Stock convertible into 10 shares of our common stock and (ii) a warrant to purchase one share of Series B Convertible Preferred
Stock at an exercise price equal to $23.80 per share for warrants issued in November 2009 and at an exercise price of $28.80 for warrants
issued in March 2010, in each case with a term expiring on August 11, 2011 (the “Series B Warrant”).
In connection with the Series B Private Placements, we paid a finder’s fee of $100,478, plus warrants to purchase 5,344 shares of Series
B Convertible Preferred Stock at $28.80 per share, expiring August 11, 2012.
On or about August 10, 2011, holders of the Series B Warrants to purchase 887,110 shares of Common Stock entered into an
amendment to the Series B Warrants which extended the expiration date of the Series B Warrants to August 11, 2012 and provided that they
would be issuable for the equivalent number of shares of Common Stock at a proportionate exercise price. On or about September 30, 2011,
Series B Warrants to purchase 887,110 shares of Common Stock were further amended to reduce the exercise price from $2.38 to $1.43, for
Series B Warrants issued in November 2009, and from $2.88 to $1.75, for Series B Warrants issued in March 2010 and to extend the term of
the Series B Warrants until August 12, 2016 and, with respect to affiliates, until August 12, 2015. All of the Series B Warrants are no longer
exercisable for shares of Series B Convertible Preferred Stock.
The proceeds from the sale of each Series B Unit were allocated between the Series B Convertible Preferred Stock and the Series B
Warrant based on the residual method. The estimated fair value of the Series B Warrants was determined using the Black-Scholes formula,
resulting in an allocation of the gross proceeds of $592,685 to the total warrants issued for both tranches. The allocation of the gross
proceeds to the Series B Convertible Preferred
-56-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock was $1,075,083 for both tranches. In accordance with the provisions of ASC 470-20, an additional adjustment between Additional
Paid in Capital and Accumulated Deficit of $294,838 was recorded to reflect an implicit non-cash dividend related to the allocation of
proceeds between the Series B Convertible Preferred Stock and Series B Warrants issued in both tranches. The $294,838 represents the
value of the adjustment to additional paid in capital related to the beneficial conversion feature of the Series B Convertible Preferred
Stock. The value adjustment was calculated by subtracting the fair market value of the underlying common stock issuable upon conversion
of the Series B Convertible Preferred Stock on the date of the respective closing from the fair market value of the Series B Convertible
Preferred Stock as determined when the Company performed a fair market value allocation of the proceeds to the Series B Convertible
Preferred Stock and Series B Warrants.
On or about September 30, 2011, all of the outstanding shares of Series B Convertible Preferred Stock were voluntarily converted into
shares of Common Stock.
Each share of Series B Convertible Preferred Stock received a cumulative dividend at the rate of 5% per annum of the Series B Purchase
Price, payable semi-annually on June 30 and December 31, commencing on December 31, 2009 (with the first payment being pro-rated
based on the number of days occurring between the date of issuance and December 31, 2009). The Company was permitted to pay
dividends in cash or in shares of common stock at our option, subject to certain conditions. The shares of Series B Convertible Preferred
Stock were also entitled to a liquidation preference, such that in the event of any voluntary or involuntary liquidation, dissolution or winding
up of our Company, the holders of Series B Convertible Preferred Stock would have been paid out of the assets of the Company available
for distribution to our stockholders before any payment was paid to the holders of common stock, an amount per share equal to the Series B
Purchase Price, plus accrued and unpaid dividends. The Series B Convertible Preferred Stock would have been treated on an equivalent
basis with the holders of the Series A Convertible Preferred Stock and Series C Convertible Preferred Stock with respect to payments made
in connection with a liquidation. The Board approved the method of payment in the form of common stock for the dividends payable with
respect to December 31, 2009 and the June 30, 2010 (to the holders of Series B Convertible Preferred Stock issued in November 2009). The
Board approved the method of payment in the form of cash for the dividends payable with respect to June 30, 2010 (to the holders of Series
B Convertible Preferred Stock issued in March 2010), December 31, 2010 and for all dividends accrued through December 31, 2011.
Each share of Series B Convertible Preferred Stock was convertible into 10 shares of common stock at any time at the option of the
holder, subject to adjustment for stock splits, stock dividends, recapitalizations and similar transactions (the “Series B Conversion
Ratio”). Each share of Series B Convertible Preferred Stock would have been automatically converted into shares of common stock at the
Series B Conversion Ratio then in effect: (i) if, after 12 months from the closing of the applicable tranche of the Series B Private Placement,
the common stock traded on the NASDAQ Capital Market (or other primary trading market or exchange on which the common stock was
then traded) at a price equal $5.64 for 20 out of 30 consecutive trading days with average daily trading volume of at least 10,000 shares or
(ii) upon a registered public offering by the Company at a per share price equal to $5.64, with aggregate gross proceeds to the Company of
not less than $10 million. Unless waived under certain circumstances by the holder of the Series B Convertible Preferred Stock, such
holder’s Series B Convertible Preferred Stock could not have been converted if upon such conversion the holder’s beneficial ownership
would exceed certain thresholds.
The holders of Series B Convertible Preferred Stock were not entitled to vote on any matters presented to the stockholders of the
Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of
meeting), except that the holders of Series B Convertible Preferred Stock would have been entitled to vote separately as a class on any
matters that would amend, alter or repeal any provision of our Restated Articles of Organization, as amended, in a manner that adversely
affects the powers, preferences or rights of the Series B Convertible Preferred Stock and such holders would have also been entitled to vote
on any matters required by law.
At any time after February 12, 2014, upon 30 days written notice, we would have had the right to redeem the outstanding shares of
Series B Convertible Preferred Stock at a price equal to the Series B Purchase Price, plus all accrued and unpaid dividends thereon. The
redemption price would have been payable in two annual installments. The Series B Convertible Preferred Stock, the Series A Convertible
Preferred Stock and Series C Convertible
-57-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Preferred Stock would have been treated on an equivalent basis with respect to payments made in connection with redemption.
Series B Warrants
The Series B Warrants issued in November 2009 originally had an exercise price equal to $23.80 and the Series B Warrants issued in
March 2010 originally had an exercise price equal to $28.80, in each case with a term expiring on August 11, 2011. The Series B Warrants
currently have an exercise price of $1.43 for Series B Warrants issued in November 2009, and $1.75 for Series B Warrants issued in March
2010, in each case with a term expiring on August 12, 2016 and, with respect to affiliates, August 12, 2015. The Series B Warrants are
currently exercisable for shares of Common Stock. The Series B Warrants permit the holder to conduct a “cashless exercise” at any time the
holder of the Series B Warrant is an “affiliate” (as defined in the Securities Purchase Agreement) of the Company.
The Series B Warrant exercise price and/or number of shares issuable upon exercise of the Series B Warrant will be subject to
adjustment for stock splits or similar capital reorganizations, as set forth in the Series B Warrants, as amended.
Subject to the terms and conditions of the Series B Warrants, the Company has the right to call for cancellation of the Series B Warrants
if the volume weighted average price of our common stock on the NASDAQ Capital Market (or other primary trading market or exchange
on which our common stock is then traded) equals or exceeds $4.70 for either (i) 10 consecutive trading days or (ii) 15 out of 25 consecutive
trading days.
In connection with the Series B Private Placements, we issued warrants to our placement agent to purchase 5,344 shares of Series B
Convertible Preferred Stock at $28.80 per share, expiring August 11, 2012. The Series B Warrants and placement agent warrants were
valued based on a Black-Scholes pricing model at the date of the grants. The Series B Warrants and placement agent warrants vested
immediately. The relative fair value of the Series B Warrants was calculated to be $173,060 and was recorded to stockholders’ equity. The
assumptions for the Black-Scholes pricing model are represented in the table below for the warrants issued in both tranches reflected on a per
share common stock equivalent basis. The assumptions for the placement agent show the range of values for both tranches.
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per warrant
Series C Convertible Preferred Stock
Preferred
Placement
Agent
21.0
142.0%
1.000%
$
2.38
$
0.95
33.0
119.0%
1.380%
2.88
0.80
$
$
On April 8, 2011 and April 12, 2011, we completed the first tranche of a private placement, pursuant to which we sold an aggregate of
55,048 units for a purchase price of $15.00 per unit, resulting in gross proceeds to us of $825,720 (the “Series C Private Placement”). This
was the first tranche of the Series C Private Placement. In connection with the second tranche, the purchase price was reduced to $12.50 per
unit and we issued an additional 11,011 units to the purchasers who participated in the first tranche, without any additional gross proceeds to
us. The second tranche closed on June 20, 2011 for the sale of 22,039 Series C Units (as defined below) for a purchase price of $12.50 per
unit with gross proceeds of $275,485. Each unit (“Series C Unit”) consists of (i) one share of Series C Convertible Preferred Stock, $0.01
par value per share (the “Series C Convertible Preferred Stock”) convertible into 10 shares of our Common Stock, (subject to adjustment for
stock splits, stock dividends, recapitalization, etc.) and (ii) a three-year warrant to purchase 10 shares of our Common Stock at a per share
exercise price equal to the sum of (i) the Common Stock equivalent of the Series C Purchase Price (ii) plus $0.88 (the “Series C
Warrant”). The Series C Warrants are exercisable until the close of business on the third anniversary of the applicable closing date.
We engaged an investment banker (the “Investment Banker”) to assist with the Series C Private Placement. The Company paid the
Investment Banker a cash retainer fee of $50,000 and issued a warrant to the Investment Banker
-58-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to purchase 100,000 shares of Common Stock at an exercise price of $3.00 per share. In connection with the Series C Private Placement,
we paid the Investment Banker a fee of (i) approximately $66,000 cash, (ii) an expense allowance of approximately $16,500, (iii) a warrant
to purchase 61,638 shares of Common Stock exercisable at a purchase price of $1.50, and (iv) a warrant to purchase 61,638 shares of
Common Stock exercisable at a purchase price of $2.38.
The proceeds from the sale of each Series C Unit was allocated between the Series C Convertible Preferred Stock and the Series C
Warrants based on the residual method. The estimated fair value of the Series C Warrants was determined using a binomial formula,
resulting in an allocation of the gross proceeds of $583,250 to the total warrants issued. The allocation of the gross proceeds to the Series C
Convertible Preferred Stock was $517,958. In accordance with the provisions of ASC 470-20, an additional adjustment between Additional
Paid in Capital and Accumulated Deficit of $476,434 was recorded to reflect an implicit non-cash dividend related to the allocation of
proceeds between the stock and warrants issued. The $476,434 represents the value of the adjustment to additional paid in capital related to
the beneficial conversion feature of the Series C Convertible Preferred Stock. The value adjustment was calculated by subtracting the fair
market value of the underlying common stock on April 7 and June 20 issuable upon conversion of the Series C Convertible Preferred Stock
from the fair market value of the Series C Convertible Preferred Stock as determined when the Company performed a fair market value
allocation of the proceeds to the Series C Convertible Preferred Stock and warrants. We used a binomial formula since the warrants have
down-round protection and are recorded as a liability. See “Warrant Derivative Liability” section within this footnote.
Each share of Series C Convertible Preferred Stock will receive a cumulative dividend at the rate of 5% per annum of the respective
tranche purchase price, payable semi-annually on June 30 and December 31, commencing on June 30, 2011 (with the first payment being
pro-rated based on the number of days occurring between the date of issuance and June 30, 2011). Dividends may be paid in cash or in
shares of common stock at our option, subject to certain conditions. The shares of Series C Convertible Preferred Stock also are entitled to a
liquidation preference, such that in the event of any voluntary or involuntary liquidation, dissolution or winding up of our Company, the
holders of Series C Convertible Preferred Stock will be paid out of the assets of the Company available for distribution to our stockholders
before any payment shall be paid to the holders of common stock, an amount per share equal to the Series C Purchase Price, plus accrued and
unpaid dividends. Prior to the conversion of all of the outstanding shares of Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock, the Series C Convertible Preferred Stock was treated on an equivalent basis with the Series A Convertible Preferred Stock
and Series C Preferred Stock with respect to payments made in connection with a liquidation. The Company elected to pay the dividend
payable on June 30, 2011 in cash.
Each share of Series C Convertible Preferred Stock is convertible into 10 shares of common stock at any time at the option of the holder,
subject to adjustment for stock splits, stock dividends, recapitalizations and similar transactions (the “Series C Conversion Ratio”). Each
share of Series C Convertible Preferred Stock will automatically be converted into shares of common stock at the Series C Conversion Ratio
then in effect: (i) if, after 12 months from the closing of the applicable tranche of the Series C Private Placement, the common stock trades
on the NASDAQ Capital Market (or other primary trading market or exchange on which the common stock is then traded) at a price equal to
three-tenths of the Series C Unit purchase price for 20 out of 30 consecutive trading days with average daily trading volume of at least
10,000 shares or (ii) upon a registered public offering by the Company at a per share price equal to at least three-tenths of the Series C Unit
purchase price, with aggregate gross proceeds to the Company of not less than $10 million. Unless waived under certain circumstances by
the holder of the Series C Convertible Preferred Stock, such holder’s Series C Convertible Preferred Stock may not be converted if upon
such conversion the holder’s beneficial ownership would exceed certain thresholds.
The holders of Series C Convertible Preferred Stock are not entitled to vote on any matters presented to the stockholders of the
Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of
meeting), except that the holders of Series C Convertible Preferred Stock may vote separately as a class on any matters that would amend,
alter or repeal any provision of our Restated Articles of Organization, as amended, in a manner that adversely affects the powers, preferences
or rights of the Series C Convertible Preferred Stock and such holders may also vote on any matters required by law.
-59-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
If we consummate an equity financing (other than the exercise of employee stock options under the Company’s stock option plans, the Series
C Private Placement or the exercise of any Series C Warrants, or the exercise or conversion of any currently outstanding Common Stock
equivalents) within twelve months after the initial Closing and the gross proceeds to the Company from the sale of the Units are less than $4
million, then each holder of Series C Units may exchange all, but not less than all, of his, her or its Series C Units for the equity securities
issued in such next financing and shall become subject to the terms and conditions of such next financing; provided that the exchange of the
purchaser’s Series C Units for next financing securities is permitted under the rules and regulations of the NASDAQ Trading Market then in
effect. The number of next financing securities into which a purchaser’s Series C Units may be exchanged shall be determined by dividing
(a) the aggregate per unit purchase price at which the Series C Units being exchanged were issued, by (b) the price per next financing
security at which such securities were issued in the next financing. The requisite holders of the Series C Units waived such right with respect
to the Company’s recently completed equity financing. At any time after February 12, 2014, upon 30 days written notice, we have the right
to redeem the outstanding shares of Series C Convertible Preferred Stock at a price equal to the Series C Unit purchase price, plus all accrued
and unpaid dividends thereon. The redemption price may be paid in two annual installments. All holders of Series C Convertible Preferred
Stock will be treated on an equivalent basis with respect to payments made in connection with redemption.
Series C Warrants
The Series C Warrants have an exercise price equal to $2.13 with a term expiring on the third anniversary of the deal closing. The Series
C Warrants permit the holder to conduct a “cashless exercise” at any time the holder of the Series C Warrant is an “affiliate” (as defined in
the Securities Purchase Agreement) of the Company.
The Series C Warrant exercise price and/or number of shares issuable upon exercise of the Series C Warrant will be subject to
adjustment for stock dividends, stock splits or similar capital reorganizations, as set forth in the Series C Warrants.
Subject to the terms and conditions of the Series C Warrants, the Company has the right to call for cancellation the Series C Warrants if
the volume weighted average price of our common stock on the NASDAQ Capital Market (or other primary trading market or exchange on
which our common stock is then traded) equals or exceeds two times the per common share exercise price for either (i) 10 consecutive
trading days or (ii) 15 out of 25 consecutive trading days.
Series D Convertible Preferred Stock
On November 11, 2011, we completed a registered direct offering, pursuant to which we sold an aggregate of 843 units for a purchase
price of $1,000.00 per unit, resulting in gross proceeds to us of $843,000 (the “Series D Placement”). Each unit (“Series D Unit”) consists
of (i) one share of Series D Convertible Preferred Stock, $0.01 par value per share (the “Series D Convertible Preferred Stock”) convertible
into 1,538.46 shares of our Common Stock, (subject to adjustment for stock splits, stock dividends, recapitalization, etc.) and (ii) one five-
year warrant to purchase approximately 614 shares of our Common Stock at a per share exercise price of $0.81, subject to adjustment as
provided in the Warrants (“Series D Warrant”). The Series D Warrants will be exercisable beginning on May 11, 2012 and until the close of
business on the fifth anniversary of the initial exercise date.
We engaged an investment banker to assist with the Series D Placement. In connection with the Series D Placement, we paid the
investment banker a fee of approximately $67,000 cash.
The proceeds from the sale of each Series D Unit was allocated between the Series D Convertible Preferred Stock and the Series D
Warrants based on the residual method. The estimated fair value of the Series D Warrants was determined using a binomial formula,
resulting in an allocation of the gross proceeds of $283,725 to the total warrants issued. The allocation of the gross proceeds to the Series D
Convertible Preferred Stock was $559,275. In accordance with the provisions of ASC 470-20, an additional adjustment between Additional
Paid in Capital and Accumulated Deficit of $530,140 was recorded to reflect an implicit non-cash dividend related to the allocation of
proceeds between the stock and warrants issued. The $530,140 represents the value of the adjustment to additional paid in capital related to
the beneficial conversion feature of the Series D Convertible Preferred Stock. The value adjustment was calculated by subtracting the fair
market value of the underlying common stock on November 10,
-60-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2011 issuable upon conversion of the Series D Convertible Preferred Stock from the fair market value of the Series D Convertible
Preferred Stock as determined when the Company performed a fair market value allocation of the proceeds to the Series D Convertible
Preferred Stock and warrants. The warrants are recorded as a liability. See “Warrant Derivative Liability” below.
The Series D Convertible Preferred Stock will rank senior to the Company’s Common Stock and Series C Convertible Preferred Stock
with respect to payments made upon liquidation, winding up or dissolution. Upon any liquidation, dissolution or winding up of the
Company, after payment of the Company’s debts and liabilities, and before any payment is made to the holders of any junior securities, the
holders of Series D Convertible Preferred Stock will first be entitled to be paid $1,000 per share subject to adjustment for accrued but unpaid
dividends.
We may not pay any dividends on shares of common stock unless we also pay dividends on the Series D Convertible Preferred Stock in
the same form and amount, on an as-if-converted basis, as dividends actually paid on shares of our common stock. Except for such
dividends, no other dividends may be paid on the Series D Convertible Preferred Stock.
Each share of Series D Convertible Preferred Stock is convertible into 1,538.46 shares of common stock (based upon an initial
conversion price of $0.65 per share) at any time at the option of the holder, subject to adjustment for stock splits, stock dividends,
combinations, and similar recapitalization transactions (the “Series D Conversion Ratio”). Subject to certain exceptions, if the Company
issues any shares of common stock or common stock equivalents at a per share price that is lower than the conversion price of the Series D
Convertible Preferred Stock, the conversion price will be reduced to the per share price at which such shares of common stock or common
stock equivalents are issued. Each share of Series D Convertible Preferred Stock will automatically be converted into shares of common
stock at the Series D Conversion Ratio then in effect if, after six months from the closing of the Series D Placement, the common stock
trades on the NASDAQ Capital Market (or other primary trading market or exchange on which the common stock is then traded) at a price
equal to at least 300% of the then effective Series D Convertible Preferred Stock conversion price for 20 out of 30 consecutive trading days
with each trading day having a volume of at least $50,000. Unless waived under certain circumstances by the holder of the Series D
Convertible Preferred Stock, such holder’s Series D Convertible Preferred Stock may not be converted if upon such conversion the holder’s
beneficial ownership would exceed certain thresholds.
In addition, in the event we consummate a merger or consolidation with or into another person or other reorganization event in which
our shares of common stock are converted or exchanged for securities, cash or other property, or we sell, lease, license or otherwise dispose
of all or substantially all of our assets or we or another person acquire 50% or more of our outstanding shares of common stock, then
following such event, the holders of the Series D Convertible Preferred Stock will be entitled to receive upon conversion of the Series D
Convertible Preferred Stock the same kind and amount of securities, cash or property which the holders of the Series D Convertible
Preferred Stock would have received had they converted the Series D Convertible Preferred Stock immediately prior to such fundamental
transaction.
The holders of Series D Convertible Preferred Stock are not entitled to vote on any matters presented to the stockholders of the
Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of
meeting), except that the holders of Series D Convertible Preferred Stock may vote separately as a class on any matters that would (i) amend,
our Restated Articles of Organization, as amended, in a manner that adversely affects the rights of the Series D Convertible Preferred Stock,
(ii) alter or change adversely the powers, preferences or rights of the Series D Convertible Preferred Stock or alter or amend the certificate of
designation, (iii) authorize or create any class of shares ranking as to dividends, redemption or distribution of assets upon liquidation senior
to, or otherwise pari passu with, the Series D Convertible Preferred Stock, or (iv) increase the number of authorized shares of Series D
Convertible Preferred Stock.
If, within 12 months of the initial issuance of the Series D Convertible Preferred Stock, we issue any common stock, common stock
equivalents, indebtedness or any combination thereof (a “Subsequent Financing”), the holders of Series D Convertible Preferred Stock will
have the right to participate on a pro-rata basis in up to 50% of such Subsequent Financing.
Series D Warrants
-61-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Series D Warrants have an exercise price equal to $0.81 per share of Common Stock. The Series D Warrants will be exercisable
beginning on the six month anniversary of the date of issuance and expire five years from the initial exercise date. The Series D Warrants
permit the holder to conduct a “cashless exercise” at any time a registration statement registering, or the prospectus contained therein is not
available for, the issuance of the shares of Common Stock issuable upon exercise of the Series D Warrant, and under certain circumstances
at the expiration of the Series D Warrants. The exercise price and/or number of shares of Common Stock issuable upon exercise of the
Series D Warrants will be subject to adjustment for certain stock dividends, stock splits or similar capital reorganizations, as set forth in the
Warrants. The exercise price is also subject to adjustment in the event that we issue any shares of common stock or common stock
equivalents at a per share price that is lower than the exercise price for the Series D Warrants then in effect. Upon any such issuance, subject
to certain exceptions, the exercise price will be reduced to the per share price at which such shares of common stock or common stock
equivalents are issued. Unless waived under certain circumstance by the holder of a Warrant, such holder may not exercise the Warrant if
upon such exercise the holder’s beneficial ownership of the Company’s Common Stock would exceed certain thresholds. In the event we
consummate a merger or consolidation with or into another person or other reorganization event in which our shares of common stock are
converted or exchanged for securities, cash or other property, or we sell, lease, license or otherwise dispose of all or substantially all of our
assets or we or another person acquire 50% or more of our outstanding shares of common stock, then following such event, the holders of
the Series D Warrants will be entitled to receive upon exercise of the Series D Warrants the same kind and amount of securities, cash or
property which the holders would have received had they exercised the Series D Warrants immediately prior to such fundamental
transaction.
Common Stock
Shareholders Purchase Rights Plan
On March 3, 2003, our Board of Directors adopted a shareholder purchase rights plan (“the Rights Plan”) and declared a distribution of
one Right for each outstanding share of our common stock to shareholders of record at the close of business on March 21, 2003 (the
“Rights”). Initially, the Rights will trade automatically with the common stock and separate Right Certificates will not be issued. The Rights
Plan is designed to deter coercive or unfair takeover tactics and to ensure that all of our shareholders receive fair and equal treatment in the
event of an unsolicited attempt to acquire the Company. The Rights Plan was not adopted in response to any effort to acquire the Company
and the Board is not aware of any such effort. The Rights will expire on February 27, 2013 unless earlier redeemed or exchanged. Each
Right entitles the registered holder, subject to the terms of a Rights Agreement, to purchase from the Company one one-thousandth of a share
of the Company’s Series A Junior Participating Preferred Stock at a purchase price of $45.00 per one one-thousandth of a share, subject to
adjustment. In general, the Rights will not be exercisable until a subsequent distribution date which will only occur if a person or group
acquires beneficial ownership of 15% or more of our common stock or announces a tender or exchange offer that would result in such person
or group owning 15% or more of the common stock. With respect to any person or group who currently beneficially owns 15% or more of
our common stock, the Rights will not become exercisable unless and until such person or group acquires beneficial ownership of additional
shares of common stock.
Subject to certain limited exceptions, if a person or group acquires beneficial ownership of 15% or more of our outstanding common
stock or if a current 15% beneficial owner acquires additional shares of common stock, each holder of a Right (other than the 15% holder
whose Rights become void once such holder reaches the 15% threshold) will thereafter have a right to purchase, upon payment of the
purchase price of the Right, that number of shares of our common stock which at the time of such transaction will have a market value equal
to two times the purchase price of the Right In the event that, at any time after a person or group acquires 15% or more of our common
stock, we are acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are
sold, each holder of a Right will thereafter have the right to purchase, upon payment of the purchase price of the Right, that number of
shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the purchase
price of the Right.
Our Board of Directors may exchange the Rights (other than Rights owned by such person or group which have become void), in whole
or in part, at an exchange ratio of one share of common stock per Right (subject to
-62-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
adjustment). At any time prior to the time any person or group acquires 15% or more of our common stock, the Board of Directors may
redeem the Rights in whole, but not in part, at a price of $0.001 per Right.
Stock Options and Warrants
Our stockholders approved our amended 2005 Equity Incentive Plan (the “Plan”) pursuant to which an aggregate of 1,800,000 shares of
our common stock were reserved for issuance upon exercise of stock options or other equity awards made under the Plan. Under the Plan,
we may award stock options, shares of common stock, and other equity interests in the Company to employees, officers, directors,
consultants, and advisors, and to any other persons the Board of Directors deems appropriate. As of December 31, 2011, options to acquire
1,508,500 shares were outstanding under the Plan with 394,500 shares available for future grant under the Plan.
As of December 31, 2011, options to acquire 163,000 shares are outstanding under the 1999 Non-qualified Stock Option Plan. No
additional options may be granted under the 1999 Non-qualified Stock Option Plan.
As of December 31, 2011, 1,569,800 of the 30-Month Common Stock Warrants were outstanding. On March 31, 2010, we issued
warrants to an investor relations firm to purchase 50,000 shares of our common stock at an exercise price equal to $3.00 per share, with a
term expiring on August 11, 2012, in exchange for consulting services provided to us by such firm. On October 15, 2010, we issued
warrants to another investor relations firm to purchase 21,000 shares of our common stock at an exercise price equal to $2.38 per share, with
a term expiring on October 14, 2013, in exchange for consulting services provided to us by such firm. On December 21, 2010, we issued
warrants to an investment banker to purchase 100,000 shares of our common stock at an exercise price equal to $3.00 per share, with a term
expiring on December 21, 2015, as payment of a retainer for investment banking services provided to us by such firm.
The following tables summarize information concerning options and warrants outstanding and exercisable:
Stock Options
Warrants
Balance outstanding, 12/31/2009
Granted
Exercised
Expired
Forfeited
Balance outstanding, 12/31/2010
Granted
Exercised
Expired
Forfeited
Balance outstanding, 12/31/2011
Weighted
Average price
per share
Weighted
Average price
per share
Shares
1,564,500
60,000
(18,897)
$
$
-
-
1,605,603
180,000
(41,103)
(161,000)
(75,000)
$
1,508,500
2.52
1.43
1.07
-
-
2.49
1.00
1.07
2.78
2.57
2.33
Shares
$
3,806,640
404,510
$
(1,529,800)
-
-
2,681,350
2,094,151
-
-
-
4,775,501
$
$
Total
Shares
5,371,140
Exercisable
4,905,152
464,510
(1,548,697)
-
-
4,286,953
2,274,151
(41,103)
(161,000)
(75,000)
6,284,001
4,114,792
6,112,335
1.77
2.88
1.25
-
-
2.24
1.44
-
-
-
1.35
$
Range of Exercise Prices
0.55
2.71
3.09
3.96
0.55
-
-
-
-
-
$
$
$
Number of
Options
2.70
3.08
3.95
5.93
5.93
743,000
299,500
302,000
164,000
1,508,500
Options Outstanding
Weighted Average
Remaining
Contractual
Life
Exercise
Price
Number of
Options
Options Exercisable
Weighted Average
Remaining
Contractual
Life
Exercise
Price
7.3
3.1
4.4
5.0
5.6
$
$
1.12
2.93
3.67
4.27
2.33
571,334
299,500
302,000
164,000
1,336,834
6.6
3.1
4.4
5.0
5.1
$
$
1.14
2.93
3.67
4.27
2.50
-63-
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Convertible Debt
During 2011, we received loans in the aggregate amount of $412,000 from five individuals. The loans were made pursuant to
Promissory Notes (the “Notes”) with a term of six months, which may be extended with mutual consent of the parties. The interest rate
under the Notes is 20% per annum. The Notes may be repaid, at the election of the respective lender (i) in cash, (ii) by conversion into that
number of securities issued in the next financing completed by the Company having an aggregate purchase price equal to the then
outstanding principal amount of the Note, together with any accrued and unpaid interest due at the time of conversion or (iii) conversion into
shares of unregistered Common Stock of the Company at a conversion price of $1.00 per share.
Each of the lenders received warrants to purchase Common Stock as follows:
In connection with a loan received on August 3, 2011, we issued warrants to the lender to purchase 26,315 shares of the Company’s
Common Stock, at an exercise price of $0.76 per share, and warrants to purchase 211,765 shares of the Company’s Common Stock, at an
exercise price of $0.85 per share, both sets of warrants expire on August 3, 2014.
In connection with a loan received on September 7, 2011 from Richard T. Schumacher, the Company’s Chief Executive Officer, we
issued warrants to Mr. Schumacher to purchase 12,048 shares of the Company’s Common Stock, at an exercise price of $0.83 per share, and
warrants to purchase 105,882 shares of the Company’s Common Stock, at an exercise price of $0.85 per share, both sets of Warrants expire
on September 7, 2014.
In connection with loans received on September 29, 2011, we also issued warrants to the lenders to purchase an aggregate 131,766
shares of the Common Stock, at an exercise price of $0.85 per share, expiring on September 29, 2014.
ASC 470-20 states that the proceeds from the issuance of debt with detachable stock warrants should be allocated between the debt and
warrants on the basis of their relative fair market values. The relative fair value of the warrants was calculated to be $155,035 and was
recorded to debt discount against the total debt balance of $412,000. The debt discount will be amortized to interest expense over the six-
month term of these loans. We amortized $109,000 of the debt discount to interest expense in 2011. The assumptions for the Black-Scholes
pricing model are represented in the table below for the warrants issued with these loans reflected on a per share common stock equivalent
basis.
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per warrant
August 3,
2011
August 3,
2011
September 7,
2011
September 7,
2011
September
29, 2011
36.0
97.5%
2.000%
$
0.76
$
0.47
36.0
97.5%
2.000%
$
0.85
$
0.52
36.0
97.5%
2.000%
$
0.83
$
0.51
36.0
97.5%
2.000%
$
0.85
$
0.52
36.0
97.5%
2.000%
0.85
0.52
$
$
Amendment No. 1 to 30-Month Common Stock Warrants and Series B Warrants
The Company has calculated the fair value of the 30-Month Common Stock Warrants and Series B Preferred Stock Purchase Warrant
amended on or about August 11, 2011, as described above within this footnote using the Black-Scholes model with the below assumptions.
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per warrant
Series A
12
85.59%
0.12%
$
2.00
$
0.01
Series B Nov
09 tranche
12
85.59%
0.12%
$
2.38
$
0.001
$
$
Series B
Mar 10
tranche
12
85.59%
0.12%
2.88
0.004
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PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has determined that, in each case, the fair value of the amended warrants increased as compared to the fair value of the
original warrants immediately prior to amendment as a result of the applicable modifications including a market discount to factor liquidity
of our common stock. We calculated the protective put option value of 43% as the discount to be applied to the fair value of the amended
warrants.
A total of 1,569,800 original 30-Month Common Stock Warrants with a maturity date of August 11, 2011 were amended to provide
for a maturity date of August 12, 2012; and a total of 887,110 original Series B Warrants with a maturity date of August 11, 2011 were
amended to provide for a maturity date of August 12, 2012.
As a result, the aggregate fair value of the 1,569,800 original 30-Month Common Stock Warrants with a maturity date of August 11,
2011, amended to provide for a maturity date of August 12, 2012, increased incrementally by $18,285; and the aggregate fair value of the
887,110 original Series B Warrants with a maturity date of August 11, 2011, amended to provide for a maturity date of August 12, 2012,
increased incrementally by $5,874.
We recorded an incremental value of $24,159 for these modifications.
Amendment No. 2 to 30-Month Common Stock Warrants and Series B Warrants
The Company has calculated the fair value of the 30-Month Common Stock Warrants and Series B Preferred Stock Purchase Warrant
amended on or about September 30, 2011, as described above within this footnote, using the Black-Scholes model with the below
assumptions.
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per warrant
Series A
48
111.19%
1.00%
$
0.90
$
0.33
$
$
Series A
(Affiliates)
Series B Nov
09 tranche
48
111.19%
1.00%
$
1.43
$
0.29
36
120.47%
1.00%
$
0.90
$
0.31
Series B
Mar 10
tranche
48
111.19%
1.00%
1.75
0.28
The Company has determined that, in the case of the Series B Warrant Amendment, the fair value of the amended warrants increased as
compared to the fair value of the original warrants immediately prior to amendment as a result of the applicable modifications including a
market discount to factor liquidity of our common stock. We calculated the protective put option value of 43% as the discount to be applied
to the fair value of the amended warrants.
A total of 1,513,180 original 30-Month Common Stock Warrants with a maturity date of August 12, 2012 were amended to provide
for a maturity date of August 12, 2016 (August 12, 2015 for Affiliates) and a reduced price of $0.90; and a total of 887,110 original Series B
Warrants with a maturity date of August 12, 2012 were amended to provide for a maturity date of August 12, 2016 (August 12, 2015 for
Affiliates) and a reduced exercise price of $1.43 for Series B Warrants issued in November 2009, and $1.75 for Series B Warrants issued in
March 2010.
As a result, the aggregate fair value of the 1,513,180 original 30-Month Common Stock Warrants with a maturity date of August 12,
2012, amended to provide for a maturity date of August 12, 2016 (August 12, 2015 for Affiliates) and a reduced price of $0.90, increased
incrementally by $442,399; and the aggregate fair value of the 887,110 original Series B Warrants with a maturity date of August 12, 2012,
amended to provide for a maturity date of August 12, 2016 (August 12, 2015 for Affiliates) and a reduced exercise price of $1.43 for Series
B Warrants issued in November 2009, and $1.75 for Series B Warrants issued in March 2010, increased incrementally by $238,286.
We recorded an incremental value of $680,685 for these modifications. These warrants were originally issued as part of an equity unit
in connection with a private placement completed by the Company. Accordingly, the warrants were recorded in equity for the private
placement. Any modification for these warrants should be accounted for as an adjustment to Paid-in Capital.
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PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Adjustment of Amounts Previously Reported on Warrant Valuations
At December 31, 2011, we reviewed our accounting for the valuation of the modifications in the third quarter of 2011 made to the
warrants issued in connection with the Series A and B Convertible Preferred Stock. We determined that the valuation methodology used
should be adjusted. As a result of the change in methodology, the revised valuations differ from those previously reported in the unaudited
financial statements included in our Quarterly report on Form 10-Q for the period ended September 30, 2011. There is no material effect on
the audited financial statements for the year ended December 31, 2011.
The effect of this adjustment is an increase in a deemed dividend in determining Net loss to Common Shareholders for the period ending
September 30, 2011. There is no material effect on reported Stockholders’ Equity, Net Loss, or Cash Flows. The effect on amounts as
previously reported is as follows:
Balance Sheets (Stockholders’ Equity)
Warrants to acquire preferred stock and common stock
Additional paid-in capital
Accumulated deficit
Stockholders’ equity
Statements of Operations
Net loss
Net loss applicable to common shareholders
Net loss per share attributable to common shareholders
Statements of Operations
Net loss
Net loss applicable to common shareholders
Net loss per share attributable to common shareholders
September 30, 2011
As
Previously
Reported
As Adjusted % Change
1,823,852
12,802,217
(14,545,260) (14,924,509)
2,203,101
12,802,217
145,388
145,388
21%
0%
3%
0%
For the Three Months Ended
September 30, 2011
As
Previously
Reported
As Adjusted % Change
$
(561,723) $
(953,846)
(0.15)
(561,723)
(1,333,095)
(0.21)
0%
40%
42%
For the Nine Months Ended
September 30, 2011
As
Previously
Reported
As Adjusted % Change
$ (2,153,269) $ (2,153,269)
(3,472,092)
(0.56)
(3,092,843)
(0.50)
0%
12%
11%
We have analyzed the impact of these adjustments and concluded that it is not material with respect to any financial reporting period
after taking into consideration the requirements of the SEC Staff Bulletin No. 99. Further, these adjustments do not have an impact on
amounts previously reported, operating trends or publicly-reported results such as would have a material effect on investor expectations.
Warrant Derivative Liability
The Series C Warrants issued in connection with the Series C Convertible Preferred Stock private placement and the Series D Warrants
issued in connection with the registered direct offering of Series D Convertible Preferred are measured at fair value and liability-classified
because the Series C Warrants are entitled to certain rights in subsequent financings and the Series D Warrants contain “down-round
protection” and therefore, do not meet the
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PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
scope exception for treatment as a derivative under ASC 815, Derivatives and Hedging, (“ASC 815”). Since “down-round protection” is
not an input into the calculation of the fair value of the warrants, the warrants cannot be considered indexed to the Company’s own stock
which is a requirement for the scope exception as outlined under ASC 815. The estimated fair value of the warrants was determined using
the binomial model, resulting in an allocation of the gross proceeds of $583,250 to the total warrants issued in the Series C private placement
and $283,725 to the warrants issued in the Series D registered direct offering. The fair value will be affected by changes in inputs to that
model including our stock price, expected stock price volatility, the contractual term, and the risk-free interest rate. We will continue to
classify the fair value of the warrants as a liability until the warrants are exercised, expire or are amended in a way that would no longer
require these warrants to be classified as a liability, whichever comes first. The down-round protection for the Series C Warrants expires 12
months subsequent to the issuance of the Series C Units, and the down-round protection for the Series D Warrants survives for the life of the
Series D Warrants which ends in May 2017.
The assumptions for the binomial pricing model are represented in the table below for the warrants issued in both tranches of the Series
C private placement reflected on a per share common stock equivalent basis.
Warrants revalued at
December 31, 2011
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per warrant
April 8, 2011
36.0
118.5%
0.625%
$
2.13
$
0.70
$
$
June 20,
2011
April 8, 2011
28.0
88.2%
0.25%
$
2.13
$
0.12
36.0
118.5%
0.625%
$
2.13
$
0.62
June 20,
2011
30.0
89.7%
0.25%
2.13
0.14
The assumptions for the warrants issued to the investment banker show the range of values for both tranches. The investment banker
received two sets of warrants in each tranche with half of the warrants assigned a different exercise price.
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per warrant
Investment Banker Warrants
$
April 8, 2011
1.50
60.0
99.1%
1.500%
$
1.50
$
0.83
$
2.38
60.0
99.1%
1.500%
$
2.38
$
0.75
June 20, 2011
$
1.50
60.0
99.9%
1.500%
$
1.50
$
0.74
2.38
60.0
99.9%
1.500%
2.38
0.67
$
$
$
The assumptions for the binomial pricing model are represented in the table below for the warrants issued in the Series D private
placement reflected on a per share common stock equivalent basis.
Assumptions
Expected life (in months)
Expected volatility
Risk-free interest rate
Exercise price
Fair value per warrant
Warrants
revalued at
December
31, 2011
November
10, 2011
60.0
104.5%
0.875%
$
0.81
$
0.54
59.0
106.2%
0.875%
0.81
0.44
$
$
As of December 31, 2011, the value of the Series C and D Warrants has decreased to $436,553.
(9) Subsequent Events
We performed a review of events subsequent to the balance sheet date through the date the financial statements were issued and
determined, except as disclosed herein, that there were no other such events requiring recognition or disclosure in the financial statements.
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PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 31, 2012, we issued 100,000 shares of Common Stock to an investor relations firm for payment of services to be rendered
over twelve months.
On February 7, 2012, we entered into a Securities Purchase Agreement with seven accredited investors, pursuant to which the Company
sold an aggregate of 971,867 shares of common stock, $0.01 par value (“Shares”), resulting in gross proceeds to the Company of
$800,000. The price per unit was $0.8025 for units consisting of 789,350 shares and 394,677 warrants, and was $0.9125 for units consisting
of the remaining 182,517 shares and 91,260 warrants. Of the $800,000 invested in the private placement, $412,453 was received in cash and
$387,547 was from the conversion of outstanding principal and interest on some of the convertible promissory notes issued by the Company
in 2011.
Each unit consists of one share of restricted common stock and a warrant to purchase one-half share of common stock. The warrants are
exercisable for a period of five years, commencing on August 7, 2012, at an exercise price of $0.74 per share for the purchasers of the
789,350 shares, and $0.85 per share for the purchasers of the 182,517 shares. In connection with the Securities Purchase Agreement, the
Company paid its investment banker a fee of $35,000 for providing advisory services.
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ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None
ITEM 9A.
CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities
Exchange Act of 1934 filings are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer
(Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as
ours are designed to do, and management was necessarily required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
As of December 31, 2011, we carried out an evaluation, under the supervision and with the participation of our management, including
our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls
and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation, our
Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective as of
December 31, 2011 due to material weaknesses in our internal control over financial reporting relating to our accounting for complex equity
transactions as described below under the heading “Report of Management on Internal Control over Financial Reporting. Management plans
to remediate this weakness by taking the actions described below.
Report of Management on Internal Control over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial
reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, as a process designed by, or under the supervision of our
principal executive and principal financial officers and effected by our board of directors, management and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and includes those policies and procedures that:
-
-
-
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition
of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in
accordance with authorization of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
our assets that could have a material effect on the financial statements.
Our internal control system is designed to provide reasonable assurance to our management and board of directors regarding the
preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks
that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
-69-
We have assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. In making this assessment,
we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-
Integrated Framework.
Based on this assessment management believes that, as of December 31, 2011, the Company did not maintain effective internal control
over financial reporting because of the effect of a material weakness in our internal control over financial reporting discussed below.
Public Company Accounting Oversight Board Auditing Standard No. 2 defines a material weakness as a significant deficiency, or
combination of significant deficiencies, that results in there being a more than remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected. Based upon this definition, our management concluded that, as of
December 31, 2011, a material weakness existed in our internal control over financial reporting related to accounting for complex equity
transactions.
Specifically, we identified material weaknesses in our internal control over financial reporting related to the following matters:
· We identified a lack of sufficient segregation of duties. Specifically, this material weakness is such that the design over these areas
relies primarily on detective controls and could be strengthened by adding preventative controls to properly safeguard company
assets.
· Management has identified a lack of sufficient personnel in the accounting function due to our limited resources with appropriate
skills, training and experience to perform the review processes to ensure the complete and proper application of generally accepted
accounting principles, particularly as it relates to valuation of warrants and other complex debt /equity transactions. Specifically,
this material weakness led to segregation of duties issues and resulted in audit adjustments to the annual consolidated financial
statements and revisions to related disclosures, valuation of warrants and other equity transactions.
Our plan to remediate those material weaknesses is as follows:
· Improve the effectiveness of the accounting group by continuing to augment our existing resources with additional consultants or
employees to improve segregation procedures and to assist in the analysis and recording of complex accounting transactions. We
plan to mitigate the segregation of duties issues by hiring an independent consultant once we generate significantly more revenue
or raise significant additional working capital.
· Improve segregation procedures by strengthening cross approval of various functions including quarterly internal audit procedures
where appropriate.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the fourth quarter of 2011 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
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PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Directors
The following table sets forth information about the individuals who serve as our directors as of February 15, 2012.
Name
Age
Position
Board Committees
Term of office
Richard T. Schumacher
R. Wayne Fritzsche
Calvin A. Saravis, Ph.D.
Jeffrey N. Peterson
J. Donald Payne
Alan D. Rosenson
Alan I. Goldberg
Gregory G. Freitag
61
63
82
56
56
47
69
50
President, Chief Executive
Officer, Chief Financial Officer,
Treasurer, Clerk and Director
Chairman of the Board
Director
Director
Director
Director
Director
Director
Compensation; Nominating
and Scientific Advisory
Board
Compensation; Nominating
Audit; Compensation;
Nominating
Audit; Compensation;
Nominating
Audit
Audit
2014
2012
2012
2012
2013
2013
2014
2014
Mr. Richard T. Schumacher, the founder of the Company, has served as a director of the Company since 1978. He has served as
the Company’s Chief Executive Officer since April 16, 2004 and President since September 14, 2004. He previously served as Chief
Executive Officer and Chairman of the Board of the Company from 1992 to February 2003. From July 9, 2003 until April 14, 2004 he served
as a consultant to the Company pursuant to a consulting agreement. He served as President of the Company from 1986 to August 1999. Mr.
Schumacher served as the Director of Infectious Disease Services for Clinical Sciences Laboratory, a New England-based medical reference
laboratory, from 1986 to 1988. From 1972 to 1985, Mr. Schumacher was employed by the Center for Blood Research, a nonprofit medical
research institute associated with Harvard Medical School. Mr. Schumacher received a B.S. in Zoology from the University of New
Hampshire.
Mr. R. Wayne Fritzsche has served as a director and our Chairman of the Board of Directors since October 2003. Mr. Fritzsche has
served as a member of our Scientific Advisory Board since 1999. Mr. Fritzsche is the founder of FAI LLC, a consulting firm that provides
strategic, financial, and scientific consulting to medical companies in the life sciences and healthcare industries, and has served as its
President since 1991. He was a part of the founding group of The Immune Response Company (IMNR) along with Dr. Jonas Salk. From
2001 until 2004, Mr. Fritzsche has served as a board member of Opexa Pharmaceuticals, a multiple sclerosis and cell immunology therapy
company, and Vascular Sciences, Inc., an extracorporeal, macular degeneration company. He also previously served as a board member of
Intelligent Medical Imaging, Inc., an automated microscopic imaging company, from 1994 to 1997, Clarion Pharmaceuticals, a drug
development company, from 1994 to 1996, Nobex Pharmaceuticals, Inc., a drug delivery firm, from 1996 to 2001, Cardio Command, Inc., a
transesophageal cardiac monitoring and pacing firm, from 1999 to 2001, and Hesed BioMed, Inc. an antisense oligonucleotide and catalytic
antibody company, from 2000 to 2002. Mr. Fritzsche is a founder of Transplan, Inc., an organ transplant device company whose primary
focus is in heart transplant. Mr. Fritzsche holds a BA from Rowan University (formerly Glassboro State College), and an MBA from the
University of San Diego.
Dr. Calvin A. Saravis has served as a director since 1986. Dr. Saravis has also served as Chairman of our Scientific Advisory Board
since 2003. From 1984 to 1998 he was an Associate Professor of Surgery (Biochemistry) at Harvard Medical School (presently emeritus) and
Chief, Division of Immunology, Department of Surgery,
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Harvard Medical School, Boston City Hospital; and from 1983 to 1999, he was an Associate Research Professor of Pathology at
Boston University School of Medicine (presently emeritus). From 1971 to 1997, Dr. Saravis was a Senior Research Associate at the Mallory
Institute of Pathology and from 1979 to 1997 he was a Senior Research Associate at the Cancer Research Institute-New England Deaconess
Hospital. Dr. Saravis received his Ph.D. in immunology and serology from Rutgers University.
Mr. Jeffrey N. Peterson has served as a director since July 2011. Since 1999, he has served as the chief executive officer of Target
Discovery, Inc. (“TDI”), a personalized medicine diagnostics (PMDx) company. Mr. Peterson also serves as Chairman of TDI’s majority-
owned subsidiary, Veritomyx, Inc., which is completing development and commercialization of a tool in accurate peptide, protein and
isoform identification and characterization. Prior to joining TDI, Mr. Peterson served as CEO of Sharpe, Peterson, Ocheltree & Associates, an
international business development consulting firm assisting Fortune 500 and many smaller firms in business expansion and strategy, for
three years prior to incorporating TDI. Prior to that, he spent 9 years in key management roles in Abbott Laboratories’ Diagnostics and
International (Pharmaceuticals, Hospital Products, Nutritionals, Consumer) businesses, last serving as CEO and General Manager of Abbott
South Africa. Mr. Peterson’s experience prior to Abbott Laboratories included 11 years with General Electric’s Engineered Materials and
Plastics businesses, spanning roles in strategic planning, business development, technology licensing, marketing and sales, operations,
quality control and R&D. Mr. Peterson holds BSChE and MSChE (Chemical Engineering) degrees from MIT. He serves as Chair Emeritus
of the BayBio Institute, a non-profit organization serving the life science community, and on the board of BayBio, a trade association for the
life sciences industry in Northern California. He is a member of the Coalition for 21st Century Medicine, and of BIO’s Personalized
Medicine & Diagnostics Group. Mr. Peterson has served on the board of directors SanGlobal Ed Corp. (d/b/a MyVerse), a teen and
collegiate personal and professional development web and mobile resource site.
Mr. J. Donald Payne has served as a director since December 2003. Commencing in 2011, Mr. Payne has served as the Senior Vice
President and Chief Financial and Administrative Officer of Oncolix, Inc., a privately-held pharmaceutical company engaged in cancer
research. Mr. Payne previously served as President and a Director of Nanospectra Biosciences, Inc., a privately-held medical device
company developing products for cancer from 2001 until 2011. Prior to that, Mr. Payne held various executive positions in finance and
administration of public and private life science companies since 1992, served as a financial executive in the energy industry from 1980
through 1990, and was in public accounting from 1976 to 1980. Mr. Payne received an MBA from Rice University in 1992 and a BBA from
Texas A&M University in 1976. He is a Certified Public Accountant in Texas, and a member of the AICPA and Financial Executives
Institute.
Mr. Alan D. Rosenson has served as a director since September 2009. Mr. Rosenson currently serves as President of ALJAR
Investments, Inc., an investment firm which he founded in 1994 and through which he manages stock and bond portfolios for private clients.
In 1987, Mr. Rosenson founded Consulting Innovations, Inc., an information systems firm, that currently provides consulting services and
technology training to high-level executives and business owners. Mr. Rosenson has served on school and charity Boards and remains active
in local charities. Mr. Rosenson earned his B.A. degree from Indiana University with honors, and his MBA degree from Washington
University in St. Louis.
Mr. Alan I. Goldberg has served as a director since July 2010. Mr. Goldberg has served as Chairman in the private investment
company, Alphi Investment Management Co., from 1987 until 2000. He has been a member of the Chicago Board of Trade since 1977 and
currently holds two memberships. He was a Vice President of Morgan Stanley Dean Witter from 1970 to 1977. He has a finance degree from
the Kellogg School of Management at Northwestern University. He has served on private and public company boards, and is active in
several educational and community charities.
Mr. Gregory G. Freitag, JD, CPA, has served as a director since July 2010. He has served as the Chief Financial Officer and a
member of the Board of Directors of AxoGen, Inc. (formerly LecTec Corporation), an intellectual property licensing and holding company
since June 2010, and as Chief Financial Officer and director of AxoGen Corporation, a wholly owned subsidiary of AxoGen, Inc., since
October 2011. From June 2010 to September 2011, he also served as Chief Executive Officer of LecTec Corporation. Since May 2009, Mr.
Freitag has been a founder and principal of FreiMc, LLC, a consulting and advisory firm, and EmployRx, Inc., a business that provides
services to self–insured employers relating to prescription drug benefits. Mr. Freitag founded both FreiMc, LLC and EmployRx, Inc. Mr.
Freitag previously served as the Director of Business Development at Pfizer Health Solutions, a former subsidiary of Pfizer, Inc., from
January 2006 to May 2009. From July 2005 to January 2006, Mr. Freitag was a consultant for Guidant Corporation in their business
development group. Prior to Guidant Corporation, Mr. Freitag was the Chief Executive Officer of HTS Biosystems, a biotechnology tools
start–up company, from
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March 2000 until its sale in early 2005. Mr. Freitag was the Chief Operating Officer, Chief Financial Officer and General Counsel
of Quantech, Ltd., a public point of care diagnostic company, from December 1995 to March 2000. Mr. Freitag received a B.A. degree in
Business and Economics from Macalester College and a J.D. degree from the University of Chicago.
Executive Officers
The information under the heading “Executive Officers of the Registrant” in Item 1 of Part I of this Annual Report on Form 10-K is
incorporated herein by this reference.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s executive officers and directors, and persons who own more than 10% of the
Company’s Common Stock, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC.
Based solely on the Company’s review of the copies of such Forms and written representations from certain reporting persons, the
Company believes that all filings required to be made by the Company’s Section 16(a) reporting persons during the Company’s fiscal year
ended December 31, 2011 were made on a timely basis, except as follows: Each of Messrs. Rosenson, Fritzsche, Freitag, Goldberg,
Lawrence, Lazarev, Damasio, Schumacher and Ting did not timely file one Form 4 with respect to one transaction.
Code of Ethics
Pursuant to Section 406 of the Sarbanes-Oxley Act of 2002, we have adopted a Code of Ethics for Senior Financial Officers that applies
to our principal executive officer, principal financial officer, principal accounting officer, controller, and other persons performing similar
functions. A copy of the code of ethics is posted on, and may be obtained free of charge from our Internet website at
http://www.pressurebiosciences.com. If we make any amendments to this Code of Ethics or grant any waiver, including any implicit waiver,
from a provision of this Code of Ethics to our principal executive officer, principal financial officer, principal accounting officer, controller,
or other persons performing similar functions, we will disclose the nature of such amendment or waiver, the name of the person to whom the
waiver was granted and the date of waiver in a Current Report on Form 8-K.
Audit Committee.
Messrs. Payne, Rosenson, Goldberg and Freitag are currently the members of the Audit Committee.
The Board of Directors has determined that Mr. Payne qualifies as an “audit committee financial expert” as defined in Item 407(d)
(5) of Regulation S-K.
The Audit Committee operates pursuant to a written charter (the “Audit Committee Charter”), a current copy of which is publicly
available on the investor relations portion of the Company’s website at www.pressurebiosciences.com. Under the provisions of the Audit
Committee Charter, the primary functions of the Audit Committee are to assist the Board of Directors with the oversight of (i) the
Company’s financial reporting process, accounting functions, and internal controls, and (ii) the qualifications, independence, appointment,
retention, compensation, and performance of the Company’s independent registered public accounting firm. The Audit Committee is also
responsible for the establishment of “whistle-blowing” procedures, and the oversight of other compliance matters.
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ITEM 11.
EXECUTIVE COMPENSATION.
Executive Officer Compensation
General
Messrs. Payne, Peterson and Rosenson and Dr. Saravis are currently the members of the Compensation Committee. The Compensation
Committee operates pursuant to a written charter, a current copy of which is publicly available on the investor relations portion of our
website at www.pressurebiosciences.com. The primary functions of the Compensation Committee include (i) reviewing and approving our
executive compensation, (ii) reviewing the recommendations of the President and Chief Executive Officer regarding the compensation of
our executive officers, (iii) evaluating the performance of the President and Chief Executive Officer, (iv) overseeing the administration and
approval of grants of stock options and other equity awards under our equity incentive plans, and (v) recommending compensation for our
board of directors and each committee thereof for review and approval by the board of directors.
The Compensation Committee may form and delegate authority to one or more subcommittees as it deems appropriate from time to time
under the circumstances (including (a) a subcommittee consisting of a single member and (b) a subcommittee consisting of at least two
members, each of whom qualifies as a “non-employee director,” as such term is defined from time to time in Rule 16b-3 promulgated under
the Exchange Act, and an “outside director,” as such term is defined from time to time in Section 162(m) of the Internal Revenue Code of
1986, as amended, and the rules and regulations thereunder).
Compensation Objectives
In light of the relatively early stage of commercialization of our products, we recognize the importance of attracting and retaining key
employees with sufficient experience, skills, and qualifications in areas vital to our success, such as operations, finance, sales and marketing,
research and development, engineering, and individuals who are committed to our short- and long-term goals. The Compensation Committee
has designed our executive compensation programs with the intent of attracting, motivating, and retaining experienced executives and,
subject to our limited financial resources, rewarding them for their contributions by offering them a competitive base salary, potential for
annual cash incentive bonuses, and long-term equity-based incentives, typically in the form of stock options. The Compensation Committee
strives to balance the need to retain key employees with financial prudence given our history of operating losses, limited financial resources
and the early stage of our commercialization.
Executive Officers and Director Compensation Process
The Compensation Committee considers and determines executive compensation according to an annual objective setting and measurement
cycle. Specifically, corporate goals for the year are initially developed by our executive officers and are then presented to our board of
directors and Compensation Committee for review and approval. Individual goals are intended to focus on contributions that facilitate the
achievement of the corporate goals. Individual goals are first proposed by each executive officer, other than the President and Chief
Executive Officer, then discussed by the entire senior executive management team and ultimately compiled and prepared for submission to
our board of directors and the Compensation Committee, by the President and Chief Executive Officer. The Compensation Committee sets
and approves the goals for the President and Chief Executive Officer. Generally, corporate and individual goals are set during the first
quarter of each calendar year. The objective setting process is coordinated with our annual financial planning and budgeting process so our
board of directors and Compensation Committee can consider overall corporate and individual objectives in the context of budget constraints
and cost control considerations. Annual salary increases, bonuses, and equity awards, such as stock option grants, if any, are tied to the
achievement of these corporate and individual performance goals as well as our financial position and prospects.
Under the annual performance review program, the Compensation Committee evaluates individual performance against the goals for the
recently completed year. The Compensation Committee’s evaluation generally occurs in the first quarter of the following year. The
evaluation of each executive (other than the President and Chief Executive Officer) begins with a written self-assessment submitted by the
executive to the President and Chief Executive Officer. The President and Chief Executive Officer then prepares a written evaluation based
on the executive’s self-assessment, the President and Chief Executive Officer’s evaluation, and input from others within the Company. This
process leads to a recommendation by the President and Chief Executive Officer for a salary increase, bonus, and equity award, if any, which
is then considered by the Compensation Committee. In the case of the President and
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Chief Executive Officer, the Compensation Committee conducts his performance evaluation and determines his compensation, including
salary increase, bonus, and equity awards, if any. We generally expect, but are not required, to implement salary increases, bonuses, and
equity awards, for all executive officers, if and to the extent granted, by April 1 of each year.
Non-employee director compensation is set by our board of directors upon the recommendation of the Compensation Committee. In
developing its recommendations, the Compensation Committee is guided by the following goals: compensation should be fair relative to the
required services for directors of comparable companies in our industry and at our company’s stage of development; compensation should
align directors’ interests with the long-term interest of stockholders; the structure of the compensation should be simple, transparent, and
easy for stockholders to understand; and compensation should be consistent with the financial resources, prospects, and competitive outlook
for the Company.
In evaluating executive officer and director compensation, the Compensation Committee considers the practices of companies of similar size,
geographic location, and market focus. In order to develop reasonable benchmark data the Compensation Committee has referred to publicly
available sources such as Salary.com and the BioWorld Survey. While the Compensation Committee does not believe benchmarking is
appropriate as a stand-alone tool for setting compensation due to the unique aspects of our business objectives and current stage of
development, the Compensation Committee generally believes that gathering this compensation information is an important part of its
compensation-related decision making process.
The Compensation Committee has the authority to hire and fire advisors and compensation consultants as needed and approve their fees. No
advisors or compensation consultants were hired or fired in fiscal 2011.
The Compensation Committee is also authorized to delegate any of its responsibilities to subcommittees or individuals as it deems
appropriate. The Compensation Committee did not delegate any of its responsibilities in fiscal 2011.
Summary Compensation Table
The Summary Compensation Table below sets forth the total compensation paid or earned for the fiscal years ended December 31, 2011 and
2010 for: (i) each individual serving as our Chief Executive Officer (“CEO”) or acting in a similar capacity during any part of fiscal 2011;
and (ii) the other two most highly paid executive officers (collectively, the “Named Executive Officers”) who were serving as executive
officers at the end of fiscal 2011.
Name and Principal Position
Richard T. Schumacher
President, Chief Executive Officer and Chief
Financial Officer
Edmund Ting, Ph.D
Senior Vice President of Engineering
Alexander Lazarev, Ph.D
Vice President of Research and Development
Fiscal
Year
2011
2010
2011
2010
2011
2010
Salary(1)
Option
Awards(2)
All other
Compensation(3)
Total
$
286,371
$
11,835
$
30,434
$
328,640
281,456
197,634
192,546
171,600
157,395
-
26,640
308,096
11,835
-
11,835
-
1,304
1,329
7,501
7,666
210,773
193,875
190,936
163,883
(1) Salary refers to base salary compensation paid through our normal payroll process. No bonus was paid to any Named Executive
Officer for 2010 or 2011.
(2) Amounts shown do not reflect compensation received by the Named Executive Officers. Instead, the amounts shown are the
aggregate grant date fair value as determined pursuant to FASB ASC 718, Compensation-Stock Compensation. Please refer to Note
2, xiii, “Accounting for Stock-Based Compensation” in the Notes to Consolidated Financial Statements for the fiscal year ended
December 31, 2011, for the relevant assumptions used to determine the valuation of stock option grants. No stock options were
granted in 2010 to our executive officers.
(3) “All Other Compensation” includes our Company match to the executives’ 401(k) contribution and premiums paid on life
insurance for the executives. Both of these benefits are available to all of our employees. In the case of Mr. Schumacher, “All Other
Compensation” also includes $7,980 in premiums we paid for a life insurance policy to which Mr. Schumacher’s wife is the
beneficiary. Mr. Schumacher’s compensation includes $19,840 and $18,496 paid to his spouse, who is one of our part-time
employees, for 2011 and 2010, respectively. “All Other Compensation” for Dr. Lazarev includes $6,000 paid to Dr. Lazarev in lieu
of his participation in the medical benefit plan offered by the Company.
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Outstanding Equity Awards at Fiscal Year End
The following table sets forth certain information regarding outstanding stock options awards for each of the Named Executive
Officers as of December 31, 2011.
Option Awards
Number of
Securities
Underlying
Unexercised
Options
Exercisable
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(1)
60,000
30,000
75,000
30,000
70,000
75,000
60,000
12,000
42,000
50,000
10,000
35,000
-
-
-
-
-
-
15,000
-
-
-
15,000
-
-
-
15,000
Name
Richard T. Schumacher
President, Chief Executive Officer and
Chief Financial Officer
Edmund Y. Ting, Ph.D
Senior Vice President of Engineering
Alexander V. Lazarev, Ph.D
Vice President of Research & Development
_____________________
Option
Exercise
Price
($)
Option Expiration
Date
$
$
$
$
$
$
(2) $
$
$
$
(2) $
$
$
$
(2) $
3.08
2.70
2.92
3.86
3.51
0.77
1.05
3.87
2.75
0.77
1.05
3.88
2.75
0.77
1.05
2/11/2012
12/2/2012
6/17/2015
3/30/2016
2/12/2017
3/12/2019
9/09/2021
4/24/2016
9/25/2018
3/12/2019
9/09/2021
3/02/2016
9/25/2018
3/12/2019
9/9/2021
(1) All unvested stock options listed in this column were granted to the Named Executive Officer pursuant to our 2005 Equity
Incentive Plan. All options expire ten years after the date of grant. Unvested stock options become fully vested and
exercisable upon a change of control of our company.
(2)
Options to purchase shares of common stock were granted on September 9, 2011 to each of the Named Executive Officers, of
which 25% of the stock options will vest on the first anniversary of the date of grant while the remainder will vest monthly
over the remaining three year vesting period.
Retirement Plan
All employees, including the Named Executive Officers, may participate in our 401(k) Plan. Under the 401(k) Plan, employees may
elect to make before tax contributions of up to 60% of their base salary, subject to current Internal Revenue Service limits. The 401(k) Plan
does not permit an investment in our common stock. We match employee contributions up to 50% of the first 2% of the employee’s earnings.
Our contribution is 100% vested immediately.
Severance Arrangements
Each of Mr. Schumacher, Dr. Ting, Dr. Lazarev, and Dr. Lawrence, executive officers of the Company, is entitled to receive a
severance payment if terminated by us without cause. The severance benefits would include a payment in an amount equal to one year of
such executive officer’s annualized base salary compensation plus accrued paid time off. Additionally, the officer will be entitled to receive
medical and dental insurance coverage for one year following the date of termination.
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Change-in-Control Arrangements
Pursuant to severance agreements with each of Mr. Schumacher, Dr. Ting, Dr. Lazarev and Dr. Lawrence, each such executive
officers, is entitled to receive a change of control payment in an amount equal to one year (other than Mr. Schumacher) of such executive
officer’s annualized base salary compensation, accrued paid time off, and medical and dental coverage, in the event of a change of control of
our company. In the case of Mr. Schumacher, his payment is equal to two years of annualized base salary compensation, accrued paid time
off, and two years of medical and dental coverage.
Pursuant to our 2005 Equity Incentive Plan, any unvested stock options held by a Named Executive Officer will become fully
vested upon a change in control (as defined in the 2005 Equity Incentive Plan) of our company.
Director Compensation and Benefits
The following table sets forth certain information regarding compensation earned or paid to our directors during fiscal 2011.
Name
R. Wayne Fritzsche
Calvin A. Saravis, Ph.D
J. Donald Payne
Alan D. Rosenson
Alan I. Goldberg
Gregory G. Freitag
Jeffrey N. Peterson
Fees Earned
or Paid in
Cash (1)
Stock Awards
(1)
Option
Awards (2)(3)
Total
$
$
10,000
10,000
10,000
10,000
10,000
10,000
5,000
$
10,000
20,000
27,500
20,000
12,500
12,500
2,500
$
-
-
-
-
-
-
15,003
20,000
30,000
37,500
30,000
22,500
22,500
22,503
Our non-employee directors receive the following compensation for service as a director:
(1) Each director earned a quarterly stipend of $2,500 for attending meetings of the full board of directors (whether telephonic or in-
person) and attending committee meetings in 2011. However, the board of directors elected to defer and accrue the cash payment of
these fees until our financial performance improves as determined by the board of directors. We issued an aggregate of 124,996
shares of the Company’s common stock in September 2011 to current board members for payment of deferred board fees earned
through September 30, 2011. Amounts shown under the heading “Stock Awards” do not reflect compensation received by the
directors, but instead reflect the aggregate grant date fair value of the stock issued in lieu of payment of director fees as determined
by the Company’s closing stock price on September 1, 2011. New fees since October 1, 2011 will be deferred and accrued. There is
no limit to the number of meetings of our board of directors or committees that may be called.
(2) Amounts shown do not reflect compensation received by the directors. Instead, the amounts shown are the aggregate grant date
fair value as determined pursuant to FASB ASC 718, Compensation-Stock Compensation. Please refer to Note 2, xiii, “Accounting
for Stock-Based Compensation” in the Notes to the Consolidated Financial Statements for the fiscal year ended December 31, 2011,
for the relevant assumptions used to determine the valuation of stock option grants.
(3) The following table shows the total number of outstanding stock options as of December 31, 2011 that have been issued as
director compensation.
R. Wayne Fritzsche
Calvin A. Saravis, Ph.D
J. Donald Payne
Alan D. Rosenson
Alan I. Goldberg
Gregory G. Freitag
Jeffrey N. Peterson
Name
Aggregate Number of Stock Options
Outstanding
135,000
110,000
88,000
25,000
25,000
25,000
25,000
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
Beneficial Ownership Information
The following table sets forth certain information as of January 31, 2012 concerning the beneficial ownership of common stock for: (i) each
director and director nominee, (ii) each Named Executive Officer in the Summary Compensation Table under “Executive Compensation”
above, (iii) all executive officers and directors as a group, and (iv) each person (including any “group” as that term is used in Section 13(d)
(3) of the Exchange Act) known by us to be the beneficial owner of 5% or more of our common stock. The address for each of the persons
below who are beneficial owners of 5% or more of our common stock is our corporate address at 14 Norfolk Avenue, South Easton, MA
02375.
Beneficial ownership has been determined in accordance with the rules of the SEC and is calculated based on 6,925,531 shares of our
common stock issued and outstanding as of January 31, 2012. Shares of common stock subject to options, warrants, preferred stock or other
securities convertible into common stock that are currently exercisable or convertible, or exercisable or convertible within 60 days of January
31, 2012, are deemed outstanding for computing the percentage of the person holding the option, warrant, preferred stock, or convertible
security but are not deemed outstanding for computing the percentage of any other person.
Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the
table below have sole voting and investment power with respect to all shares of common stock that they beneficially own.
Name
Richard T. Schumacher (2)
R. Wayne Fritzsche (3)
Alan D. Rosenson (4)
Alan I. Goldberg (5)
J. Donald Payne (6)
Calvin A. Saravis, Ph.D (7)
Edmund Y. Ting, Ph.D (8)
Alexander V. Lazarev, Ph.D (9)
Gregory G. Freitag (10)
Jeffrey N. Peterson (11)
All Executive Officers and Directors as a Group (twelve persons) (12)
Number of Shares of
Common Stock
Beneficially Owned
(1)
Percent of
Class
844,937
695,277
289,274
249,027
159,800
133,809
128,938
105,701
94,303
17,976
2,870,660
11.1%
9.5%
4.0%
3.5%
2.2%
1.9%
1.8%
1.5%
1.3%
0.3%
32.4%
1) The terms of our Series C Convertible Preferred Stock and warrants issued in connection with our Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible Preferred Stock contain a limitation on
conversion which prevents the holder from converting shares of Series C Convertible Preferred Stock into, or exercise of
the warrants for, shares of common stock if, after giving effect to the conversion or exercise, as the case may be, the
holder would beneficially own more than 4.99% of the outstanding shares of common stock. The holder may elect to
increase this limitation to 9.99%, 14.99% or 19.99%, upon not less than 61 days prior written notice to us. With respect to
Mr. Schumacher, because he beneficially owned more than 19.99% of the outstanding shares of common stock prior to
his acquisition of shares of Series C Convertible Preferred Stock, the conversion limitation does not apply to him.
2)
3)
4)
5)
6)
Includes (i) 340,000 shares of common stock issuable upon exercise of options; (ii) 60,210 shares of common stock
issuable upon conversion of Series C Convertible Preferred Stock; (iii) 81,950 shares of common stock issuable upon the
exercise of warrants; and (iv) 104,000 shares of common stock issuable upon conversion of an outstanding convertible
debenture. Does not include 20,162 shares of common stock held by Mr. Schumacher’s minor son as his wife exercises all
voting and investment control over such shares.
Includes (i) 135,000 shares of common stock issuable upon exercise of options; and (ii) 219,310 shares of common stock
issuable upon exercise of warrants.
Includes (i) 25,000 shares of common stock issuable upon exercise of options; and (ii) 131,500 shares of common stock
issuable upon exercise of warrants.
Includes (i) 25,000 shares of common stock issuable upon exercise of options; and (ii) 96,960 shares of common stock
issuable upon the exercise of warrants.
Includes (i) 88,000 shares of common stock issuable upon exercise of options; and (ii) 13,050 shares of common stock
issuable upon the exercise of warrants.
7)
Includes 110,000 shares of common stock issuable upon exercise of options.
8)
9)
Includes (i) 114,000 shares of common stock issuable upon exercise of options; and (ii) 5,220 shares of common stock
issuable upon the exercise of warrants.
Includes (i) 95,000 shares of common stock issuable upon exercise of options; and (ii) 4,350 shares of common stock
issuable upon the exercise of warrants.
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10) Includes (i) 25,000 shares of common stock issuable upon exercise of options; and (ii) 26,640 shares of common stock
issuable upon the exercise of warrants.
11) Includes 15,000 shares of common stock issuable upon exercise of options.
12) Includes (i) 132,000 shares of common stock issuable upon exercise of options; and (ii) 5,220 shares of common stock
issuable upon the exercise of warrants held by executive officers not listed above.
Equity Compensation Plan Information
We maintain a number of equity compensation plans for employees, officers, directors and other entities and individuals whose efforts
contribute to our success. The table below sets forth certain information as of our fiscal year ended December 31, 2011 regarding the shares
of our common stock available for grant or granted under our equity compensation plans.
Equity compensation plans approved by security holders(1)
Plan Category
Number of
securities
remaining
available for
future
issuance
under equity
compensation
plans
Weighted-
average
exercise price
of outstanding
options
$
2.34
394,500
Number of
securities to
be issued
upon exercise
of
outstanding
options
1,508,500
________________________
(1) Includes the following plans: 1999 Non-Qualified Stock Option Plan and 2005 Equity Incentive Plan.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; AND DIRECTOR INDEPENDENCE.
Board Independence
Our board of directors has reviewed the qualifications of each of Messrs. Payne, Goldberg, Freitag, Rosenson, Peterson and Dr.
Saravis, constituting more than a majority of our directors, and has affirmatively determined that each individual is “independent” as such
term is defined under the current listing standards of the Nasdaq Stock Market. The board of directors has determined that none of these
directors has a material relationship with us that would interfere with the exercise of independent judgment. In addition, each member of the
Audit Committee is independent as required under Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).
Transactions with Related Persons
In June 2010, the Board of Directors extended the engagement of Mr. Wayne Fritzsche, the Company’s Chairman, as an investor
relations consultant to the Company, with an increase of annual cash compensation to $110,000. In connection with this engagement, Mr.
Fritzsche has not been on the Company’s Audit Committee since April 1, 2009. As of December 31, 2011, Mr. Fritzsche continues to
provide consulting services to us.
On April 8, 2011 and April 12, 2011, we completed the first tranche of a private placement, pursuant to which we sold an aggregate
of 55,048 units for a purchase price of $15.00 per unit, resulting in gross proceeds to us of $825,720 (the “Series C Private
Placement”). This was the first tranche of the Series C Private Placement. In connection with the second tranche, the purchase price was
reduced to $12.50 per unit and we issued an additional 11,011 units to the purchasers who participated in the first tranche, without any
additional gross proceeds to us. The second tranche closed on June 20, 2011 for the sale of 22,039 units for a purchase price of $12.50 per
unit with gross proceeds of $275,485. Each unit consisted of (i) one share of Series C Convertible Preferred Stock convertible into
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10 shares of our common stock (subject to adjustment for stock splits, stock dividends, recapitalization, etc.) and (ii) a three-year
warrant to purchase 10 shares of our common stock at a per share exercise price equal to the sum of (a) the common stock equivalent of the
Series C Purchase Price (b) plus $0.88 (the “Series C Warrant”). The Series C Warrants have since been amended to reduce the exercise
price to $2.13. Mr. Richard T. Schumacher, the Company’s Chief Executive Officer, participated in the Series C Private Placement on the
same terms as the other investors. Mr. Schumacher received 6,021 Series C Units for a purchase price of $75,262.50.
On September 7, 2011, the Company received a loan in the amount of $100,000 from the Company’s Chief Executive Officer, Richard
T. Schumacher. The loan was made pursuant to a convertible promissory note (the “Note”) with a maturity date of March 7, 2012, which
may be extended with mutual consent of the parties. The interest rate under the Note is 20% per annum. The Note may be repaid, at the
election of the holder (i) in cash, (ii) by conversion into that number of securities issued in the next financing completed by the Company
having an aggregate purchase price equal to the then outstanding principal amount of the Note, together with any accrued and unpaid interest
due at the time of conversion or (iii) conversion into shares of Common Stock of the Company at a conversion price of $1.00 per share. In
connection with the loan, the Company issued warrants to Mr. Schumacher to purchase 12,048 shares of the Company’s Common Stock, at
an exercise price of $0.83 per share, and warrants to purchase 105,882 shares of the Company’s Common Stock, at an exercise price of $0.85
per share. Both warrants are exercisable on or after March 07, 2012 and expire on September 7, 2014. On February 7, 2012, Mr.
Schumacher converted the $100,000 principal amount only of the Note in the Company’s private placement in February 2012 of shares of
restricted common stock and warrants to purchase shares of common stock at a purchase price of $0.9125 per share in return for 109,589
shares of restricted common stock and 54,795 warrants at an exercise price of $0.85 per share.
On February 7, 2012, Mr. R. Wayne Fritzsche invested $12,453 in our private placement in February 2012 of shares of restricted
common stock and warrants to purchase shares of common stock at a purchase price of $0.8025 per share for 15,518 shares of restricted
common stock and 7,759 warrants at an exercise price of $0.74 per share.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Independent Registered Public Accounting Fees
The following is a summary of the fees billed to the Company by Marcum LLP, the Company’s current independent registered
public accounting firm, for the fiscal year ended December 31, 2011 and 2010:
Audit Fees
Audit-Related Fees
Tax and Other Fees
Fiscal 2011
Fees
Fiscal 2010
Fees
$
$
105,570
51,500
-
157,070
$
$
111,696
3,500
-
115,196
Audit Fees. Consists of aggregate fees billed for professional services rendered for the audit of the Company’s consolidated
financial statements and review of the interim consolidated financial statements included in quarterly reports, as well as services that are
normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements.
Audit-Related Fees. Consists of aggregate fees billed for assurance and related services that are reasonably related to the
performance of the audit or review of the Company’s consolidated financial statements and are not reported under “Audit Fees.” Fees billed
by Marcum for 2011 were fees associated with derivative valuations and a consent delivered in connection with the Company’s Registration
Statement on Form S-3 and Registration Statement on Form S-1. Fees billed by Marcum for 2010 were fees associated with a consent
delivered in connection with the Company’s Registration Statement on Form S-8.
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Audit Committee Policy on Pre-Approval of Services
The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent registered
public accounting firm. These services may include audit services, audit-related services, tax services, and other services. Pre-approval is
generally provided for up to one year. The Audit Committee may also pre-approve particular services on a case-by-case basis.
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Item 15.
Exhibit No.
PART IV
Exhibits and Financial Statement Schedules.
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
Restated Articles of Organization of the Company
Articles of Amendment to Restated Articles of Organization of the Company
Articles of Amendment to Restated Articles of Organization of the Company, as amended
Articles of Amendment to Restated Articles of Organization of the Company, as amended
Reference
A-3.1**
B-3.1**
O-3.1**
L-3.1**
Articles of Amendment to Restated Articles of Organization of the Company, as amended
P-3.1**
Articles of Amendment to Restated Articles of Organization of the Company, as amended
U-3.1**
Amended and Restated By-Laws of the Company
Amendment to Amended and Restated By-Laws of the Company
Specimen Certificate for Shares of the Company’s Common Stock
Description of Capital Stock (contained in the Amended and Restated Articles of
Organization, as amended, of the Company filed as Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 3.6
and 3.7)
Rights Agreement dated as of February 27, 2003 between the Company and
Computershare Trust Company, Inc.
Amendment No. 1 to Rights Agreement dated April 16, 2004 between the Company and
Computershare Trust Company, Inc.
Amendment No. 2 to Rights Agreement dated November 8, 2011 between the Company
and Computershare Trust N.A.
Securities Purchase Agreement dated November 21, 2007 between the Company and the
purchasers named therein
Registration Rights Agreement dated November 21, 2007 between the Company and the
purchasers named therein
Securities Purchase Agreement dated February 12, 2009 between the Company and the
purchasers named therein
Form of 15-Month Preferred Stock Warrant
Form of 30-Month Common Stock Purchase Warrant
Amendment No. 1 to 30-Month Common Stock Purchase Warrant
Amendment No. 2 to 30-Month Common Stock Purchase Warrant
Registration Rights Agreement dated February 12, 2009 between the Company and the
purchasers named therein
Securities Purchase Agreement dated November 18, 2009 between the company and the
purchasers named therein
Registration Rights Agreement dated November 18, 2009 between the Company and the
purchasers named therein
Series B Preferred Stock Warrant
-81-
A-3.2**
C-3.3**
D-4.1**
A-3.1 & 3.2, B-31, O-
31, L-31, P-31 and
U.31**
E-4**
F-4**
U-4.2**
G-4.9**
G-4.10**
L-4.1**
L-4.3**
L-4.4**
Q-4.2**
S-4.1**
L-4.5**
O-4.1**
O-4.3**
O-4.2**
Exhibit No.
4.17
4.18
4.19
4.20
4.21
4.22
4.23
4.24
4.25
4.26
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
23.1
31.1
32.1
101
Amendment No. 1 to Series B Convertible Preferred Stock Purchase Warrant
Amendment No. 2 to Series B Convertible Preferred Stock Purchase Warrant
Securities Purchase Agreement dated April 8, 2011 between the Company and the
Purchasers Named Therein
Registration Rights Agreement dated April 8, 2011 between the Company and the
Purchasers Named Therein
Amendment No. 1 to Securities Purchase Agreement dated June 21, 2011, amending
Securities Purchase Agreement dated April 8, 2011 between the Company and the
Purchasers Named Therein
Form of Common Stock Purchase Warrant
Form of Warrant Issued to Lenders
Form of Promissory Note Issued to Lenders
Form of Common Stock Purchase Warrant
Form of Warrant
1999 Non-Qualified Stock Option Plan*
1999 Employee Stock Purchase Plan*
2005 Equity Incentive Plan.*
Amendment No. 1 to 2005 Equity Incentive Plan*
Description of Compensation for Certain Directors*
Severance Agreement between the registrant and Richard T. Schumacher*
Form of Severance Agreement including list of officers to whom provided*
Consent Agreement, dated May 29, 2007, by and among the registrant, PBI Source
Scientific, Inc., Source Scientific, LLC, BIT Analytical Instruments, Inc., Richard W.
Henson and Bruce A. Sargeant.
Asset Purchase Agreement dated April 16, 2004 between the Company, BBI Biotech
Research Laboratories, Inc. and SeraCare Life Sciences, Inc.
Technology Transfer and Patent Assignment Agreement dated October 7, 1996, between
Bioseq, Inc. and BioMolecular Assays, Inc.
Amendment to Technology Transfer and Patent Assignment Agreement dated October 8,
1998 between Bioseq, Inc. and BioMolecular Assays, Inc.
Nonexclusive License Agreement dated September 30, 1998 between Bioseq, Inc. and
BioMolecular Assays, Inc.
Agreement for Research Services dated February 1, 2006 by and between the registrant
and the University of New Hampshire
Placement Agency Agreement between the Placement agent and the Company, dated
November 8, 2011
Form of Securities Purchase Agreement
Form of Escrow Agreement, as amended
Form of Securities Purchase Agreement
Consent of Independent Registered Public Accounting Firm (Marcum LLP)
Principal Executive Officer and Principal Financial Officer Certification Pursuant to Item
601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Principal Executive Officer and Principal Financial Officer Certification Pursuant to Item
601(b)(32) of Regulation S-K, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Interactive Data File
Reference
Q-4.1**
S-4.2**
P-4.1**
P-4.3**
R-4.1**
P-4.2**
T-4.1**
T-4.2**
U-4.1**
V-4.1**
H**
H**
I-99.1**
M-10.1**
N-10.7**
N-10.6**
N-10.7**
J-10.1**
F-1**
N-10.11**
N-10.12**
N-10.13**
K-10.1**
U-10.1**
U-10.2**
U-10.3**
V-3.1**
Filed herewith
Filed herewith
Filed herewith
Filed herewith
*Management contract or compensatory plan or arrangement.
**Previously filed as follows.
A
B
C
D
E
F
G
H
I
J
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Registration Statement on
Form S-1 (Registration No. 333-10759) filed with the Commission on August 23, 1996.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 2004.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2002.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Annual Report on Form 10-
KSB for the fiscal year ended December 31, 2004.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission March 12, 2003.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission April 16, 2004.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Registration Statement on
Form S-3 (Registration No. 333-148227) filed with the Commission on December 20, 2007.
We previously filed this exhibit as an appendix to the registrant’s proxy statement filed June 14, 1999.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Registration Statement on
Form S-8 (Reg. No. 333-128594) filed with the Commission on September 26, 2005.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
K
L
M
N
O
P
Q
R
S
T
U
V
filed with the Commission on June 1, 2007.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on February 7, 2006.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on February 18, 2009.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on September 29, 2008.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Annual Report on Form 10-K
filed with the Commission on March 27, 2008.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on November 19, 2009.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on April 12, 2011.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on August 11, 2011.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on June 21, 2011.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on October 6, 2011.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 2011.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on November 10, 2011.
We previously filed this exhibit with the referenced exhibit number as an exhibit to the registrant’s Current Report on Form 8-K
filed with the Commission on February 9, 2012.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 27, 2012
Pressure BioSciences, Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacity and on the dates indicated.
By:
/s/ Richard T. Schumacher
Richard T. Schumacher
President and Chief Executive Officer
Name
/s/ Richard T. Schumacher
Richard T. Schumacher
/s/ Joseph L. Damasio, Jr.
Joseph L. Damasio, Jr.
/s/ R. Wayne Fritzsche
R. Wayne Fritzsche
/s/ J. Donald Payne
J. Donald Payne
/s/ Calvin A. Saravis, Ph.D.
Calvin A. Saravis, Ph.D.
/s/ Alan D. Rosenson
Alan D. Rosenson
/s/ Alan I. Goldberg
Alan I. Goldberg
/s/ Gregory G. Freitag
Gregory G. Freitag
/s/ Jeffrey N. Peterson
Jeffrey N. Peterson
Capacity
President, Chief Executive Officer,
Treasurer, Clerk and Director(Principal
Executive Officer and Principal Financial
Officer)
Vice President of Finance and
Administration (Principal Accounting
Officer)
Date
February 27, 2012
February 27, 2012
Director and Chairman of the Board
February 27, 2012
Director
Director
Director
Director
Director
Director
February 27, 2012
February 27, 2012
February 27, 2012
February 27, 2012
February 27, 2012
February 27, 2012
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements of Pressure BioSciences, Inc. (formerly Boston Biomedica, Inc.)
on Form S-8 (File Nos. 333-30320, 333-24770, 333-128594, and 333-155405) and Form S-3 (File No. 333-148227 and File No. 333-176828)
of our report dated February 27, 2012, with respect to our audit of the consolidated financial statements of Pressure BioSciences, Inc. as of
December 31, 2011 and 2010 and for the years then ended (which report includes an explanatory paragraph related to uncertainty of the
Company’s ability to continue as a going concern), which report is included in this Annual Report on Form 10-K of Pressure BioSciences,
Inc., for the year ended December 31, 2011.
EXHIBIT 23.1
/s/ Marcum LLP
Marcum LLP
Boston, Massachusetts
February 27, 2012
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.1
I, Richard T. Schumacher, certify that:
1. I have reviewed this report on Form 10-K of Pressure BioSciences, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-
15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: February 27, 2012
/s/ Richard T. Schumacher
Name: Richard T. Schumacher
Title:
President and Chief Executive Officer
(Principal Executive Officer and Principal Financial Officer)
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
EXHIBIT 32.1
In connection with the Annual Report on Form 10-K of Pressure BioSciences, Inc., a Massachusetts corporation (the “Company”) for the
period ended December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Richard T.
Schumacher, President and Chief Executive Officer, of Pressure BioSciences, Inc., a Massachusetts corporation (the “Company”), do hereby
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United
States Code) that:
(1) The Report of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
Dated: February 27, 2012
/s/ Richard T. Schumacher
Richard T. Schumacher
President and Chief Executive Officer
(Principal Executive Officer and Principal
Financial Officer)
A signed original of this written statement required by Section 906 has been provided to Pressure BioSciences, Inc., and will be retained by
Pressure BioSciences, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.