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, 2017 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 001-38185
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)
04-2652826
(I.R.S. Employer
Identification No.)
02375
(Zip Code)
(508) 230-1828
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
None
Name of Each Exchange on Which Registered
None
Securities registered pursuant to Section 12(g) of the Act:
(Title of Class)
Common Stock, par value $.01 per share
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]
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 [ ]
Non-accelerated filer [ ]
(Do not check if smaller reporting company)
Accelerated filer [ ]
Smaller reporting company [X]
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
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, 2017 was
$6,981,053 based on the closing price of $7.40 per share of Pressure BioSciences, Inc. common stock as quoted on the OTCQB Marketplace on
that date.
As of March 23, 2018, there were 1,367,852 shares of the registrant’s common stock outstanding.
Documents Incorporated by Reference
N/A.
TABLE OF CONTENTS
PART I
ITEM 1.
BUSINESS.
ITEM 1A. RISK FACTORS.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
ITEM 2.
PROPERTIES.
ITEM 3.
LEGAL PROCEEDINGS.
ITEM 4.
MINE SAFETY DISCLOSURES
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIES.
ITEM 6.
SELECTED FINANCIAL DATA.
PART II
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ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
ITEM 9.
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 DIRECTOR INDEPENDENCE.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
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Introductory Comments
Throughout this Annual Report on Form 10-K, the terms “we,” “us,” “our,” “the Company,” “our Company,” and “PBI,” refer to
Pressure BioSciences, Inc., a Massachusetts corporation, and unless the context indicates otherwise, also includes our wholly-owned subsidiary.
On June 5, 2017, the Company effected a 1-for-30 reverse stock split of its issued and outstanding shares of common stock All common
shares, stock options, and per share information presented in this Annual Report on Form 10-K have been adjusted to reflect the reverse stock
split on a retroactive basis for all periods presented.
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:
● 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 will have sufficient liquidity to finance normal operations for the foreseeable future;
● the options we may pursue in light of our financial condition;
● the potential applications for Ultra Shearing technology;
● the potential applications of BaroFold’s PreEMT high-pressure protein refolding technology
● the amount of cash necessary to operate our business;
● the anticipated uses of grant revenue and the potential for increased grant revenue in future periods;
● our plans and expectations with respect to our continued operations;
● the expected increase in the number of pressure cycling technology (“PCT”) and constant pressure (“CP”) based units that we believe will
be installed and the expected increase in revenues from the sale of consumable products and extended service contracts;
● our belief that PCT has achieved initial market acceptance in the mass spectrometry and other markets;
● the expected development and success of new instrument and consumables product offerings;
● the potential applications for our instrument and consumables product offerings;
● the expected expenses of, and benefits and results from, our research and development efforts;
● the expected benefits and results from our collaboration programs, strategic alliances and joint ventures;
● our expectation of obtaining additional research grants from the government in the future;
● our expectations of the results of our development activities funded by government research grants;
● the potential size of the market for biological sample preparation;
● general economic conditions;
● the anticipated future financial performance and business operations of our company;
● our reasons for focusing our resources in the market for genomic, proteomic, lipidomic and small molecule sample preparation;
● the importance of mass spectrometry as a laboratory tool;
● the advantages of PCT over other current technologies as a method of biological sample preparation in biomarker discovery, forensics, and
histology, as well as for other applications;
● the capabilities and benefits of our PCT Sample Preparation System, consumables and other products;
● our belief that laboratory scientists will achieve results comparable with those reported to date by certain research scientists who have
published or presented publicly on PCT and our other products;
● our ability to retain our core group of scientific, administrative and sales personnel; and
● our ability to expand our customer base in sample preparation and for other applications of PCT and our other products.
These forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause
our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance
or achievements, expressed or implied, by such forward-looking statements. Also, these forward-looking statements represent our estimates and
assumptions only as of the date of this 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 and other 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 Annual Report on Form 10-K. We
qualify all of our forward-looking statements by these cautionary statements.
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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 ProteoSolve TM, ProteoSolveLRSTM, the Power of PCTTM, the PCT ShredderTM, HUB440TM, HUB880TM,
micro-PestleTM, PCT-HDTM, BaroFoldTM, BarozymeTM and BaroFlexTM Strips, all of which are unregistered trademarks of the Company.
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, which we refer to as Pressure Cycling Technology, or PCT, uses
alternating cycles of hydrostatic pressure between ambient and ultra-high levels i.e., 20,000 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.
PCT is an enabling platform technology based on a physical process that had not previously been used to control bio-molecular interactions.
PCT 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 proteins, DNA, RNA, lipids
and small molecules. Our laboratory instrument family, the Barocycler®, and our internally developed consumables product line, which include
our unique MicroTubes, MicroCaps, MicroPestles, BaroFlex and PULSE® (Pressure Used to Lyse Samples for Extraction) Tubes, and
application specific kits (containing consumable products and reagents), together make up our PCT Sample Preparation System (the “PCT SPS”).
In 2015, together with an investment bank, we formed a subsidiary called Pressure BioSciences Europe (“PBI Europe”) in Poland. We have
49% ownership interest with the investment bank retaining 51%. Throughout 2017, PBI Europe did not have any operating activities and we
cannot reasonably predict when operations will commence. Therefore, we don’t have control of the subsidiary and did not consolidate them in our
financial statements.
Patents
To date, we have been granted 15 United States and foreign patents related to our PCT technology platform, and two additional patents in
China related to our Ultra Shear Technology, or UST. We have also received eight patents with our purchase of the assets of BaroFold in
December 2017. PCT employs a unique approach that we believe has the potential for broad use in a number of established and emerging life
sciences areas, which include, but are not limited to:
● biological sample preparation – including but not limited to sample extraction, homogenization, and digestion - in such study areas as
genomic, proteomic, lipidomic, metabolomic and small molecule;
● pathogen inactivation;
● protein purification;
● control of chemical reactions, particularly enzymatic; and
● immunodiagnostics.
We are also the exclusive distributor, throughout the Americas, for Constant Systems, Ltd,’s (“CS”) cell disruption equipment, parts, and
consumables. CS, a British company located several hours northwest of London, England, has been providing niche biomedical equipment,
related consumable products, and services to a global client base since 1989. CS designs, develops, and manufactures high pressure cell disruption
equipment required by life sciences laboratories worldwide, particularly disruption systems for the extraction of proteins. The CS equipment
provides a constant and controlled cell disruptive environment, giving the user superior, constant, and reproducible results whatever the
application. CS has over 900 units installed in over 40 countries worldwide. The CS cell disruption equipment has proven performance in the
extraction of cellular components, such as protein from yeast, bacteria, mammalian cells, and other sample types.
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The CS pressure-based cell disruption equipment and our PCT-based instrumentation complement each other in several important ways.
While both the CS and our technologies are based on high pressure, each product line has fundamental scientific capabilities that the other does
not offer. Our PCT Platform uses certain patented pressure mechanisms to achieve small-scale, molecular level effects. CS’s technology uses
different, proprietary pressure mechanisms for larger-scale, non-molecular level processing. In a number of routine laboratory applications, such
as protein extraction, both effects can be critical to success. Therefore, for protein extraction and a number of other important scientific
applications, we believe laboratories will benefit by using the CS and our products, either separately or together.
Primary Fields of Use and Application for PCT
Sample preparation is widely regarded as a significant impediment to research and discovery and sample extraction is generally regarded as
one of the key parts of sample preparation. The process of preparing samples for genomic, proteomic, lipidomic, and small molecule studies
includes a crucial step called sample extraction or sample disruption. This is the process of extracting biomolecules such as nucleic acid i.e., DNA
and/or RNA, as well as proteins, lipids, or small molecules from the plant or animal cells and tissues that are being studied. Our current
commercialization efforts are based upon our belief that pressure cycling technology provides a superior solution for sample extraction when
compared to other available technologies or procedures and thus might significantly improve the quality of sample preparation, and thus the
quality of the test result.
Within the broad field of biological sample preparation, in particular sample extraction, we focus the majority of our PCT and constant
pressure (“CP”) product development efforts in three specific areas: biomarker discovery (primarily through mass spectrometric analysis),
forensics and histology. We believe that our existing PCT and CP-based instrumentation and related 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, lipids,
and small molecules from a wide variety of plant, animal, and microbiological cells and tissues.
Biomarker Discovery - Mass Spectrometry
A biomarker is any substance (e.g., protein, DNA) that can be used as an indicator of the presence or absence of a particular disease-state or
condition, and/or to measure the progression and effects of therapy. Biomarkers can help in the diagnosis, prognosis, therapy, prevention,
surveillance, control, and cure of diseases and medical conditions.
A mass spectrometer is a laboratory instrument used in the analysis of biological samples, often focused on proteins, in life sciences research.
It is frequently used to help discover biomarkers. According to a recently published market report by Transparency Market Research,
“Spectrometry Market (Atomic, Molecular and Mass Spectrometry) - Global Scenario, Trends, Industry Analysis, Size, Share & Forecast 2011 –
2017,” the global spectrometry market was worth $10.2 billion in 2011 and is expected to reach $15.2 billion in 2017, growing at a compound
annual growth rate of 6.9% from 2011 to 2017. In the overall global market, the North American market is expected to maintain its lead position
in terms of revenue until 2017 and is expected to have approximately 36.2% of the market revenue share in 2017, followed next by Europe. We
believe PCT and CP-based products offer significant advantages in speed and quality compared with 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 and hair) when using the PCT platform in the sample
preparation process. We believe that PCT may be capable of differentially extracting DNA from sperm cells and female epithelial cells captured
in swabs collected from rape victims and subsequently stored in rape kits. We also believe that there are many completed 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 the quality, safety and speed of the testing process.
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Histology
The most commonly used technique worldwide for the preservation of cancer and other tissues for long-term storage and subsequent
pathology evaluation is to process them into formalin-fixed, paraffin-embedded (“FFPE”) samples. 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.
Our customers include researchers at academic laboratories, government agencies, biotechnology companies, pharmaceutical companies and
other life science institutions in the United States, Europe, and in Asia. Our goal is to continue aggressive market penetration in these target
groups. 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, lipidomic, 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, pharmaceutical manufacturing plants and other sites involved in each specific application. If we are
successful in forensics, our potential customers could be forensic laboratories, military and other government agencies. If we are successful in
histology (extraction of biomolecules from FFPE tissues), our potential customers could be pharmaceutical companies, hospitals, and laboratories
focused on drug discovery or correlation of disease states.
Developments
We reported a number of accomplishments in 2017:
On December 20, 2017, we announced a significant software upgrade for our flagship Barocycler 2320EXTREME instrument.
On December 13, 2017 we announced the acquisition of all the assets of BaroFold Corp, and our immediate entry into the Biologics Contract
Research Services Sector.
On November 1, 2017, we announced that we had initiated an aggressive marketing and sales strategy expected to drive significant expansion in
China.
On October 18, 2017, we announced a strategic collaboration with Phasex Corporation addressing broad markets for stable, water-soluble
nanoemulsions.
On October 10, 2017, we announced that our penetration into the European biopharma and high pressure markets was continuing to expand via
multiple scientific presentations in Germany, Poland, and Ireland.
On October 2, 2017, we announced that we were issued two patents on our widely-applicable, high pressure-based Ultra Shear Technology. PBI
believes that UST can be used to create or improve a broad range of medical, consumer, and industrial products through the preparation of high
quality nanoemulsions and “clean label” food.
On September 18, 2017, we announced that the Barocycler 2320EXTREME was named a finalist in the prestigious 2017 R&D 100 Awards.
Known as the “Oscars of Innovation”, the R&D 100 Awards recognize the top 100 revolutionary technologies of the past year.
On June 5, 2017, we announced that Professor Ruedi Aebersold, a worldwide expert in proteomics and one of PBI’s most well-known clients,
received the prestigious Karger Medal for significant contributions to the development of new bioanalytical methods.
On June 2, 2017, we announced a one-for-thirty reverse split of our common stock, to become effective on June 5, 2017. Please see the
Company’s second quarter Form 10Q for more details.
On April 10, 2017, we announced that Joseph Damasio, Jr. had joined the Company as its full-time Chief Financial Officer and Vice President of
Finance.
On March 23, 2017, we announced that we had significantly bolstered our marketing and sales capabilities by contracting with EKG Sales
Associates, a lead generation company and by hiring two of its planned four additional field sales directors.
On March 1, 2017, we announced that our Barocycler 2320EXTREME had been named the “Best New Instrument for Sample Preparation 2017”
by Corporate America News (“Corp America”) as part of the publication’s 2017 North American Excellence Awards.
On February 2, 2017, we announced that we had achieved CE Marking for the Barocycler 2320EXTREME, the Company’s recently released,
next-generation PCT-based sample preparation instrument. CE Marking permits PBI to begin sales of the Barocycler 2320EXT to the 31
countries of the European Economic Area.
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Liquidity
Management has developed a plan to continue operations. This plan includes controlling expenses, streamlining operations, and obtaining
capital through equity and/or debt financing. We have been successful in raising cash through debt and equity offerings in the past. We have
efforts in place to continue to raise cash through debt and equity offerings.
Although we have successfully completed equity financings and reduced expenses in the past, we cannot assure our investors 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 or on terms acceptable to
us, if at all. 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.
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 Boston Biomedica’s 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. We
began operations as PBI in February 2005, research and development activities in April 2006, early marketing and selling activities of our
Barocycler® instruments in late 2007, and active marketing and selling of our PCT-based instrument platform in 2012.
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”), which include, but are not limited to, our annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and any and all amendments to such reports, as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the SEC. These SEC reports can be also 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.
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Sample Preparation for Genomic, Proteomic, Lipidomic 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, lipidomic, 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:
● 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
● we currently have strong patent protection.
We believe that our existing PCT and CP-based instrumentation and related 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.
Biomarker Discovery - Mass Spectrometry
A biomarker is any substance (e.g., protein, DNA) that can be used as an indicator of the presence or absence of a particular disease-state or
condition, and to measure the progression and effects of therapy. Biomarkers can help in the diagnosis, prognosis, therapy, prevention,
surveillance, control, and cure of diseases and medical conditions.
A mass spectrometer is a laboratory instrument used in the analysis of biological samples, often focused on proteins, in life sciences research.
It is frequently used to help discover biomarkers. According to a recently published market report by Transparency Market Research,
“Spectrometry Market (Atomic, Molecular and Mass Spectrometry) - Global Scenario, Trends, Industry Analysis, Size, Share & Forecast 2011 –
2017,” the global spectrometry market was worth $10.2 billion in 2011 and is expected to reach $15.2 billion in 2017, growing at a compound
annual growth rate of 6.9% from 2011 to 2017. In the overall global market, the North American market is expected to maintain its lead position
in terms of revenue until 2017 and is expected to have approximately 36.2% of the market revenue share in 2017, followed by Europe. We
believe PCT and CP-based products offer significant advantages in speed and quality compared with current techniques used in the preparation of
samples for mass spectrometry analysis.
Our plan is to focus primarily on the application of PCT-enhanced protein extraction and CP-based digestion for the mass spectrometry
market and the advantages of PCT and CP in this market, and on the use of PCT and CP in biomarker discovery, soil and plant biology, counter
bio-terrorism and tissue pathology applications.
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 and hair) using PCT in the sample preparation process.
We believe that PCT may be capable of differentially extracting DNA from sperm cells and female epithelial cells in swabs collected from rape
victims and stored in rape kits. We also believe that there are many completed 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 the quality, safety and speed of the testing process.
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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 i.e., 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 one of the key parts of sample preparation. Our current commercialization efforts are based upon our belief that
pressure cycling technology provides a superior solution to sample extraction compared with other available technologies or procedures and can
thus significantly improve the quality of sample preparation, and thus the quality of the test result.
Company Products
We believe our PCT and CP 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 methods.
Barocycler® Instrumentation
Our Barocycler® product line consists of laboratory instrumentation that subjects a sample to cycles of pressure from ambient (approximately
14.5 psi) to ultra-high levels (20,000 psi or greater) and then back to ambient, in a precisely controlled manner.
Our instruments (the 2320EXT, the Barozyme-HT48, the Barocycler® NEP3229, the HUB440 and the HUB880) use cycles of high,
hydrostatic pressure to quickly and efficiently break up the cellular structures of a specimen to release proteins, nucleic acids, lipids and small
molecules from the specimen into our consumable processing tubes, referred to as our PULSE® Tubes and MicroTubes. Our instruments have
temperature control options (on-board heating or chilling via internal heating jacket or external circulating water-bath), automatic fill and
dispensing valves, and an integrated micro-processor keypad or a laptop computer. The microprocessor or laptop computer are capable of saving
specific PCT protocols, so the researcher can achieve maximum reproducibility for the preparation of nucleic acids, proteins, lipids, or small
molecules from various biological samples. Our Barocycler® instruments and our consumable products make up our PCT Sample Preparation
System.
Barocycler® 2320EXTREME - The Barocycler® 2320EXT is the flagship of the Company’s Barocycler line of PCT-based instruments. It
weighs approximately 80lbs, has a maximum pressure of 45,000 psi, and can process either up to 16 MicroTubes simultaneously or one PULSE®
Tube. The working temperature range is 4 – 95ºC and is controlled via an on-board electric heating jacket or external circulating water bath. All
tests are entered and recorded on a touch screen interface. Information from each test run (pressure profile, cycle number, and temperature) is
recorded and can be stored on the instrument, on a USB drive, or networked into the user’s lab. Pressure profiles can be manipulated in a number
of ways, including static high pressure holds and pressure ramp programs. The Barocycler® 2320EXT is pneumatic, and requires an input air
source of only 100psi to reach and cycle at high pressure.
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The Barocycler® 2320EXT was developed to support the PCT-HD/PCT-SWATH application. PCT-HD enables faster, less cumbersome and
higher quality processing of biopsy tissues. With homogenization, extraction, and digestion of proteins occurring in a single PCT MicroTube
under high pressure, this protocol can yield analytical results in under four hours from the start of tissue processing. PCT-HD was developed by
our scientists and engineers in collaboration with Professor Ruedi Aebersold and Dr. Tiannan Guo of the Institute of Molecular Systems Biology,
ETH Zurich, and the University of Zurich, both in Zurich, Switzerland. Drs. Aebersold and Guo combined PCT-HD with SCIEX’s SWATH-Mass
Spectrometry – calling the resulting method “PCT-SWATH”.
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 and
up to 48 samples simultaneously using our specially-designed MicroTubes.
Barozyme HT48 - The Barozyme HT48 is a high throughput, bench-top instrument designed for accelerated enzymatic digestion of proteins at
high pressure. A typical protein digestion time using the enzyme trypsin (a common yet important laboratory procedure) can be reduced from
often requiring an overnight incubation to achieve completion, to under one hour when the digestion procedure is carried out with PCT. The
Barozyme HT48 uses an air-pressure-to-liquid-pressure proprietary intensifier system, with a pressure amplification ratio of 160:1, to reach an
output pressure of 20,000 psi. The Barozyme HT48 is capable of processing up to 48 samples at a time in six single-use BaroFlex 8-well Strips in
the Barozyme Sample Carrier.
Barocycler® HUB440 –We believe the Barocycler® HUB440 is the first portable, ready to use, “plug-and-play” high pressure generator for the
laboratory bench. The Barocycler® HUB440 is capable of creating and controlling hydrostatic pressure from 500 psi to 58,000 psi. It is computer
controlled and runs on software that was specially-written by us in LabVIEW (software from National Instruments Corporation). We own the
rights and have a license to use the specialty LabVIEW software. We believe that over the coming years, the Barocycler® HUB440 may become
the main instrument in our pressure-based instrument line.
Barocycler® HUB880 - The Barocycler® HUB880 is a compact, portable, bench-top, ultra-high pressure generator that uses an air pressure-to-
liquid pressure intensifier allowing the user to generate fluid pressure as high as 90,000 psi with input air pressure of just 126 psi. The HUB880
can be operated through a simple front panel or controlled using an optional external Data Acquisition and Control Module for dynamic pressure
control. We believe that the HUB880 will be well accepted by scientists that need to achieve super high pressure, such as those working in the
food safety and vaccine industries.
Ultra Shear Technology (UST) – UST is an emerging technology that utilizes intense fluid shear and instant heating achieved by specialized high
pressure equipment to continuously produce commercially sterile, low acid, pumpable, homogeneous fluid products. This requires the
inactivation of bacteria, bacterial spores and enzymes. UST also achieves energetic cellular disruption and fluid homogenization. Consequently,
depending on operating conditions, nano-sized emulsions can be produced that have been shown to have improved shelf stability, flavor, and
biological inactivation.
The Company received two patents in China on a low cost, scalable approach for production level product manufacturing. The Company
believes this method can find use in various nanotechnology applications for pharmaceutical (e.g., drug delivery), biotechnology (e.g., protein
recovery, biomolecule extraction), and food (e.g., shelf-stable “clean label” products) applications. We plan to design, develop, manufacture, and
market a lab-scale UST-based instrument that we can sell direct to the life sciences and other industries. We also plan to develop a pilot plant
scale UST-based instrument for demonstration in our expectation to license the technology to food companies worldwide.
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 System 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 also used to isolate intact and functional mitochondria from tissues. The Shredder SG3 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.
Barocycler® Consumable Products
PCT MicroTubes – PCT MicroTubes are made from a unique fluoropolymer, fluorinated ethylene propylene (FEP). FEP is highly inert and
retains its integrity within an extremely wide temperature range (-200oC to +100oC). MicroTubes hold a maximum total volume of 150
microliters. PCT MicroTubes must be used with either PCT-MicroCaps or PCT-MicroPestles.
PCT-MicroCaps – PCT MicroCaps are made from polytetraflouroethylene (PTFE). The PCT MicroCaps are available in three sizes to
accommodate total sample volume: 50, 100 and 150uL. 50uL MicroCaps are used with samples ≤50uL, 100uL MicroCaps are used with samples
between 50-100uL, and 150uL MicroCaps are used with samples between 100-150uL.
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PCT-Micro Pestle - PCT μPestles are made from Polytetrafluoroethylene (PTFE), a synthetic fluoropolymer of tetrafluoroethylene, also known as
Teflon (by DuPont Co). PTFE is practically inert; the only chemicals known to affect it are certain alkali metals and most highly-reactive
fluorinating agents. PCT μPestles, in conjunction with PCT MicroTubes, are designed to enhance the extraction of proteins, lipids, DNA, RNA
and small molecules from minute amounts (0.5 – 3.0 mg) of solid tissue in extraction reagent volumes as low as 20-30 μL. PCT MicroTubes and
PCT μPestles use PCT to effectively disrupt soft tissues and lyse their cells. As a result, the tissue sample trapped between the MicroTube end and
the μPestles tip is crushed on every pressure cycle. This mechanical action, combined with the extraction ability of the buffer under high pressure,
results in highly effective tissue homogenization and extraction.
PCT μPestles and PCT MicroTubes, together with a PBI Barocycler®, comprise the PCT Micro-Pestle System, which provides a fast, safe, and
efficient means of extraction from extremely small amounts of solid samples such as soft animal tissues or biopsies. The PCT μPestle System can
be used in any PBI Barocycler®.
BaroFlex 8-well Processing Strips - BaroFlex 8-well Strips are used in the Barozyme HT48 (for pressure-enhanced enzymatic digestion at 20,000
psi). BaroFlex 8-well Strips are made of special high density polyethylene (HDPE) and hold up to 140µl when capped with the BaroFlex Cap
Strips or Mats. BaroFlex 8-Cap Strips and BaroFlex 24-Cap Mats are made of silicone. These single-use caps are designed to seal BaroFlex 8-
well Strips tightly and to prevent fluid exchange between the sample and the Barozyme chamber fluid during pressure cycling. The silicone caps
are available as strips of eight, or mats of 24 caps.
We believe our development of these various consumable products has helped, and will continue to help, drive the adoption of PCT within the
life sciences market.
Company Services
Government Grants and Contracts
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. 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 can
offer as much as $1,000,000 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 five NIH SBIR Phase I grants and three SBIR Phase II grants. The data on
three of the NIH SBIR Phase I grants were the basis for the submission, and subsequent award. Of the three NIH SBIR Phase II grants awarded to
us: one was in the approximate amount of $845,000 in August 2008, the second was in the approximate amount of $850,000 in September 2011,
and the third award was in the approximate amount of $1,020,000 awarded in November 2014. All five of the NIH SBIR Phase I grants and the
August 2008 and September 2011, NIH SBIR Phase II grants have been completed. We received an extension on the SBIR Phase II grant,
awarded in November 2014, to utilize unused funds until November 30, 2018.
The 2008 SBIR Phase II grant (2R44GM079059) was awarded to us by the NIH for work in the area of using PCT to extract proteins, sub-
cellular molecular complexes, and organelles, with the expectation that these studies might 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. The 2011 SBIR II contract (W81XWH-10-
C-0-175) was awarded to us by the U.S. Army for the development of a universal method for the inactivation, extraction, and enrichment of
pathogens in diagnostic samples, including arthropod hosts of military importance. The work covered by this grant was significant in helping us
develop the Barozyme HT48 High Throughput System. The 2014 SBIR Phase II grant (2R44HG007136) was awarded to us by the National
Human Genome Research Institute of the NIH. Entitled “High Pressure Sample Preparation Instrumentation for DNA Sequencing”, this grant
allowed us to develop the Barocycler HUB880, an automated, high-throughput, high pressure system (instrument and consumables), to enable
significantly better control of DNA fragmentation - a critical step in the preparation of samples for Next Generation Sequencing platforms. This
system was based on significant technological advancements over the classic hydrodynamic DNA shearing approach that has been successfully
and widely used in the field of DNA sequencing for many years.
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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 Fields of Use and Applications for PCT
Our research and development efforts have shown that, in addition to genomic, proteomic, lipidomic, 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 discussed 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 PBI, 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 intended 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 agents 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 pathogens (e.g., 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 with 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 U.S. 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 with 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. patents in this area.
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Control of Chemical (Particularly Enzymatic) Reactions
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 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 the human immunodeficiency virus (“ HIV”),
hepatitis viruses, West Nile virus, and others, as well as for endocrine, drug testing and cancer diagnostics. We have generated proof-of-concept
that PCT may be used to control biomolecular 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. patents in this area.
Acquisition of BaroFold’s PreEMT™ high-pressure protein refolding technology in December 2017
BaroFold’s assets have significantly increased PBI’s intellectual property portfolio in high-pressure technologies with the addition of eight
issued and several pending patents. These patents give PBI the ability to operate in several important areas for biologics research and
manufacturing: protein folding, re-folding and disaggregation. The patents also provide PBI the right to grant licenses to third parties to practice
the PreEMT and other technologies in both research laboratories and in biopharmaceutical manufacturing.
Biopharmaceutical products are typically large-molecule proteins produced via complex biological manufacturing processes that can lead to
undesirable protein misfolding and aggregation. Misfolded or aggregated proteins typically lack therapeutic activity and can present health risks
to patients, requiring robust remediation within pharmaceutical manufacturing processes. The PreEMT technology improves the quality of
manufacturing, decreases manufacturing costs (as much as $2-10M/year per commercial biologic drug), and facilitates achievement of proper
activity from difficult-to-manufacture proteins.
Customers
Our customers include researchers at academic laboratories, government agencies, biotechnology companies, pharmaceutical firms, and other
life science institutions in North, Central, and South America; Europe; and Asia. Our goal is to continue aggressive market penetration to target
groups in these geographical areas. 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, lipidomic, 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, pharmaceutical manufacturing plants, and other sites involved in each specific application. If we are
successful in forensics, our potential customers could be forensic laboratories, military and other government agencies. If we are successful in
histology (extraction of biomolecules from FFPE tissues), 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, lipids, 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 biomolecules 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
● safety
To be competitive in the industry, we believe we must be able to clearly and conclusively demonstrate to potential customers that our
products provide these improved performance capabilities. We strongly 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.
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Further, we are aware that the cost of the PCT Sample Preparation System may be greater than the cost of many of the other methods
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
CBM Industries (Taunton, MA) is the manufacturer of the Barocycler® 2320EXT. CBM is ISO 13485:2003 and 9001:2008 Certified. CBM
provides us with precision manufacturing services that include management support services to meet our specific application and operational
requirements. Among the services provided by CBM to us are:
● CNC Machining
● Contract Assembly & Kitting
● Component and Subassembly Design
● Inventory Management
● ISO certification
At this time, we believe that outsourcing the manufacturing of our Barocycler® 2320EXT to CBM is the most cost-effective method for us to
obtain ISO Certified, CE and CSA Marked instruments. CBM’s close proximity to our South Easton, MA facility is a significant asset enabling
interactions between our Engineering, R&D, and Manufacturing groups and their counterparts at CBM. CBM was instrumental in helping PBI
achieve CE Marking on our Barocycler 2320EXT, as announced on February 2, 2017.
Although we currently manufacture and assemble the Barozyme HT48, Barocycler® HUB440, the SHREDDER SG3, and most of our
consumables at our South Easton, MA facility, we plan to take advantage of the established relationship with CBM and transfer manufacturing of
the entire Barocycler® product line, future instrument, and other products to CBM.
The Barocycler® NEP3229, launched in 2008, and manufactured by the BIT Group, will be phased out over the next several years and
replaced by the new state-of-the-art Barocycler® HUB and Barozyme HT product lines.
Research and Development
Our research and development activities are split into two functional areas: Applications Development and Engineering.
1. Applications Development R&D: 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 and continued improvement of the PCT Sample Preparation System and
on PCT-dependent genomic, proteomic, lipidomic, and small molecule sample preparation applications. Dr. Alexander Lazarev, our vice
president of Applications 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.
2. Engineering R&D: 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 develop and continually improve our line
of PCT-based instruments and consumables, ensure seamless production processes, help perform installations and field service, and work
with our application scientists to enhance our PCT-based systems for the mass spectrometry and other markets.
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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 of approximately three to twelve months, a financial commitment that
is beneficial to both the collaborator and PBI, and the execution of an agreed upon work plan. Our primary objectives for entering into a
collaboration agreement include:
● the development of a new application for PCT and CP in sample preparation;
● the advancement and validation of our understanding of PCT and CP within an area of life sciences in which we already offer products;
● the demonstration of the effectiveness of PCT and CP by specific research scientists, particularly Key Opinion Leaders (“KOLs”), 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, especially a KOL, on the merits
of PCT and CP.
Since we initiated our collaboration program, third party researchers have cited the use of our PCT platform in multiple 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 in the United States and throughout the rest of the world. We believe this program has been responsible for the sale of
multiple Barocycler instruments over the past few years, and will continue to help to increase the sales of instrument systems in the future.
Product Pipeline
The following instruments are in our research and development pipeline:
● Barocycler® FFPE Protein Extraction Instrument System - A PCT-based system offering the enhanced extraction of proteins from FFPE
samples using a modified Barocycler® instrument that combines the advantages of pressure cycling, high temperature, and certain
reagents.
● XstreamPCT™ HPLC Digestion Module - For automated, in-line, on-demand PCT-enhanced protein digestion; the first module in our
PCT-based HPLC platform.
Sales and Marketing
Our marketing and sales function is led by Dr. Nathan Lawrence, our vice president of Marketing and Sales. Dr. Lawrence oversees and
directs marketing and sales 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, the arrangement of on-location seminars,
lectures, and demonstrations of PCT capabilities, and the supervision of our one-person sales force. Dr. Lawrence 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 departments such as Research and Development, but marketing and sales drives the collaborative
process. Dr. Lawrence is also responsible for the continued coordination and support of our foreign distribution partners.
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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 paradigm-shifting, new technology such as PCT.
Sales
Direct US Sales Force
Our domestic sales force currently consists of one sales director and three field salespersons. We expect to hire additional sales and marketing
personnel throughout 2018, with a goal that our sales and marketing department will have a minimum of six staff focused on sales and two on
marketing by the end of 2018.
Marketing Strategy
We recognize that our enabling pressure cycling technology (PCT) is novel. Consequently, the power of PCT is not yet generally known by
researchers. Our first goal is to greatly broaden the awareness of PCT and its applications among scientists and to ensure they know that this
technology exists through our Barocycler® family of high-pressure instruments and requisite consumables. To accomplish this expansion of
knowledge about PCT and the subsequent adoption of our PCT-based products, we have developed and are implementing a multi-faceted
approach to marketing the PCT platform.
Key Opinion Leaders and Publications
To initially reach scientists, we have established collaborations with key opinion leaders (KOL) who recognized early the potential for PCT
and went on to report their discoveries in peer reviewed journals. Among the KOLs working with us is Dr. Ruedi Aebersold (Head of the
Department of Biology, ETH, Zurich). Dr. Aebersold, a pioneer in proteomics, worked with our scientists and engineers to develop PCT-SWATH
(aka PCT-HD), a superior method for the extraction and preparation of proteins for the downstream analysis by mass spectrometry. Other KOLs
include Dr. Jennifer van Eyk (Director of Advanced Clinical Biosystems Institute in the Department of Biomedical Sciences Cedar Sinai, Los
Angeles, CA) and Dr. Wayne Hubble (Jules Stein Professor at the University of California, LA). Dr. van Eyk is a recognized expert in the causes
of heart disease and is using PCT in her attempt to discover cardiac disease biomarkers. Dr. Hubble, a member of the National Academy of
Science, is a leader in the field of electron paramagnetic resonance (EPR). He uses PCT in his studies of protein-protein interactions, so very
important in the discovery of drugs and drug design. The publications and presentations of these and other world class scientists have been
invaluable in gaining initial entry of PCT in several areas of research. In addition to publications by our KOLs, there are also many peer reviewed
publications from dozens of other scientists discussing the advantages of the PCT platform in bio-molecule sample preparation. To this end, we do
all we can to disseminate the work of these scientists in an effort to increase the exposure of PCT to the worldwide research community.
Broadcasting PCT and Our Products
1. We attend, exhibit, and present at top scientific meetings such as the American Society of Mass Spectrometry (ASMS) and both the US
and International meetings of the Human Proteome Organization (HUPO). These meetings are an opportunity to present our technology
and to showcase our products to scientists who require sample preparation in their research studies.
2. Routine and timely “blast” emails to scientists in our database. Topics include new PCT-related publications, announcements of meetings,
product advertisements, and a monthly newsletter. The database we use is proprietary, as it has been built from attending scientific
meetings and searching the internet for relevant publications and contact information.
3. We manage our database with SalesForce, a state-of-the-art Customer Relationship Management (CRM) system. Through SalesForce, we
employ the marketing automation software Pardot to manage our email blasts. Pardot enables us to assess open rates, levels of interest, and
to create automatic and constant contact with potential clients.
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4. We use social media platforms like LinkedIn, Twitter and Facebook to broadcast publications, webinars, our presence at scientific
meetings, and press releases. Social media enables us to easily reach scientists world-wide.
5. We significantly upgraded our website. The upgraded website contains a state-of-the art search engine that enables researchers to rapidly
find PCT-related publications and products.
6. The website contains videos of our products. In 2016, we contracted with BioCompare to produce a high quality video showing PCT-HD
and the uses of our Barocycler® 2320EXT and the MicroTube System.
7. Our scientists regularly present their findings and discuss our products at scientific sessions at regional, national, and international
scientific conferences, and at corporate, government, and academic laboratories.
8.
In addition to electronic advertising, we have used and will continue to use print media to showcase our products.
In 2018, we plan to expand our Marketing team to support these and additional initiatives.
Foreign Distributor Network
Exclusive Agreements
Currently, we have distribution arrangements covering China, Poland, 24 countries in Europe, and Japan.
In May of 2014, we entered into a three-year distribution agreement with Powertech Technology Co, Ltd., of China, pursuant to which we were
granted Powertech Technology exclusive distribution rights to all of our products in China. We expect this agreement will be extended during
2018.
In February 2016, we entered into a three-year distribution agreement with bioanalytic of Poland, pursuant to which PBI granted bioanalytic
exclusive distribution rights to all of our products in Poland.
In September of 2016, we entered into a three-year distribution agreement with Vita Co. of Japan, pursuant to which we were granted Vita Co.
exclusive distribution rights to all of our products in Japan.
In September of 2016, we entered into a distribution agreement with I&L GmbH, of Germany pursuant, to which were granted I&L, exclusive
distribution rights to all of our products until March 30, 2018 in the countries designated as Western Europe (Andorra, Austria, Belgium,
Denmark, Finland, France, Germany, Gibraltar, Greece, Iceland, Italy, Ireland, Liechtenstein, Luxembourg, Malta, Monaco, Norway,
Netherlands, Portugal, San Marino, Spain, Sweden, Switzerland, and the United Kingdom). We recently renewed the agreement to commence on
March 31, 2018 and end on March 31, 2019.
Non-Exclusive and Other Distribution Agreements
In November 2011, we entered into a distributor agreement with OROBOROS Instruments Corp. (“OROBOROS”) of Austria pursuant to which
we were granted OROBOROS non-exclusive world-wide distribution rights to our Shredder SG3 System and related products.
In June 2013, CS and PBI signed an expanded Distribution Agreement that made us the exclusive distributor of CS products throughout all of the
Americas until 2019.
In January 2016, SCIEX, a global leader in life science analytical technologies, announced an exclusive two-year co-marketing agreement with
PBI. In their press release, SCIEX stated that the relationship with us will uniquely position SCIEX to address a major challenge in complex
sample preparation by marketing a complete solution to increase the depth, breadth, and reproducibility of protein extraction, digestion, and
quantitation in all tissue types, including challenging samples like tumors. Under the agreement, PBI and SCIEX will promote PCT Sample
Preparation Systems such as PCT-HD with SWATH® Acquisition-based next generation proteomics, TripleTOF® Systems, QTRAP® Systems,
and Triple Quad Systems. This focus on improved sample preparation, a crucial step performed in research laboratories worldwide, will enable
scientists to extract more proteins reproducibly from complex sample types, potentially yielding superior biological insights and discoveries. We
believe this agreement may be extended at some point during 2018, or that we might enter into an exclusive or a non-exclusive agreement with
one or more of the other five companies that sell mass spectrometers.
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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 15 United States and foreign patents related to our PCT technology platform, and two additional patents in
China related to our Ultra Shear Technology. We also received eight patents with our purchase of the assets of BaroFold in December 2017.
Our issued patents expire between 2018 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. 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 terminated March 7, 2016.
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. was required to pay us these royalties until the expiration in March 2016 of the patents held by BioSeq,
Inc. since 1998. 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. After re-negotiating the terms of the contract in 2013, the minimum annual royalty
was $1,200 in 2014 and $2,000 in 2015; the minimum royalties are $3,000 in 2016, $4,000 in 2017 and $5,000 in 2018 and each calendar year
thereafter during the term of the agreement.
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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.
Currently, all of our commercialization efforts are focused in the area of genomic, proteomic, lipidomic, 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 “FDA 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, lipidomic, and small molecule sample preparation, such as protein purification,
pathogen inactivation and immunodiagnostics, our products may be considered “medical devices” under the FDA Act, at which point we would
be subject to the law’s general control provisions and regulation by 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 possibly prohibit us from pursuing such markets.
Some of our devices 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.
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. Due to outsourcing manufacturing to CBM, an ISO certified contract manufacturer, we believe compliance with CE
and other required marks and certifications is well controlled.
Employees
At December 31, 2017, we had fourteen (14) full-time employees and five (5) 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.
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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 Annual Report on
Form 10-K.
RISKS RELATED TO OUR COMPANY
We have received an opinion from our independent registered public accounting firm expressing substantial 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, 2017 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, 2017 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 continued control of expenses and obtaining equity or debt
financing. 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.
The factors described above could adversely affect our ability to obtain additional financing on favorable terms, if at all, and 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 issue the same opinion in the future. If we cannot successfully continue as a going concern, our
stockholders may lose their entire investment.
Our revenue is dependent upon acceptance of our products by the market. The failure of such acceptance will cause us to curtail or cease
operations.
Our revenue comes from the sale of our products. As a result, we will continue to incur operating losses until such time as sales of our
products reach a mature level and we are able to generate sufficient revenue from the sale of our products to meet our operating expenses. There
can be no assurance that customers will adopt our technology and products, or that businesses and prospective customers will agree to pay for our
products. In the event that we are not able to significantly increase the number of customers that purchase our products, or if we are unable to
charge the necessary prices, our financial condition and results of operations will be materially and adversely affected.
Our business could be adversely affected if we fail to implement and maintain effective disclosure controls and procedures and internal
control over financial reporting.
We concluded that as of December 31, 2017, our disclosure controls and procedures and our internal control over financial reporting were not
effective. We have determined that we have limited resources for adequate personnel to prepare and file reports under the Securities Exchange
Act of 1934 within the required time periods and that material weaknesses in our internal control over financial reporting exist relating to our
accounting for complex equity transactions. If we are unable to implement and maintain effective disclosure controls and procedures and
remediate the material weaknesses in a timely manner, or if we identify other material weaknesses in the future, our ability to produce accurate
and timely financial statements and public reports could be impaired, which could adversely affect our business and financial condition. 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 preventive controls to properly safeguard assets. In addition, investors may lose
confidence in our reported information and the market price of our common stock may decline.
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We have a history of operating losses, anticipate future losses and may never be profitable.
We have experienced significant operating losses in each period since we began investing resources in PCT and CP. 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, 2017, we recorded a net loss of $10,715,561 of which approximately
$6,000,000 was interest expense, or ($9.62) per share, as compared with $2,706,984, or ($2.97) per share, of the corresponding period in 2016.
We expect to continue to incur operating losses until sales of PCT and CP 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.
If we are unable to obtain additional financing, business operations will be harmed and if we do obtain additional financing then existing
shareholders may suffer substantial dilution.
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.
We expect the net proceeds from an expected equity offering, along with our current cash position, will enable us to fund our operating
expenses and capital expenditure requirements for at least the next 36 months. Thereafter, unless we achieve profitability, we anticipate that we
will need to raise additional capital to fund our operations and to otherwise implement our overall business strategy. We currently do not have any
contracts or commitments for additional financing. There can be no assurance that financing will be available in amounts or on terms acceptable
to us, if at all. Any additional equity financing may involve substantial dilution to then existing shareholders.
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 financial results depend on revenues from our pressure cycling technology products and services, and from government grants.
We currently rely on revenues from PCT, CP, and CS 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.
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We may be unable to obtain market acceptance of our pressure cycling technology products and services.
Many of the 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, lipidomics, and small molecules studies. Later sales have been to
key opinion leaders. Our technology requires scientists and researchers to adopt a method of sample extraction that is different from existing
techniques. Our PCT sample preparation system is also more costly than most existing techniques. 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 with existing methods of sample extraction. If we are unable to demonstrate the benefits and advantages of our
products and technology as compared with 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:
● availability of adequate financing;
● 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; 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.
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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, specifically our Chief Executive Officer, Richard
T. Schumacher. The loss of the services of any of our senior management 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, operations, and marketing/sales
personnel could harm our product development capabilities and customer and employee relationships, delay the growth of sales of our products,
and result in the loss of key information, expertise, or know-how.
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 solely rely on CBM Industries, a third party contract manufacturer, to manufacture our Barocycler 2320EXT instrumentation,
provide manufacturing expertise, and manage the majority of our sub-contractor supplier relationships for this instrument. Because of our
dependence on one manufacturer, our success will depend, in part, on the ability of CBM 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 CBM experiences
manufacturing problems or delays, or if CBM 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 CBM,
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 four 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:
● 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.
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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 four international distribution agreements that cover 24 countries in Europe, Asia and Australia. 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:
● 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.
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 but not limited to the following:
● 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 incurring 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 regulations 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.
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We expect that we will be subject to regulation in the United States, such as by the Food and Drug Administration, and overseas, if and
when we begin to invest more resources in the development and commercialization of PCT in applications outside of sample preparation for
the research field.
Our current pressure cycling technology products in the area of sample preparation for the research field are not regulated by the FDA.
Certain applications in which we intend to develop and commercialize pressure cycling technology, such as protein purification, pathogen
inactivation and immunodiagnostics, are expected to require regulatory approvals or clearances from regulatory agencies, such as the FDA, prior
to commercialization, when we expand our commercialization activities outside of the research field. 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.
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. To date, we have been granted 15 United States
and foreign patents related to our PCT technology platform, and two additional patents in China related to our Ultra Shear Technology. We also
received eight patents with our purchase of the assets of BaroFold in December 2017.
There can be no assurance that (a) any patent applications filed by us will result in issued patents; (b) patent protection will be secured for any
particular technology; (c) any patents that have been or may be issued to us will be valid or enforceable; (d) any patents will provide meaningful
protection to us; (e) others will not be able to design around our patents; and (f) 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 may 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.
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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.
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
but not limited to 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.
We will need to increase the size of our organization, and may experience difficulties in managing growth.
We are a small company with a minimal number of employees. We expect to experience a period of expansion in headcount, facilities,
infrastructure and overhead and anticipate that further expansion will be required to address potential growth and market opportunities. Future
growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate
new managers. Our future financial performance and its ability to compete effectively will depend, in part, on its ability to manage any future
growth effectively.
Provisions in our articles of organization and bylaws may discourage or frustrate stockholders’ 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:
● 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.
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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 OTC Markets Group, Inc., have increased and will continue to increase
our legal and financial compliance costs and may make some activities more time-consuming. These requirements have placed and will continue
to 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 (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 specified rate, which is published by the U.S. Treasury,
and the aggregate value of our outstanding stock plus; and (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.
Significant policy shifts from the Trump Administration could have a material adverse effect on us.
The Trump Administration has called for substantial change to fiscal and tax policies, regulatory oversight of businesses, and greater
restrictions on free trade including significant increases on tariffs on goods imported into the United States, including from China. Proposals
espoused by President Trump may result in changes to social, political, regulatory and economic conditions in the United States or in laws and
policies affecting the development and investment in countries where we currently conduct business. In addition, these changes could result in
negative sentiments towards the United States among non-U.S. customers and among non-U.S. employees or prospective employees. We cannot
predict the impact, if any, of these changes to our business. However, it is possible that these changes could adversely affect our business. It is
likely that some policies adopted by the new administration will benefit us and others will negatively affect us.
RISKS RELATING TO OWNERSHIP OF OUR SECURITIES
The holders of our Common Stock could suffer substantial dilution due to our corporate financing practices.
The holders of our common stock could suffer substantial dilution due to our corporate financing practices, which, in the past few years, have
included private placements and a registered direct offering. As of December 31, 2017, we have issued shares of Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock, Series D Convertible Preferred Stock, Series E Convertible
Preferred Stock, Series G Convertible Preferred Stock, Series H Convertible Preferred Stock, Series H2 Convertible Preferred Stock, Series J
Convertible Preferred Stock and Series K Convertible Preferred Stock.
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As of December 31, 2017, all of the issued shares of Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C
Convertible Preferred Stock, and Series E Convertible Preferred Stock had been converted into shares of common stock. As of December 31,
2017 only shares of Series D Convertible Preferred Stock, Series G Convertible Preferred Stock, Series H Convertible Preferred Stock, Series H2
Convertible Preferred Stock, Series J Convertible Preferred Stock and Series K Convertible Preferred Stock were outstanding. Further, in
connection with those private placements and the Series D registered direct offering, we issued warrants to purchase common stock. In addition,
as of December 31, 2017, we had issued notes and debentures convertible into common stock at prices ranging from $7.50 to $8.40 per common
share. If all of the outstanding shares of Series D Convertible Preferred Stock, Series G Convertible Preferred Stock, Series H Convertible
Preferred Stock, Series H2 Convertible Preferred Stock, Series J Convertible Preferred Stock and Series K Convertible Preferred Stock were
converted into shares of common stock and all outstanding options and warrants to purchase shares of common stock were exercised and all fixed
rate convertible notes and debentures were converted, each as of December 31, 2017, an additional 2,594,229 shares of common stock would be
issued and outstanding. This additional issuance of shares 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 in the public markets, which include an offering of our preferred stock or
common 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 common stock has been and may in the future continue to be extremely volatile. Many factors could have a significant impact on
the future price of our shares of common stock, including:
● 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; and
● the degree of trading liquidity in our shares of common stock.
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.
The relatively low price of our shares of common stock, and 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.
- 28 -
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.
As of December 31, 2017, there were 1,342,858 shares of common stock issued and outstanding. Similarly, at such time, there were no shares
of Series A Junior Participating Preferred Stock; Series A Convertible Preferred Stock; Series B Convertible Preferred Stock; Series C
Convertible Preferred Stock; and Series E Convertible Preferred Stock. As of December 31, 2017 there were 300 shares of Series D Convertible
Preferred Stock issued and outstanding and convertible into 25,000 shares of common stock, 80,570 shares of Series G Convertible Preferred
Stock issued and outstanding convertible into 26,857 shares of common stock, 10,000 shares of Series H Convertible Preferred Stock issued and
outstanding convertible into 33,334 shares of common stock, 21 shares of Series H2 Convertible Preferred Stock issued and outstanding
convertible into 70,000 shares of common stock, 3,458 shares of Series J Convertible Preferred Stock issued and outstanding convertible into
115,267 shares of common stock, and 6,880 shares of Series K Convertible Preferred Stock issued and outstanding convertible into 229,334
shares of common stock.
As of December 31, 2017, there were outstanding options and warrants to purchase an aggregate of 1,147,234 shares of common stock; and
fixed rate convertible debt convertible into 947,203 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.
- 29 -
Our Common Stock is subject to the “Penny Stock” rules of the SEC and the trading market in our securities is limited, which makes
transactions in our stock cumbersome and may reduce the value of an investment in our stock.
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes
relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
● That a broker or dealer approve a person’s account for transactions in penny stocks; and
● The broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny
stock to be purchased.
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
● Obtain financial information and investment experience objectives of the person; and
● Make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge
and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating
to the penny stock market, which, in highlight form:
● Sets forth the basis on which the broker or dealer made the suitability determination; and
● That the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult
for investors to dispose of our common stock and cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies
available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price
information for the penny stock held in the account and information on the limited market in penny stocks.
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.
Our shares of Series D Convertible Preferred Stock are entitled to certain rights, privileges and preferences over our common stock,
including a preference upon a liquidation of our Company, which will reduce amounts available for distribution to the holders of our common
stock.
The holders of our shares of Series D are entitled to payment, prior to payment to the holders of common stock in the event of liquidation of
the Company. If we are dissolved, liquidated or wound up at a time when the Series D Preferred Stock remain outstanding, the holders of the
Series D Preferred Stock will be entitled to receive only an amount equal to the liquidation preference (as it may be adjusted from time to time),
plus any accumulated and unpaid dividends, to the extent that we have funds legally available. Any remaining assets will be distributable to
holders of our other equity securities.
- 30 -
Shares eligible for future sale may adversely affect the market.
From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary
brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act, subject to certain limitations. In general,
pursuant to amended Rule 144, non-affiliate stockholders may sell freely after six months subject only to the current public information
requirement. Affiliates may sell after six months subject to the Rule 144 volume, manner of sale (for equity securities), current public information
and notice requirements. Any substantial sales of our common stock pursuant to Rule 144 may have a material adverse effect on the market price
of our common stock.
We currently do not intend to pay dividends on our common stock. As result, your only opportunity to achieve a return on your investment
is if the price of our common stock appreciates.
We currently do not expect to declare or pay dividends on our common stock. In addition, in the future we may enter into agreements that
prohibit or restrict our ability to declare or pay dividends on our common stock. As a result, your only opportunity to achieve a return on your
investment will be if the market price of our common stock appreciates and you sell your shares at a profit.
We could issue additional common stock, which might dilute the book value of our Common Stock.
Our Board of Directors has authority, without action or vote of our shareholders, to issue all or a part of our authorized but unissued shares.
Such stock issuances could be made at a price that reflects a discount or a premium from the then-current trading price of our common stock. In
addition, in order to raise capital, we may need to issue securities that are convertible into or exchangeable for our common stock. These issuances
would dilute the percentage ownership interest, which would have the effect of reducing your influence on matters on which our shareholders
vote, and might dilute the book value of our common stock. You may incur additional dilution if holders of stock warrants or options, whether
currently outstanding or subsequently granted, exercise their options, or if warrant holders exercise their warrants to purchase shares of our
common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not Applicable.
ITEM 2. PROPERTIES.
Our corporate office is currently located at 14 Norfolk Avenue, South Easton, Massachusetts 02375. We are currently paying $6,950 per
month, on a lease extension, signed on December 29, 2017, that expires December 31, 2018, for our corporate office. We expanded our space to
include offices, warehouse and a loading dock on the first floor starting May 1, 2017 with a monthly rent increase already reflected in the current
payments.
On October 18, 2017 we signed a lease extension for our lab space in Medford, MA. The lease will now expire December 30, 2020 and
requires monthly payments of $6,912.75 starting January 1, 2018 subject to annual cost of living increases. The lease shall be automatically
extended for additional three years unless either party terminates at least six months prior to the expiration of the current lease term.
ITEM 3. LEGAL PROCEEDINGS.
We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of
operations. There is no action, suit, or proceeding by any court, public board, government agency, self-regulatory organization or body pending or,
to the knowledge of the executive officers of our Company or our subsidiary, threatened against or affecting our Company, our common stock,
our subsidiary or of our companies or our subsidiary’s officers or directors in their capacities as such, in which an adverse decision could have a
material adverse effect.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
- 31 -
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIES.
Our common stock is currently traded on the OTCQB tier of the OTC Markets under the trading symbol “PBIO.”
The following table sets forth, for the periods indicated, the high and low sales price and the high and low bids, as applicable, per share of
common stock, as reported by the OTC Markets from January 1, 2016 through December 31, 2017.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Authorized Capital
Year Ended December 31, 2017
High
Low
11.40 $
10.50 $
7.90 $
4.85 $
Year Ended December 31, 2016
High
Low
15.30 $
17.40 $
13.80 $
12.00 $
4.50
4.60
0.70
2.95
8.40
7.80
8.40
5.40
$
$
$
$
$
$
$
$
As of December 31, 2017, we were authorized to issue 100,000,000 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 were designated as Series A Junior Participating
Preferred Stock, 313,960 shares as Series A Convertible Preferred Stock, 279,256 shares as Series B Convertible Preferred Stock, 88,098 shares
as Series C Convertible Preferred Stock, 850 shares as Series D Convertible Preferred Stock, 500 shares as Series E Convertible Preferred Stock,
240,000 shares as Series G Convertible Preferred Stock, 10,000 shares as Series H Convertible Preferred Stock, 21 shares as Series H2
Convertible Preferred Stock, 6,250 shares as Series J Convertible Preferred Stock and 15,000 shares as Series K Convertible Preferred Stock.
As of December 31, 2017, there were 1,342,858 shares of common stock issued and outstanding. Similarly, at such time, there were no shares
of Series A Junior Participating Preferred Stock; Series A Convertible Preferred Stock; Series B Convertible Preferred Stock; Series C
Convertible Preferred Stock; and Series E Convertible Preferred Stock. As of December 31, 2017 there were 300 shares of Series D Convertible
Preferred Stock issued and outstanding and convertible into 25,000 shares of common stock, 80,570 shares of Series G Convertible Preferred
Stock issued and outstanding convertible into 26,857 shares of common stock, 10,000 shares of Series H Convertible Preferred Stock issued and
outstanding convertible into 33,334 shares of common stock, 21 shares of Series H2 Convertible Preferred Stock issued and outstanding
convertible into 70,000 shares of common stock, 3,458 shares of Series J Convertible Preferred Stock issued and outstanding convertible into
115,267 shares of common stock, and 6,880 shares of Series K Convertible Preferred Stock issued and outstanding convertible into 229,334
shares of common stock.
Approximate Number of Equity Security Holders
As of December 31, 2017, there were approximately 205 stockholders of record. Because shares of our common stock are held by
depositaries, brokers and other nominees, the number of beneficial holders of our shares is substantially larger than the number of stockholders of
record.
Dividends
We have never declared or paid any cash dividends on common stock and do not plan to pay any cash dividends on common stock in the
foreseeable future.
- 32 -
As of December 31, 2017, dividends issued or to be issued on convertible preferred stock for the years ended December 31, 2017 and 2016
are outlined in the table below.
Series D
Series E
Series G
Series H
Series H2
Series J
Series K
Dividends paid in common stock or cash
For The Year Ended December 31,
2017
2016
Dividends payable
For The Year Ended December 31,
2017
2016
$
$
- $
-
-
-
-
-
-
- $
- Series D
- Series E
- Series G
- Series H
- Series H2
442 Series J
63,413 Series K
63,855
$
$
- $
-
-
-
-
83,004
107,478
190,482 $
-
-
1,200
-
-
83,484
108,620
193,304
Unregistered Sales of Equity Securities and Use of Proceeds
During the year ended December 31, 2017, we issued securities that were not registered under the Securities Act, and were not
previously disclosed in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K as listed below. Except where noted, all of the
securities discussed in this Item 5 were issued in reliance on the exemption under Section 4(a)(2) of the Securities Act.
On September 20, 2017, we issued 4,000 shares of restricted common stock to an investor relations firm and recorded the common stock’s fair
value of $16,000 as administrative expense in the year ended December 31, 2017.
October 19, 2017 the Company issued 2,500 shares of its Common Stock at $4.00 per share to a lender for a loan in the amount of $250,000.
On October 27, 2017 the Company issued 2,500 shares of its Common Stock at $4.00 per share to a lender. In consideration for a loan in the
amount of $170,000.
On November 15, 2017 the Company issued to Debenture holders 22,701 shares of its Common Stock for quarterly interest of $173,589 issued in
stock in lieu of cash.
On December 11, 2017 the Company issued 1,700 shares of its Common Stock to a lender for a loan in the amount of $130,000.
On December 11, 2017 the Company issued 2,500 shares of its Common Stock to a lender for an extension on a loan of $170,000 until February
15, 2018.
On November 29, 2017 the Company issued 4,000 shares of its Common Stock at $3.80 per share to a lender for a loan in the amount of
$150,000.
On December 19, 2017 the Company issued 1,500 shares of its Common Stock at $3.85 per share to a lender for a loan in the amount of
$110,000.
On December 31, 2017, the Company awarded 2,134 shares of common stock at $7.50 per share to an investor relations firm for services to be
rendered in 2018 for the Company.
ITEM 6. SELECTED FINANCIAL DATA.
Not Applicable.
- 33 -
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, which we refer to as PCT, uses alternating cycles of hydrostatic
pressure between ambient and ultra-high levels i.e., 20,000 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.
PCT is an enabling platform technology based on a physical process that had not previously been used to control bio-molecular interactions.
PCT 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 proteins, DNA, RNA, lipids
and small molecules. Our laboratory instrument family, the Barocycler®, and our internally developed consumables product line, which include
our unique MicroTubes, MicroCaps, MicroPestles, BaroFlex and PULSE® (Pressure Used to Lyse Samples for Extraction) Tubes, and
application specific kits (containing consumable products and reagents), together make up our PCT SPS.
In 2015, together with an investment bank, we formed a subsidiary called Pressure BioSciences Europe (“PBI Europe”) in Poland. We have
49% ownership interest with the investment bank retaining 51%. PBI Europe has never had any operating activities and we cannot reasonably
predict when operations will commence. Therefore, we don’t have control of the subsidiary and did not consolidate them in our financial
statements.
Patents
PBI has 14 United States granted patents and one foreign granted patent (Japan: 5587770, EXTRACTION AND PARTITIONING OF
MOLECULES) covering multiple applications of PCT in the life sciences field. PBI also has 19 pending patents in the USA, Canada, Europe,
Australia, China, and Taiwan PCT employs a unique approach that we believe has the potential for broad use in a number of established and
emerging life sciences areas, which include, but are not limited to:
● biological sample preparation – including but not limited to sample extraction, homogenization, and digestion - in such study areas as
genomic, proteomic, lipidomic, metabolomic and small molecule;
● pathogen inactivation;
● protein purification;
● control of chemical reactions, particularly enzymatic; and
● immunodiagnostics.
We are also the exclusive distributor, throughout the Americas for Constant System’s cell disruption equipment, parts, and consumables. CS,
a British company located several hours northwest of London, England, has been providing niche biomedical equipment, related consumable
products, and services to a global client base since 1989. CS designs, develops, and manufactures high pressure cell disruption equipment
required by life sciences laboratories worldwide, particularly disruption systems for the extraction of proteins. The CS equipment provides a
constant and controlled cell disruptive environment, giving the user superior, constant, and reproducible results whatever the application. CS has
over 900 units installed in over 40 countries worldwide. The CS cell disruption equipment has proven performance in the extraction of cellular
components, such as protein from yeast, bacteria, mammalian cells, and other sample types.
- 34 -
The CS pressure-based cell disruption equipment and our PCT-based instrumentation complement each other in several important ways.
While both the CS and our technologies are based on high pressure, each product line has fundamental scientific capabilities that the other does
not offer. Our PCT Platform uses certain patented pressure mechanisms to achieve small-scale, molecular level effects. CS’s technology uses
different, proprietary pressure mechanisms for larger-scale, non-molecular level processing. In a number of routine laboratory applications, such
as protein extraction, both effects can be critical to success. Therefore, for protein extraction and a number of other important scientific
applications, we believe laboratories will benefit by using the CS and our products, either separately or together.
Primary Fields of Use and Application for PCT
Sample preparation is widely regarded as a significant impediment to research and discovery and sample extraction is generally regarded as
one of the key parts of sample preparation. The process of preparing samples for genomic, proteomic, lipidomic, and small molecule studies
includes a crucial step called sample extraction or sample disruption. This is the process of extracting biomolecules such as nucleic acid i.e., DNA
and/or RNA, proteins, lipids, or small molecules from the plant or animal cells and tissues that are being studied. Our current commercialization
efforts are based upon our belief that pressure cycling technology provides a superior solution for sample extraction when compared to other
available technologies or procedures and thus might significantly improve the quality of sample preparation, and thus the quality of the test result.
Within the broad field of biological sample preparation, in particular sample extraction, we focus the majority of our PCT and constant
pressure (“CP”) product development efforts in three specific areas: biomarker discovery (primarily through mass spectrometric analysis),
forensics, and histology. We believe that our existing PCT and CP-based instrumentation and related 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, lipids,
and small molecules from a wide variety of plant, animal, and microbiological cells and tissues.
Biomarker Discovery - Mass Spectrometry
A biomarker is any substance (e.g., protein, DNA) that can be used as an indicator of the presence or absence of a particular disease-state or
condition, and/or to measure the progression and effects of therapy. Biomarkers can help in the diagnosis, prognosis, therapy, prevention,
surveillance, control, and cure of diseases and medical conditions.
A mass spectrometer is a laboratory instrument used in the analysis of biological samples, often focused on proteins, in life sciences research.
It is frequently used to help discover biomarkers. According to a recently published market report by Transparency Market Research,
“Spectrometry Market (Atomic, Molecular and Mass Spectrometry) - Global Scenario, Trends, Industry Analysis, Size, Share & Forecast 2011 –
2017,” the global spectrometry market was worth $10.2 billion in 2011 and is expected to reach $15.2 billion in 2017, growing at a compound
annual growth rate of 6.9% from 2011 to 2017. In the overall global market, the North American market is expected to maintain its lead position
in terms of revenue until 2017 and is expected to have approximately 36.2% of the market revenue share in 2017, followed by Europe. We
believe PCT and CP-based products offer significant advantages in speed and quality compared with current techniques used in the preparation of
samples for mass spectrometry analysis.
- 35 -
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 and hair) when using the PCT platform in the sample
preparation process. We believe that PCT may be capable of differentially extracting DNA from sperm cells and female epithelial cells captured
in swabs collected from rape victims and subsequently stored in rape kits. We also believe that there are many completed 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 the quality, safety and speed of the testing process.
Histology
The most commonly used technique worldwide for the preservation of cancer and other tissues for subsequent pathology evaluation is process
them into formalin-fixed, paraffin-embedded (“FFPE”) tissue samples. 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.
Our customers include researchers at academic laboratories, government agencies, biotechnology companies, pharmaceutical firms, and other
life science institutions in the North, Central, and South America; Europe, and Asia. Our goal is to continue aggressive market penetration in these
target groups. 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, lipidomic, 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, pharmaceutical manufacturing plants and other sites involved in each specific application. If we are
successful in forensics, our potential customers could be forensic laboratories, military and other government agencies. If we are successful in
histology (extraction of biomolecules from FFPE tissues), our potential customers could be pharmaceutical companies, hospitals, and laboratories
focused on drug discovery or correlation of disease states.
Going Concern
We have experienced negative cash flows from operations with respect to our pressure cycling technology business since our inception. As of
December 31, 2017, we did not have adequate working capital resources to satisfy our current liabilities and as a result we have substantial doubt
about our ability to continue as a going concern. Based on our current projections, including equity financing subsequent to December 31, 2017,
we believe we will have the cash resources that will enable us to continue to fund normal operations into the foreseeable future.
The audit report issued by our independent registered public accounting firm on our audited consolidated financial statements for the fiscal
year ended December 31, 2017, 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, 2017 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 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.
The conditions described above could adversely affect our ability to obtain additional financing on favorable terms, if at all, and 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 issue the same opinion in the future. If we cannot successfully continue as a going concern, our
stockholders may lose their entire investment in us.
- 36 -
RESULTS OF OPERATIONS
Year Ended December 31, 2017 as compared with December 31, 2016
Revenue
We had total revenue of $2,240,498, in the year ended December 31, 2017 as compared with $1,976,487 in the prior year, a 13% increase.
The increase was due to product sales growth.
Products, Services, and Other. Revenue from the sale of products and services was $2,065,891 in the year ended December 31, 2017
compared with $1,794,749 in the year ended December 31, 2016, a 15% increase. Revenue included sales of both PBI and CS’s pressure-based
products. Sales of instrumentation increased in 2017 by $253,806 or 21%, from $1,205,520 for FY 2016 to $1,459,326 for FY 2017. Sales of
consumables were $260,331 for the year ended December 31, 2017 compared to $199,873 for the same period in 2016, an increase of $60,458 or
30%. Products, Services, and Other Revenue included $77,088 from non-cash transactions in the current year while the prior year included non-
cash transactions of $63,956. Revenue from non-cash transactions was recognized on the fair value of the assets involved per ASC 845.
Grant Revenue. During 2017, we recorded $174,607 of grant revenue as compared with $181,738 in 2016. In December 2014, the Company
was awarded a $1,020,969 SBIR Phase II grant (2R44HG007136) from the National Human Genome Research Institute of the NIH. Entitled
“High Pressure Sample Preparation Instrumentation for DNA Sequencing”, this grant is helping to fund the development of an automated, high-
throughput, high pressure system (instrument and consumables) to enable significantly better control of DNA fragmentation - a critical step in the
preparation of samples for Next Generation Sequencing platforms. This system will be based on significant technological advancements over the
classic hydrodynamic DNA shearing approach that has been successfully and widely used in the field of DNA sequencing for many years. In
March 2018, we received an extension on the SBIR Phase II grant to utilize unused funds until November 30, 2018.
Cost of Products and Services
The cost of products and services was $1,273,354 for the year ended December 31, 2017, compared with $834,012 in 2016. Our overall gross
profit margin was 43% for FY 2017 vs. 58% for FY 2016. The prior year margin was affected by a $136,000 credit relating to the SBIR Phase II
grant. Excluding this credit, our prior year margin would have been 51%. The current year cost of products and services includes a $159,600
inventory allowance for the older generation of Barocycler instruments held in stock, the NEP3229.
Research and Development
Research and development expenditures were $988,597 for 2017 compared to $1,183,011 in 2016, a decrease of $194,414 or 16%. This
decrease resulted primarily from the allocation of R&D resources to production of our instruments. The prior year expenses included charges
incurred with a collaborator. Research and development expense also included $92,055 and $65,500 of non-cash, stock-based compensation in
2017 and 2016, respectively.
Selling and Marketing
Selling and marketing expenses were $1,209,334 in 2017 compared to $872,365 in 2016, an increase of $336,969, or 39%. This increase is
primarily attributed to an increase in employee staffing resulting from the development of a field sales force. Selling and marketing expense
included $54,404 and $42,314 of non-cash stock based compensation expense in 2017 and 2016, respectively.
General and Administrative
General and administrative costs were $3,416,261 in the year ended December 31, 2017, as compared with $2,822,752 in 2016, an increase of
$593,509 or 21%. The prior year costs included credits received from charges incurred with a former professional service provider offset by the
hire of a CFO in 2017. During the years ended December 31, 2017 and 2016, general and administrative expense included $259,968 and $272,150
of non-cash, stock-based compensation expense, respectively.
- 37 -
Operating Loss
Our operating loss was $4,647,048 for the year ended December 31, 2017 as compared to $3,735,653 for the prior year, an increase of
$911,395 or 24%. This increase in operating loss was due primarily to the increase in Sales and Marketing expenses, the inventory allowance of
$159,600 and the one-time administrative credits in the prior year off-set to a certain extent by an increase in total revenue.
Other income (expense), net
Interest Expense. Net interest expense totaled $6,055,420 for the year ended December 31, 2017 as compared to interest expense of
$4,501,186 for the year ended December 31, 2016. The increase was from interest on additional short-term loans, drawdowns on our revolving
note and interest accruals at certain trigger dates during the revolving note’s term. In connection with loans issued in 2015 and 2016, we are
amortizing deferred financing costs and imputed interest against the debt discount on loans.
Other income (expense) net
We recognized $5,674 in expense during 2017, compared to $1,112 of expense in 2016. Other expenses include foreign exchange losses
relating to overseas purchases in local currency.
Impairment loss on investment
The value of our investment in common stock of Everest Investments Holdings S.A. (“Everest”) has declined since the date of receipt of the
stock in 2015. We evaluated the decline and considered it as an “other than temporary impairment” reduction. Thus, the impairment loss was
recognized as a charge in the consolidated statements of operations. During 2017 and 2016, we recorded impairment losses of $6,069 and
$373,682 respectively, which represented the reduction in value of these securities.
Gain on extinguishment of debt
In connection with payments of interest in common stock, we calculated gains of $218,452 on the difference between the stock’s trading
price on date of issuance and the interest payable in cash. The gains were offset by fees paid to extend the terms on short-term loans. The current
year gains were offset by $33,000 loan extension fees recorded as losses on debt modifications.
Change in fair value of derivative liabilities
During the year ended December 31, 2016, we recorded non-cash income of $5,904,649 from warrant and conversion option liability
revaluations in our consolidated statements of operations due to a decrease in the fair value of the derivative warrants and the conversion option
liabilities on our debt. This decrease in fair value was primarily due to a decrease in the price per share of our common stock. We early adopted
ASU 2017-11 and applied the guidance to derivative accounting. Therefore, we reclassified the warrant and conversion option liabilities to equity
and stopped fair valuing the instruments in 2017.
Income Taxes
We did not record an income tax benefit or provision for the years ended December 31, 2017 or 2016.
Net Loss
During the year ended December 31, 2017, we recorded a net loss of $10,715,561 or $(9.62) per share, as compared with $2,706,984 or
$(2.97) per share during the year ended December 31, 2016. This increase in net loss is primarily attributable to the discontinued changes in fair
value of our derivative liabilities, the increase in Sales and Marketing expenses, the one-time administrative credits in the prior year and additional
interest of $1.5 million from current year borrowings.
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LIQUIDITY AND FINANCIAL CONDITION
As of December 31, 2017, we did not have adequate working capital resources to satisfy our current liabilities. We have been successful in
raising cash through debt and equity offerings in the past. We issued a promissory note in the aggregate principal amount of up to $4,000,000 in
October 2016 as amended in February 2018 that we can draw funds from, and, through December 31, 2017, we have drawn down $3.5 million
($500,000 subsequent to December 31, 2017). We have efforts in place to continue to raise cash through debt and equity offerings.
We believe our current and projected capital raising plans, and our projected continued increases in revenue, will enable us to extend our cash
resources for the foreseeable future. Although we have successfully completed equity and debt financings and reduced expenses in the past, we
cannot assure you that our plans to address these matters in the future will be successful.
We believe we will need approximately $15 million in additional capital to fund our three-pronged operational plan, which was designed to
help increase revenues and reach profitability, by:
A.
implementing a next-generation upgrade to our product line and offering a superior instrument with greater net margins;
B. gaining additional non-dilutive monies from governmental research and development applications, and/or engineering projects; and
C.
retaining a small team of sales and marketing persons to target research facilities and academic institutions, and cultivate our current
customer list of pharmaceutical, military and paramilitary organizations.
However, if we are unable to obtain such funds through sales, the capital markets or other source of 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. These conditions raise substantive doubt about our ability to continue as a going concern.
Net cash used in operating activities was $3,904,549 for the year ended December 31, 2017 as compared with $3,805,851 for the year ended
December 31, 2016.
Net cash used in investing activities for the year ended December 31, 2017 totaled $171,825 compared to $7,203 in the prior period. Cash
capital expenditures included BaroFold patents, laboratory equipment and IT equipment.
Net cash provided by financing activities for the year ended December 31, 2017 was $4,019,044 as compared with $3,834,634 in the prior
year.
In 2017,
A $1,755,850 in aggregate net proceeds were raised from sales of convertible debentures and $925,541 payments were made for convertible
debt.
B Loans in the aggregate amount of $2,905,752 were received during the year and we made payments on new and existing debt of
$1,894,231.
C $2,070,000 in aggregate net proceeds were drawn down from a revolving note facility.
D $140,214 net proceeds were received from warrant exercises.
Our common stock is currently traded on the OTCQB tier of the OTC Markets under the trading symbol “PBIO.”
- 39 -
COMMITMENTS AND CONTINGENCIES
Royalty Commitments
In 1996, we acquired our initial equity interest in BioSeq, Incorporated (“BioSeq”). At the time, BioSeq was developing our original pressure
cycling technology. They 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; and, consequently, 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 acquired from BMA. Similarly, the Company is 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
terminated March 7, 2016. During the year ended December 31, 2016, we incurred approximately $6,963 in royalty expense associated with our
obligation to BMA.
In connection with our acquisition of BioSeq, 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 was required to pay us these royalties until the expiration of the patents held
by BioSeq in March 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
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. After re-negotiating the terms of the contract in 2013, the
minimum annual royalty was $1,200 in 2014 and $2,000 in 2015; the minimum royalties are $3,000 in 2016, $4,000 in 2017 and $5,000 in 2018
and each calendar year thereafter during the term of the agreement.
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”), a related party. 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 respective 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 did not incur any royalty obligation under this agreement in 2017 or 2016. We executed an amendment
to this agreement on October 1, 2016 wherein we agreed to pay a monthly fee of $1,400 for the use of a lab bench, shared space and other
utilities, and $2,000 per day for technical support services as needed. Mr. Jeffrey N. Peterson, the chief executive officer of TDI, has served as a
director of the Company since July 2011 and as Chairman of the Board starting in 2012.
- 40 -
Severance and Change of Control Agreements
Each of Mr. Schumacher, Dr. Ting, Dr. Lazarev, and Dr. Lawrence, executive officers of the Company, are 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.
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 equity incentive plans, 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.
Lease Commitments
We lease building space under non-cancelable leases in South Easton, MA and lab space in Medford, MA. Rental costs are expensed as
incurred. During 2017 and 2016 we incurred $140,783 and $125,819, respectively, in rent expense for the use of our corporate office and research
and development 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, 2017:
2018
2019
2020
2021
Thereafter
$
$
166,353
82,953
82,953
-
-
332,259
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as of December 31, 2017 and December 31, 2016.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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.
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 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.
- 41 -
Revenue Recognition
We recognize revenue in accordance with FASB ASC 605, Revenue Recognition. Revenue is recognized when realized or when realizable
and earned when all the following criteria have been met: persuasive evidence of an arrangement exists; goods were shipped, delivery of service
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 Barocycler® instruments require a basic level of instrumentation expertise to set-up for initial operation. To support a favorable
first experience for our customers, upon customer request, and for an additional fee, will send a highly trained technical representative to the
customer site to install Barocycler®s 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 and Constant
Systems products is recognized upon shipment of the unit. In the case where the customer requests installation and training, the additional
revenue related to the installation and training is recognized upon the completion of the installation and introductory training process of the
instrumentation at the customer location. 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.
We apply ASC 845, “Accounting for Non-Monetary Transactions”, to account for products and services sold through non-cash transactions
based on the fair values of the products and services involved, where such values can be determined. Non-cash exchanges would require revenue
to be recognized at recorded cost or carrying value of the assets or services sold if any of the following conditions apply:
a) The fair value of the asset or service involved is not determinable.
b) The transaction is an exchange of a product or property held for sale in the ordinary course of business for a product or property to be sold
in the same line of business to facilitate sales to customers other than the parties to the exchange.
c) The transaction lacks commercial substance.
We currently record revenue for its non-cash transactions at recorded cost or carrying value of the assets or services sold.
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 accompanying 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.
Revenue from the sale of CS’s cell disruption equipment, parts, and consumables is recognized when products are shipped.
- 42 -
Deferred revenue represents amounts received from grants and service contracts for which the related revenues have not been recognized
because one or more of the revenue recognition criteria have not been met. Revenue from service contracts is recorded ratably over the length of
the contract.
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, we Company develop 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 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. As of December 31, 2017 and 2016, the
outstanding balance for intangible assets was $750,000 and zero, respectively.
Long-Lived Assets
The Company’s long-lived 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, 2017, 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, 2017 and determined that such long-lived assets were not impaired.
Warrant Derivative Liability
The warrants issued in November 2011 in connection with the registered direct offering of Series D Convertible Preferred Stock (the “Series
D Warrants”) and the warrants issued in 2015 and 2016 in connection with the $6.3 million PIPE convertible debentures (the “Debenture
Warrants”) are measured at fair value and liability-classified because the Series D Warrants and Debenture Warrants contained “down-round
protection” and therefore, did not meet the scope exception for treatment as a derivative under ASC 815, Derivatives and Hedging. 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 $283,725 to the warrants issued in the Series D registered
direct offering.
In connection with the sale of convertible debentures in 2015 and 2016, the estimated fair value of the warrants was determined using the
binomial model, resulting in an allocation of the gross proceeds of $2,847,624 to the warrants issued with convertible debentures. 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 early adopted ASU 2017-11 and applied the guidance to derivative accounting. Therefore, we reclassified the warrant and
conversion option liabilities to equity and stopped fair valuing the instruments in 2017.
- 43 -
Conversion Option Liability
We have signed convertible notes and have determined that conversion options are embedded in the notes and it is required to bifurcate the
conversion option from the host contract under ASC 815 and account for the derivatives at fair value. The estimated fair value of the conversion
options was determined using the binomial model. The fair value of the conversion options will be classified as a liability until the debt is
converted by the note holders or paid back by the Company. 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 early adopted ASU 2017-11 and applied the guidance
to derivative accounting. Therefore, we reclassified the warrant and conversion option liabilities to equity and stopped fair valuing the
instruments in 2017.
Accounts Receivable and Allowance for Doubtful Accounts
We maintain allowances for estimated losses resulting from the inability of our customers to make required payments. Judgments are used in
determining the allowance for doubtful accounts and are based on a combination of factors. Such factors include historical collection experience,
credit policy and specific customer collection issues. In circumstances where we are aware of a specific customer’s inability to meet its financial
obligations to us (e.g., due to a bankruptcy filing), we record a specific reserve for bad debts against amounts due to reduce the net recognized
receivable to the amount we reasonably believe will be collected. We perform ongoing credit evaluations of our customers and continuously
monitor collections and payments from our customers. While actual bad debts have historically been within our expectations and the provisions
established, we cannot guarantee that we will continue to experience the same bad debt rates that we have in the past. A significant change in the
liquidity or financial position of any of our customers could result in the uncollectability of the related accounts receivable and could adversely
impact our operating cash flows in that period.
Inventories
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. In assessing the
ultimate realization of inventories, management judgment is required to determine the reserve for obsolete or excess inventory. Inventory on hand
may exceed future demand either because the product is obsolete, or because the amount on hand is more than can be used to meet future needs.
We provide for the total value of inventories that we determine to be obsolete or excess based on criteria such as customer demand and changing
technologies. We historically have not experienced significant inaccuracies in computing our reserves for obsolete or excess inventory.
Equity Transactions
We evaluate the proper classification of our equity instruments that embody an unconditional obligation requiring the issuer to redeem it by
transferring assets at a determinable date or that contain certain conditional obligations, typically classified as equity, be classified as a liability.
We record amortized financing costs associated with our capital raising efforts in our consolidated statements of operations. These include
amortization of debt issue costs such as cash, common stock and warrants and other securities issued to finders and placement agents, and
amortization of debt discount created by in-the-money conversion features on convertible debt and allocates the proceeds amongst the securities
based on relative fair values. We based our estimates and assumptions on the best information available at the time of valuation; however,
changes in these estimates and assumptions could have a material effect on the valuation of the underlying instruments.
Stock-Based Compensation
We account for employee and non-employee director stock-based compensation using the fair value method of accounting. Compensation
cost arising from stock options to employees and non-employee directors is recognized using the straight-line method over the vesting period,
which represents the requisite service or performance period. The calculation of stock-based compensation requires us to estimate several factors,
most notably the term, volatility and forfeitures. We estimate the option term using historical terms and estimate volatility based on historical
volatility of our common stock over the option’s expected term. Expected forfeitures based on historical forfeitures are used in calculating the
expense related to stock-based compensation associated with stock awards. Our estimates and assumptions are based on the best information
available at the time of valuation; however, changes in these estimates and assumptions could have a material effect on the valuation of the
underlying instruments.
- 44 -
Recent Accounting Standards
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as
of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet
effective will not have a material impact on its financial position or results of operations upon adoption.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard requires the recognition of assets and liabilities
arising from lease transactions on the balance sheet and the disclosure of key information about leasing arrangements. Accordingly, a lessee will
recognize a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. Both the asset and
liability will initially be measured at the present value of the future minimum lease payments over the lease term. Subsequent measurement,
including the presentation of expenses and cash flows, will depend on the classification of the lease as either finance or an operating lease. Initial
costs directly attributable to negotiating and arranging the lease will be included in the asset. Lessees will also be required to provide additional
qualitative and quantitative disclosures regarding the amount, timing and uncertainty of cash flows arising from leases. The new standard is
effective for fiscal years beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. We are currently evaluating
the impact of our pending adoption of this standard on our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires restricted cash to
be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement of cash flows reconciles to the
balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet. The guidance is effective for interim and
annual periods beginning after December 15, 2017, and early adoption is permitted. The Company early adopted the ASU 2016-18 on December
15, 2017.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which
clarifies the definition of a business to provide additional guidance with evaluating whether transactions should be accounted for as acquisitions
(or disposals) of assets or businesses. This ASU is effective for annual periods beginning after December 15, 2017, including interim periods
within those periods. The Company early adopted the ASU 2016-18 on December 15, 2017 starting with its purchase of BaroFold assets.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) which amended the existing accounting
standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to
customers, in an amount that reflects the expected consideration received in exchange for those goods or services. In July 2015, the FASB
deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those
periods). The amendments may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect
recognized as of the date of initial application (modified retrospective). The Company will adopt ASU 2014-09 in the first quarter of 2018 and
apply the modified retrospective approach. The Company’s primary source of revenues is from instrument sales which are considered distinct
performance obligations and are recognized upon shipment, the Company does not expect the impact on its consolidated financial statements to
be material.
Effective January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers, using the modified retrospective
method. This guidance supersedes nearly all existing revenue recognition guidance under US GAAP. The core principle of the guidance is that an
entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which
the company expects to be entitled in exchange for those goods or services. The Company has drafted its accounting policy for the new standard
based on a detailed review of its business and contracts. Based on the new guidance, the Company continues to recognize revenue at a particular
point in time for the majority of its contracts with customers, which is generally when products are either shipped or delivered. Therefore, the
adoption of ASC 606 did not have a material impact on the consolidated financial statements. The Company anticipates it will expand its
consolidated financial statement disclosures in order to comply with the disclosure requirements of the ASU beginning in the first quarter of 2018.
Effective January 1, 2018, the Company adopted ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities.
The standard amends various aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The most significant
impact to our consolidated financial statements relates to the recognition and measurement of equity investments at fair value with changes
recognized in Net income. The amendment also updates certain presentation and disclosure requirements. The adoption of ASU 2016-01 did not
have a material impact on the consolidated financial statements. The adoption of ASU 2016-01 is expected to increase volatility in net income as
changes in the fair value of available-for-sale equity investments and changes in observable prices of equity investments without readily
determinable fair values will be recorded in net income.
- 45 -
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and
Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the
Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-
controlling Interests with a Scope Exception. Part I of this update addresses the complexity of accounting for certain financial instruments with
down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price
being reduced on the basis of the pricing of future equity transactions. Current accounting guidance creates cost and complexity for entities that
issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the
entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from
Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result
of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain
mandatorily redeemable non-controlling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is
effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 with early adoption permitted. The Company
early adopted the ASU 2017-11 in the third quarter of 2017.
Adoption of ASU 2017-11
The Company changed its method of accounting for the Debentures, Debenture Warrants and Series D Warrants through the early adoption
of ASU 2017-11 during the year ended December 31, 2017 on a modified retrospective basis. Accordingly, the Company reclassified the warrant
derivative and conversion option derivative liabilities to additional paid in capital on its January 1, 2017 consolidated balance sheets totaling
approximately $2.6 million, reduced debt discount by approximately $0.9 million and recorded the cumulative effect of the adoption to the
beginning balance of accumulated deficit of approximately $2.4 million. This resulted to an increase in stock warrants by $2.6 million and
additional paid-in capital by $1.5 million. In addition, because of the modified retrospective adoption, the Company credited the change in fair
value of warrant derivative and conversion option derivative liabilities on its consolidated statements of operations by $311,182 and reduced
amortization of debt discount by $812,904 for the year ended December 31, 2017. The following table provides a reconciliation of the warrant
derivative liability, convertible debt, conversion option derivative liability, stock warrant, additional paid-in capital and accumulated deficit on
the consolidated balance sheet as of December 31, 2016:
Convertible
debt,
current
portion
Convertible
debt, long
term
portion
Warrant
Derivative
Liability
Conversion
Option
Liability
Warrants
to acquire
common
stock
Additional
Paid-in
Capital
Accumulated
deficit
Balance, January 1, 2017 (Prior to
adoption of ASU 2017-11)
Reclassified derivative liabilities and
cumulative effect of adoption
Balance, January 1, 2017 (After adoption
of ASU 2017-11)
$ 4,005,702 $
529,742 $ 1,685,108 $
951,059 $6,325,102 $27,544,265 $ (42,264,190)
769,316
154,152 $(1,685,108)
(951,059) 2,636,236 1,446,011
(2,369,548)
$ 4,775,018 $
683,894 $
- $
- $8,961,338 $28,990,276 $ (44,633,738)
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable
- 46 -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Pressure Biosciences, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Pressure Biosciences, Inc. and its subsidiary (collectively, the “Company”) as
of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive loss, changes in stockholders’ deficit, and
cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, 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.
Going Concern Matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2
to the financial statements, the Company has a working capital deficit, has incurred recurring net losses and negative cash flows from operations.
These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to
obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for
our opinion.
/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company's auditor since 2015.
Houston, Texas
April 2, 2018
- 47 -
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2017 AND 2016
December 31, 2017
December 31, 2016
$
$
$
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable, net of $0 reserve at December 31, 2017 and $28,169 at
December 31, 2016
Inventories, net of $179,600 reserve at December 31, 2017 and $20,000 December
31, 2016
Prepaid income taxes
Prepaid expenses and other current assets
Total current assets
Investment in available-for-sale equity securities
Property and equipment, net
Intangible assets, net
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable
Accrued employee compensation
Accrued professional fees and other
Other current liabilities
Deferred revenue
Revolving note payable, net of unamortized debt discounts of $0 and $637,030,
respectively
Related party convertible debt, net of unamortized debt discounts of $31,372 and $0,
respectively
Convertible debt, net of unamortized discounts of $401,856 and $2,235,839,
respectively
Other debt, net of unamortized discounts of $48,194 and $380, respectively
Warrant derivative liabilities
Conversion option derivative liabilities
Total current liabilities
LONG TERM LIABILITIES
Related party convertible debt, net of unamortized debt discounts of $0 and
$165,611, respectively
Convertible debt, net of unamortized discounts of $0 and $740,628, respectively
Deferred revenue
TOTAL LIABILITIES
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS’ DEFICIT
Series D Convertible Preferred Stock, $.01 par value; 850 shares authorized; 300
shares issued and outstanding on December 31, 2017 and 2016, respectively
(Liquidation value of $300,000)
Series G Convertible Preferred Stock, $.01 par value; 240,000 shares authorized;
80,570 and 86,570 shares issued and outstanding on December 31, 2017 and 2016,
respectively
Series H Convertible Preferred Stock, $.01 par value; 10,000 shares authorized;
10,000 shares issued and outstanding on December 31, 2017 and 2016, respectively
Series H2 Convertible Preferred Stock, $.01 par value; 21 shares authorized; 21
shares issued and outstanding on December 31, 2017 and 2016, respectively
Series J Convertible Preferred Stock, $.01 par value; 6,250 shares authorized; 3,458
and 3,521 shares issued and outstanding on December 31, 2017 and 2016,
respectively
Series K Convertible Preferred Stock, $.01 par value; 15,000 shares authorized; 6,880
and 6,816 shares issued and outstanding on December 31, 2017 and 2016,
respectively
Common stock, $.01 par value; 100,000,000 shares authorized; 1,342,858 and
1,033,328 shares issued and outstanding on December 31, 2017 and 2016,
respectively
Warrants to acquire common stock
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ deficit
81,033 $
206,848
857,662
7,482
214,676
1,367,701
19,825
22,662
750,000
2,160,188 $
589,263 $
368,700
800,620
1,536,507
263,106
3,500,000
259,762
8,028,014
1,379,863
-
-
16,725,835
-
-
57,149
16,782,984
3
806
100
-
35
68
13,429
9,878,513
30,833,549
-
(55,349,299)
(14,622,796)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
$
2,160,188 $
The accompanying notes are an integral part of these consolidated financial statements.
138,363
281,320
905,284
7,405
258,103
1,590,475
25,865
9,413
-
1,625,753
407,249
249,596
610,589
346,295
159,654
612,970
-
4,005,702
238,157
1,685,108
951,059
9,266,379
125,523
529,742
87,527
10,009,171
3
866
100
-
35
68
10,333
6,325,102
27,544,265
-
(42,264,190)
(8,383,418)
1,625,753
- 48 -
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
Revenue:
Products, services, other
Grant revenue
Total revenue
Costs and expenses:
Cost of products and services
Research and development
Selling and marketing
General and administrative
Total operating costs and expenses
Operating loss
Other (expense) income:
Interest expense
Other expense
Impairment loss on investment
Gain on extinguishment of debt
Incentive warrants for warrant exercises
Change in fair value of derivative liabilities
Total other (expense) income
Net loss
Net loss per share - basic and diluted
For the Year Ended
December 31,
2017
2016
$
2,065,891 $
174,607
2,240,498
1,273,354
988,597
1,209,334
3,416,261
6,887,546
1,794,749
181,738
1,976,487
834,012
1,183,011
872,365
2,822,752
5,712,140
(4,647,048)
(3,735,653)
(6,055,420)
(5,674)
(6,069)
185,452
(186,802)
-
(6,068,513)
(4,501,186)
(1,112)
(373,682)
-
-
5,904,649
1,028,669
$
$
(10,715,561) $
(2,706,984)
(9.62) $
(2.97)
Weighted average common stock shares outstanding used in the basic and diluted net loss per share
calculation
1,114,225
911,312
The accompanying notes are an integral part of these consolidated financial statements.
- 49 -
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
Comprehensive Loss
Net loss
Other comprehensive loss
Reclassification of unrealized loss to realized loss on marketable securities
Comprehensive loss
- 50 -
For the Year Ended
December 31,
2017
2016
$
(10,715,561) $
(2,706,984)
-
105,025
$
(10,715,561) $
(2,601,959)
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
Series D Preferred
Stock
Series G Preferred
Stock
Series H Preferred
Stock
Series H(2)Preferred
Stock
Shares Amount
300 $
-
Shares Amount Shares Amount Shares Amount
10,000 $
3
-
-
86,570 $
-
100
-
866
-
21 $
-
BALANCE, December 31, 2015
Stock-based compensation
Issuance of common stock for
services
Warrant revaluation
Warrant exercise
Stock exchange with Everest
Investments
Issuance of warrants for services
Conversion of debt and interest for
common stock
Issuance of common stock for
dividends paid-in-kind
Conversion of Series J convertible
preferred stock
Conversion of Series K convertible
preferred stock
Common Stock offering
Offering costs for issuance of
common stock
Stock issued with debt
Warrants issued with debt
Unrealized loss on investments, net
of tax
Net loss
BALANCE, December 31, 2016
Early adoption of ASU 2017-11
Stock-based compensation
Issuance of common stock for services
Warrant revaluation
Warrant exercise, net of costs
Stock exchange with Everest
Investments
Issuance of warrants for services
Conversion of debt and interest for
common stock
Issuance of common stock for interest
paid-in-kind
Conversion of Series G convertible
preferred stock
Conversion of Series J convertible
preferred stock
Incentive warrants
Offering costs for issuance of common
stock
Stock issued for debt extension
Stock issued with debt
Common stock for asset purchase
Warrants issued with debt
Net loss
BALANCE, December 31, 2017
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
300 $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
300 $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
86,570 $
-
-
-
-
-
-
-
866
-
-
-
-
-
-
-
10,000 $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(6,000)
(60)
-
-
-
-
-
-
-
-
3
-
-
-
-
-
-
-
-
80,570 $
- 51 -
-
-
-
-
-
-
-
-
806
-
-
-
-
-
-
-
-
-
-
-
-
-
10,000 $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
21 $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
21 $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Series J
Preferred Stock
Shares Amount Shares Amount Shares
Series K
Preferred Stock Common Stock
Additional
Paid-In
Stock
Amount Warrants Capital
Accumulated
other
comprehensive Accumulated
Total
Stockholders’
loss
Deficit
Deficit
BALANCE,
December 31, 2015 3,546 $
36 11,416 $
114 766,830 $ 7,668 $5,416,681 $26,259,115 $
(105,025) $(39,557,206) $ (7,977,648)
-
-
-
-
-
-
-
-
(25)
-
-
Stock-based
compensation
Issuance of
common stock
for services
Warrant exercise
Issuance of
warrants for
services
Conversion of
debt and interest
for common
stock
Issuance of
common stock
for dividends
paid-in-kind
Conversion of
Series J
convertible
preferred stock
Conversion of
Series K
convertible
preferred stock
Common stock
offering
Offering costs
for issuance of
common stock
Stock issued
with debt
Warrants issued
with debt
Beneficial
conversion
feature
Unrealized loss
on investments,
net of tax
Net loss
BALANCE,
December 31, 2016 3,521 $
Early adoption of
ASU 2017-11
Stock-based
compensation
Issuance of
common stock for
services
Warrant exercise,
net of costs
Issuance of
warrants for
services
Issuance of
common stock for
interest paid-in-
kind
Conversion of
Series G
convertible
preferred stock
Conversion of
Series J convertible
preferred stock
-
-
-
-
-
-
-
-
-
-
-
(63)
-
-
-
-
-
-
379,964
-
-
-
-
-
-
25,167
766
252
8
-
(11,100)
332,444
11,092
-
-
-
-
-
84,735
-
-
-
-
14,028
140
-
117,697
-
-
-
8,285
83
-
63,772
(1)
-
-
833
8
-
(7)
- (4,600)
(46) 153,333 1,533
-
(1,487)
-
-
-
50,834
508
315,301
294,191
-
-
-
-
-
-
-
-
-
-
(79,035)
-
13,252
133
-
145,798
-
-
-
519,485
-
-
-
-
-
-
-
20,721
-
-
-
-
-
-
-
-
-
-
-
-
-
-
379,964
-
-
332,696
-
-
84,735
-
117,837
-
63,855
-
-
-
-
-
-
-
-
610,000
(79,035)
145,931
519,485
-
20,721
-
-
-
-
-
-
-
-
-
-
-
-
-
-
105,025
-
-
(2,706,984)
105,025
(2,706,984)
35 6,816 $
68 1,033,328 $10,333 $6,325,102 $27,544,264 $
- $(42,264,190) $ (8,383,418)
- 2,636,236 1,446,011
-
(2,369,548)
1,712,699
-
-
-
-
406,427
-
-
-
-
-
-
-
64
-
-
-
-
-
-
-
5,667
57
19,889
199
-
-
46,935
140,015
-
-
15,558
-
-
-
-
-
-
-
-
-
406,427
-
-
-
46,992
140,214
15,558
-
264,602
-
-
-
-
-
-
-
61,307
612
-
263,990
-
-
-
2,000
20
-
-
-
2,100
21
-
-
40
(21)
-
-
-
Incentive warrants
Stock issued for
debt extension
Stock issued with
debt
Common stock for
asset purchase
Warrants issued
with debt
Net loss
BALANCE,
December 31, 2017 3,458 $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
186,802
-
-
-
-
4,167
42
64,400
645
- 150,000 1,500
-
-
-
19,458
367,929
598,500
-
-
-
-
-
-
-
-
186,802
19,500
368,574
600,000
-
-
-
-
-
-
714,815
-
-
-
-
714,815
-
- (10,715,561) (10,715,561)
35 6,880 $
68 1,342,858 $13,429 $9,878,513 $30,833,549 $
- $(55,349,299) $ (14,622,796)
The accompanying notes are an integral part of these consolidated financial statements
- 52 -
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for debt extension
Depreciation and amortization
Provision for bad debts
Inventory reserve
Accretion of interest and amortization of debt discount
Incentive warrants for warrant exercises
Penalty interest added to debt principal
Gain on settlement of debt
Stock-based compensation expense
Warrants issued for service
Shares issued for service
Amortization of third party fees paid in common stock and warrants
Impairment loss on investment
Change in fair value of derivative liabilities
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued employee compensation
Accrued interest
Deferred revenue and other accrued expenses
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of intangible assets
Purchases of property plant and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from related party debt
Payment of related party debt
Net proceeds from revolving note payable
Net proceeds from convertible debt
Payments on convertible debt
Net proceeds from non-convertible debt
Payments on non-convertible debt
Net proceeds from warrant exercises
Payments on prepayment penalty
Net proceeds from the issuance of common stock
Net cash provided by financing activities
NET (DECREASE) INCREASE IN CASH
CASH AT BEGINNING OF YEAR
CASH AT END OF YEAR
SUPPLEMENTAL INFORMATION
Interest paid in cash
NON CASH TRANSACTIONS:
Convertible debt exchanged for common stock
Cashless exercise of warrants
Discount due to beneficial conversion feature
Discount due to warrants issued with debt
Common stock issued with debt
Common stock issued to purchase intangible assets
Common stock issued to settle non-convertible debt
Common stock issued in lieu of cash for interest
Common stock issued for prepaid services
Conversion of preferred stock and accrued dividends into common stock
Discount from derivative liability
Discount from one-time interest
Reclassification of derivative liabilities to equity and cumulative effect of adoption of ASU
2017-11
For the Year Ended
December 31,
2017
2016
$
(10,715,561) $
(2,706,984)
19,500
8,576
-
159,600
4,128,637
186,802
-
(185,452)
406,427
15,558
31,000
-
6,069
-
74,472
(111,978)
59,312
182,014
119,104
898,212
813,159
(3,904,549)
(150,000)
(21,825)
(171,825)
-
2,070,000
1,755,850
(925,541)
2,905,752
(1,894,231)
140,214
(33,000)
-
4,019,044
(57,330)
138,363
81,033 $
-
17,939
28,169
-
4,003,485
-
41,200
(5,044)
379,964
84,735
-
332,696
373,682
(5,904,649)
(196,233)
133,087
(44,201)
(534,140)
73,587
346,295
(229,439)
(3,805,851)
-
(7,203)
(7,203)
116,667
(20,000)
1,133,500
2,105,420
(107,000)
1,022,784
(947,702)
-
-
530,965
3,834,634
21,580
116,783
138,363
533,532 $
260,979
-
-
-
714,815
368,574
600,000
-
264,602
15,992
61
-
225,000
117,837
11,100
20,721
519,485
104,731
-
41,200
-
-
63,902
1,304,049
170,000
$
$
Reversal of accumulated other comprehensive income to impairment loss on investment
1,712,699
-
-
105,025
The accompanying notes are an integral part of these consolidated financial statements.
- 53 -
PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Business Overview
Pressure Biosciences, Inc. (“we”, “our”, “the Company”) is 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.
In 2015, together with an investment bank, we formed a subsidiary called Pressure BioSciences Europe (“PBI Europe”) in Poland. We have
49% ownership interest with the investment bank retaining 51%. As of now, PBI Europe does not have any operating activities and we cannot
reasonably predict when operations will commence. Therefore, we do not have control of the subsidiary and did not consolidate in our financial
statements. PBI Europe did not have any operations in 2017 or in 2016.
Reverse Stock Split
On June 5, 2017, the Company effected a 1-for-30 reverse stock split of its issued and outstanding shares of common stock All common
shares, stock options, and per share information presented in the financial statements have been adjusted to reflect the reverse stock split on a
retroactive basis for all periods presented. The ratio by which shares of preferred stock are convertible into shares of common stock were adjusted
to reflect the effects of the reverse stock split.
(2) Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which
contemplates the realization of assets and the liquidation of liabilities in the normal course of business. However, we have experienced negative
cash flows from operations with respect to our pressure cycling technology business since our inception. As of December 31, 2017, we do not
have adequate working capital resources to satisfy our current liabilities and as a result, there is substantial doubt regarding our ability to continue
as a going concern. We have been successful in raising cash through debt and equity offerings in the past and as described in Notes 8 and 9,
completed debt financing subsequent to December 31, 2017. We have financing efforts in place to continue to raise cash through debt and equity
offerings.
Management has developed a plan to continue operations. This plan includes obtaining equity or debt financing. During the year ended December
31, 2017 we received approximately $6.7 million net proceeds, in additional convertible and non-convertible debt. Although we have
successfully completed financings and reduced expenses in the past, we cannot assure you that our plans to address these matters in the future will
be successful.
Management’s plans to alleviate these conditions that raise substantial doubt regarding the Company’s ability to continue as a going concern
include pursuing one or more of the following options to raise additional funding, none of which can be guaranteed or are entirely within the
Company’s control:
● Raise funding through the possible additional sales of the Company’s common stock, including public or private equity financings.
● Raise additional loan funding.
● Continue to seek a partner to advance PCT technology.
● Earn payments pursuant to potential collaboration and license agreements for BaroFold patents.
There can be no assurance, however, that the Company will receive cash proceeds from any of these potential resources or, to the extent cash
proceeds are received, those proceeds would be sufficient to support the Company’s operations for at least the next twelve months from the date
of filing this Annual Report on Form 10-K.
In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15,
Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a
Going Concern. (“ASU 2015-14”). Under the new standard, management must evaluate whether there are conditions or events, considered in the
aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial
statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not
been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management
evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going
concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively
implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will
mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after
the date that the financial statements are issued. This standard was adopted by the Company at January 1, 2017.
Generally, under the new accounting standard, management’s plans must be approved before the date the financial statements are issued to be
considered probable of being effectively implemented. Under the new accounting standard, the future receipt of potential funding from the
Company’s collaborators and other resources is not considered probable at this time because none of the Company’s current plans have been
finalized at the time of filing this Annual Report on Form 10-K. Accordingly, substantial doubt is deemed to exist about the Company’s ability to
continue as a going concern within one year after the date these financial statements are issued.
The Company believes that its approximate $80,033 in cash and cash equivalents at December 31, 2017 would allow it to fund its planned
operations into the first quarter of 2018. This estimate assumes no additional funding from new partnership agreements, no additional equity
financings, no debt financings, and no accelerated repayment of its term loans. Accordingly, the timing and nature of activities contemplated for
the remainder of 2017 and thereafter will be conducted subject to the availability of sufficient financial resources.
If the Company is unable to raise capital when needed or on attractive terms, or if it is unable to procure partnership arrangements to advance
its programs, the Company would be forced to delay, reduce or eliminate its research and development programs and any future
commercialization efforts.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties
described above.
(3) 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.
- 54 -
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, beneficial conversion features and derivative liabilities. 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 when realizable and earned when all the following criteria have been met: persuasive evidence of an
arrangement exists; goods were shipped, delivery of service 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 NEP2320EXT, require a basic level of instrumentation expertise to set-up for initial
operation. To support a favorable first experience for our customers, upon customer request and for an additional fee, we will send a highly
trained technical representative to the customer site to install Barocyclers 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 shipment of the unit, and in the case where the customer requests installation and training, 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.
The Company applies ASC 845, “Accounting for Non-Monetary Transactions”, to account for products and services sold through non-cash
transactions based on the fair values of the products and services involved, where such values can be determined. Non-cash exchanges would
require revenue to be recognized at recorded cost or carrying value of the assets or services sold if any of the following conditions apply:
a) The fair value of the asset or service involved is not determinable.
b) The transaction is an exchange of a product or property held for sale in the ordinary course of business for a product or property to be sold
in the same line of business to facilitate sales to customers other than the parties to the exchange.
c) The transaction lacks commercial substance.
The Company currently records revenue for its non-cash transactions at recorded cost or carrying value of the assets or services sold.
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 qualifying expenses are incurred under the grant in accordance with the terms of the grant
award.
Deferred revenue represents amounts received from grants and the Company’s service contracts for which the related revenues have not been
recognized because one or more of the revenue recognition criteria have not been met. The current portion of deferred revenue represents the
amount to be recognized within one year from the balance sheet date based on the estimated performance period of the underlying deliverables.
Revenue from service contracts is recorded ratably over the length of the contract.
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. 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 to
such time as they are delivered. 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 the Company uses its best estimate of the value of those items and recognizes
revenues based on the relative values of the delivered and undelivered items. We provide certain customers with extended service contracts with
revenue recognized ratably over the life of the contract.
- 55 -
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. Restricted cash is included in cash equivalents.
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
Inventories are valued at the lower of cost (average cost) or net realizable value. The cost of Barocyclers consists of the cost charged by the
contract manufacturer. The current year allowance was increased by a $159,600 inventory allowance for the older generation of Barocycler
instruments held in stock, the NEP3229. The cost of manufactured goods includes material, freight-in, direct labor, and applicable overhead. The
composition of inventory as of December 31, is as follows:
Raw materials
Finished goods
Inventory reserve
Total
vii. Property and Equipment
2017
2016
$
$
288,295 $
748,967
(179,600)
857,662 $
326,228
599,056
(20,000)
905,284
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 nine years. We perform an annual review of our intangible assets for impairment. We
capitalize any costs to renew or extend the term of our intangible assets. When impairment is indicated, any excess of carrying value over fair
value is recorded as a loss. As of December 31, 2017 and 2016, the outstanding balance for intangible assets was $750,000 and $0, respectively.
- 56 -
ix. Long-Lived Assets
The Company’s long-lived 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, 2017, the Company had not experienced
impairment losses on its long-lived assets.
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. Allowances are provided for estimated amounts of accounts receivable which may not be collected.
At December 31, 2017, we determined that no allowance against accounts receivable was necessary and wrote off the prior year allowance of
$28,169 as unrecoverable.
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:
Top Five Customers
Federal Agencies
2017
2016
37%
14%
29%
3%
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:
Top Five Customers
Federal Agencies
Investment in Available-For-Sale Equity Securities
2017
2016
85%
1%
82%
1%
As of December 31, 2017, we held 100,250 shares of common stock of Everest, a Polish publicly traded company listed on the Warsaw Stock
Exchange. We exchanged 33,334 shares of our common stock for the 100,250 shares from Everest. We account for this investment in accordance
with ASC 320 “Investments — Debt and Equity Securities” as securities available for sale. On December 31, 2017, our consolidated balance
sheet reflected the fair value of our investment in Everest to be $19,825, based on the closing price of Everest shares of $0.1978 per share on that
day. The carrying value of our investment in Everest common stock held will change from period to period based on the closing price of the
common stock of Everest as of the balance sheet date. The change in market value since the receipt of stock amounting to $379,751 was
determined to be other than temporary and was recorded by us as an impairment loss starting in 2016. We recorded $6,069 as realized losses in
2017 for the changes in market value.
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:
- 57 -
Numerator:
Net loss
Denominator for basic and diluted loss per share:
Weighted average common shares outstanding
2017
2016
$
(10,715,561) $
(2,706,984)
1,114,225
911,312
Loss per common share - basic and diluted
$
(9.62) $
(2.97)
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 for the
years ended December 31:
Stock options
Convertible debt
Common stock warrants
Convertible preferred stock:
Series D Convertible Preferred
Series G Convertible Preferred
Series H Convertible Preferred
Series H2 Convertible Preferred
Series J Convertible Preferred
Series K Convertible Preferred
xii. Accounting for Income Taxes
2017
2016
247,692
947,203
899,542
25,000
26,857
33,334
70,000
115,267
229,334
2,594,229
175,642
891,132
881,990
25,000
28,857
33,334
70,000
117,367
227,200
2,450,522
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 consolidated 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.
Tax positions must meet a “more likely than not” recognition threshold at the effective date to be recognized. At December 31, 2017 and
2016, the Company did not have any uncertain tax positions. No interest and penalties related to uncertain tax positions were accrued at
December 31, 2017 and 2016.
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. Employee awards are accounted for
under ASC 718 where the awards are valued at grant date. Awards given to nonemployees are accounted for under ASC 505 where the awards are
valued at earlier of commitment date or completion of services.
- 58 -
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 year ended December 31, 2017:
Assumptions
Expected life
Expected volatility
Risk-free interest rate
Forfeiture rate
Expected dividend yield
Non-Employee
Board Members
6.0 (yrs)
92.85%-104.83%
1.01%-1.53%
5.00%
0.0%
CEO, other
Officers and
Employees
6.0 (yrs)
105.71%
1.63%
5.00%
0.0%
We recognized stock-based compensation expense of $406,427 and $379,964 for the years ended December 31, 2017 and 2016, respectively.
The following table summarizes the effect of this stock-based compensation expense within each of the line items within our accompanying
consolidated statements of operations for the years ended December 31:
Research and development
Selling and marketing
General and administrative
Total stock-based compensation expense
2017
2016
92,055 $
54,404
259,968
406,427 $
65,500
42,315
272,149
379,964
$
$
During the years ended December 31, 2017 and 2016, the total fair value of stock options awarded was $487,964 and $0, respectively.
As of December 31, 2017, total unrecognized compensation cost related to the unvested stock-based awards was $392,590, which is expected
to be recognized over weighted average period of 1.66 years.
- 59 -
xiv. Advertising
Advertising costs are expensed as incurred. We incurred $5,899 in 2017 and $19,125 in 2016 for advertising.
xv. 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.
xvi. Fair Value Measurements
The Company follows the guidance of FASB ASC Topic 820, “ Fair Value Measurements and Disclosures ” (“ASC 820”) as it related to
financial assets and financial liabilities that are recognized or disclosed at fair value in the consolidated 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 its financial assets are currently classified within Level 1 and that its financial liabilities are
currently all classified within Level 3 in the fair value hierarchy.
The Company changed its method of accounting for the Debentures and Warrants through the early adoption of ASU 2017-11 during the
year ended December 31, 2017 on a modified retrospective basis. Accordingly, the Company reclassified the warrant derivative and conversion
option derivative liabilities to additional paid in capital on its January 1, 2017 consolidated balance sheets totaling approximately $2.6 million,
reduced debt discount by approximately $0.9 million and recorded the cumulative effect of the adoption to the beginning balance of accumulated
deficit of approximately $2.5 million.
Adoption of ASU 2017-11
The Company changed its method of accounting for the Debentures, Debenture Warrants and Series D Warrants through the early adoption
of ASU 2017-11 during the year ended December 31, 2017 on a modified retrospective basis. Accordingly, the Company reclassified the warrant
derivative and conversion option derivative liabilities to additional paid in capital on its January 1, 2017 consolidated balance sheets totaling
approximately $2.6 million, reduced debt discount by approximately $0.9 million and recorded the cumulative effect of the adoption to the
beginning balance of accumulated deficit of approximately $2.4 million. This resulted to an increase in stock warrants by $2.6 million and
additional paid-in capital by $1.4 million. The following table provides a reconciliation of the warrant derivative liability, convertible debt,
conversion option derivative liability, stock warrant, additional paid-in capital and accumulated deficit on the consolidated balance sheet as of
December 31, 2016:
Convertible
debt,
current
portion
Convertible
debt, long
term
portion
Warrant
Derivative
Liability
Conversion
Option
Liability
Warrants
to acquire
common
stock
Additional
Paid-in
Capital
Accumulated
deficit
Balance, January 1, 2017 (Prior to
adoption of ASU 2017-11)
Reclassified derivative liabilities and
cumulative effect of adoption
Balance, January 1, 2017 (After adoption
of ASU 2017-11)
$ 4,005,702 $
529,742 $ 1,685,108 $
951,059 $6,325,102 $27,544,265 $ (42,264,190)
769,316
154,152 $(1,685,108)
(951,059) 2,636,236 1,446,011
(2,369,548)
$ 4,775,018 $
683,894 $
- $
- $8,961,338 $28,990,276 $ (44,633,738)
The following tables set forth the Company’s financial assets and financial liabilities that were accounted for at fair value on a recurring basis
as of December 31, 2017 and December 31, 2016. The development of the unobservable inputs for Level 3 fair value measurements and fair value
calculations are the responsibility of the Company’s management.
December 31, 2017
Fair value measurements at December 31, 2017 using:
Significant
unobservable inputs
(Level 3)
Significant other
observable inputs
(Level 2)
Quoted prices in
active markets
(Level 1)
Available-For-Sale Equity Securities
Total Financial Assets
$
19,825
19,825 $
19,825
19,825 $
-
- $
December 31, 2016
Fair value measurements at December 31, 2016 using:
Significant
unobservable inputs
(Level 3)
Significant other
observable inputs
(Level 2)
Quoted prices in
active markets
(Level 1)
Available-For-Sale Equity Securities
Total Financial Assets
$
25,865
25,865 $
25,865
25,865 $
-
- $
Quoted prices in
active markets
Significant other
observable inputs
Significant
unobservable
-
-
-
-
Series D Preferred Stock Purchase Warrants
Warrants Issued with Convertible Debt
Conversion Option Derivative Liabilities
Total Derivatives
$
December 31, 2016
$
23,313
1,661,795
951,059
2,636,167 $
- 60 -
(Level 1)
(Level 2)
-
-
-
- $
inputs (Level 3)
23,313
1,661,795
951,059
2,636,167
- $
-
-
- $
The following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial
instruments, measured at fair value on a recurring basis using significant unobservable inputs:
January 1, 2016
Issuance
fair value
Change in
fair value December 31, 2016
Series D Preferred Stock Purchase
Warrants
Warrants Issued with Convertible Debt
Conversion Option Derivative Liabilities
Total Derivatives
$
$
173,526 $
3,122,450
3,940,791
7,236,767 $
- $
(150,213) $
1,094,432
(2,555,087)
(4,536,859)
1,547,127
2,641,559 $ (7,242,159) $
23,313
1,661,795
951,059
2,636,167
The issuance fair values for 2016 include the “day 1” derivative losses on the conversion option derivative liabilities of $1,337,510, which
are included in “change in fair value of derivative liabilities” in the consolidated statements of operations. There were no derivative liabilities as
of December 31, 2017.
- 61 -
The fair value of the derivative liabilities was determined using a binomial pricing model. 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
November 10, 2011
60.0
104.5%
0.875%
$
24.30
$
16.20
$
$
Warrants revalued at
December 31, 2016
5.0
83.5%
0.62%
7.50
0.60
The assumptions for the binomial pricing model are represented in the table below for the warrants issued with the Convertible Debt in 2016
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
At Issuance
Fair value
Warrants revalued at
December 31, 2016
60.0
118.3-120.1%
1.48-1.69%
$
12.00
$
5.70-$6.30
$
$
43.0-51.0
110.0-116.0%
1.93%
12.00
3.60-4.20
The assumptions for the binomial pricing model are represented in the table below for the conversion options 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 conversion option
xvii. Reclassifications
At Issuance
fair value
At Settlement
fair value
6.0-24.0
104.2-153.8%
0.05-0.99%
$
$
3.00-$10.50
2.70-$8.40
0-18.0
86.9%-142.2%
0.01-0.72%
$
3.00-$7.50
$
2.10-$7.80
$
$
Conversion options
revalued at
December 31, 2016
6.0-15.0
84.4-94.8%
0.62-0.85%
8.40
0.90-$1.80
Certain prior year amounts have been reclassified to conform to our current year presentation.
xviii. Recently Issued Accounting Standards
In November 2016, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU) No. 2016-18 (ASU
2016-18). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and
amounts generally described as restricted cash or restricted cash equivalents. ASU 2016-18 is effective for fiscal years beginning after December
15, 2017. As early adoption of this amendment is permitted, the Company has adopted the update retrospectively to each period presented. The
adoption of this guidance did not have a material impact on the company’s consolidated Financial Statements.
In March 2016, the FASB issued ASU 2016-09, which simplifies several aspects of the accounting for share-based payment transactions,
including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.
ASU 2016-09 became effective for the Company on January 1, 2017. The adoption of this guidance did not have a material impact on the
Company’s consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02, which requires an entity to recognize assets and liabilities arising from a lease for both
financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning
after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its
consolidated Financial Statements.
In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15,
Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a
Going Concern. (“ASU 2015-14”). Under the new standard, management must evaluate whether there are conditions or events, considered in the
aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial
statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not
been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management
evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going
concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively
implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will
mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after
the date that the financial statements are issued. This standard was adopted by the Company at January 1, 2017. See Note 2.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) which amended the existing accounting
standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to
customers, in an amount that reflects the expected consideration received in exchange for those goods or services. In July 2015, the FASB
deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those
periods). The amendments may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect
recognized as of the date of initial application (modified retrospective). The Company will adopt ASU 2014-09 in the first quarter of 2018 and
apply the modified retrospective approach. The Company’s primary source of revenues is from instrument sales which are considered distinct
performance obligations and are recognized upon shipment, the Company does not expect the impact on its consolidated financial statements to
be material.
- 62 -
(4) Property and Equipment, net
Property and equipment as of December 31, 2017 and 2016 consisted of the following components:
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,
2017
2016
$
$
240,670 $
173,312
8,117
461,858
883,957
(861,295)
22,662 $
226,326
165,832
8,117
461,858
862,133
(852,720)
9,413
Depreciation expense for the years ended December 31, 2017 and 2016 was $8,576 and $17,939, respectively.
(5) Intangible Assets
Intangible assets as of December 31, 2017 reflect the purchase price attributable to patents received in connection with the acquisition of
assets of BaroFold Corp. Acquired BaroFold patents are being amortized to expense on a straight line basis at the rate of $80,000 per year over
their estimated remaining useful lives of approximately 9 years. The estimated aggregate amortization expense for each of the five succeeding
fiscal years is $80,000 annually. 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, 2017. We
have concluded that there is no impairment of intangible assets. Intangible assets at December 31, 2017 and 2016 consisted of the following:
BaroFold Patents
Less accumulated amortization
Net book value
December 31,
2017
2016
$
$
750,000 $
-
750,000 $
-
-
-
Amortization expense for each of the years ended December 31, 2017 and 2016 was $0.
(6) 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 2017 and 2016 we contributed $13,587 and
$22,627, respectively, in the form of discretionary Company-matching contributions.
- 63 -
(7) Income Taxes
Tax positions must meet a “more likely than not” recognition threshold at the effective date to be recognized. At December 31, 2017 and
2016, the Company did not have any uncertain tax positions. No interest and penalties related to uncertain tax positions were accrued at
December 31, 2017 and 2016. Our tax returns for fiscal years 2014, 2015 and 2016 are open to examination.
We did not record an income tax benefit or provision for the years ended December 31, 2017 and 2016.
Significant items making up the deferred tax assets and deferred tax liabilities as of December 31, 2017 and 2016 are as follows:
Long term deferred taxes:
Inventories
Accounts receivable allowance
Other accruals
Accelerated tax depreciation
Non-cash, stock-based compensation, nonqualified
Impairment loss on investment
Goodwill and intangibles
Operating loss carry forwards and tax credits
Less: valuation allowance
Total net deferred tax assets
2017
2016
$
49,067 $
-
75,992
6,945
606,020
103,748
-
12,196,765
(13,038,537 )
$
- $
7,856
17,253
33,399
14,582
711,676
146,782
-
13,561,012
(14,492,560)
-
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 2017 and 2016 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, 2017.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the "Tax Reform Act") was signed into law by President Trump. The Tax Reform
Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21%
effective January 1, 2018. Under ASC 740, the tax effects of changes in tax laws must be recognized in the period in which the law was enacted.
ASC 740 also requires deferred tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are
to be realized or settled. The Company re-measured its deferred tax assets and liabilities at the 21% federal corporate tax rate. The remeasurement
resulted in no change in the Company’s recorded tax provision, as the remeasurement of the company's deferred tax assets and liabilities resulted
in a reduction of approximately $5,843,000 which was fully offset by a change in the Company's valuation allowance.
We have net operating loss carry-forwards for federal income tax purposes of $38,690,000 as of December 31, 2017. 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 2018 through 2038.
We have net operating loss carry-forwards for state income tax purposes of approximately $31,735,000 at December 31, 2017. These net
operating loss carry-forwards expire at various dates from 2030 through 2038.
We have research and development tax credit carry-forwards for federal income tax purposes of approximately $1,089,000 as of December
31, 2017 and research and development tax credit carry-forwards for state income tax purposes of approximately $232,000 as of December 31,
2017. The federal credit carry-forwards expire at various dates from 2018 through 2038. The state credit carry-forwards expire at various dates
from 2023 through 2033.
In addition, we have federal alternative minimum tax credit carry-forwards for federal income tax purposes of approximately $217,000 as of
December 31, 2017. These credits do not expire.
- 64 -
Our effective income tax (benefit) provision rate was different than the statutory federal income tax (benefit) provision rate as follows for the
years ended December 31:
Federal tax provision rate
Permanent differences
State tax expense
Refundable AMT and R&D tax credit
Net operating loss carry back
Valuation allowance
Effective income tax provision
(8) Commitments and Contingencies
Operating Leases
2017
2016
35%
(0)%
0%
0%
0%
(35)%
0%
34%
24%
0%
0%
0%
(58)%
0%
Our corporate office is currently located at 14 Norfolk Avenue, South Easton, Massachusetts 02375. We are currently paying $6,950 per
month, on a lease extension, signed on December 29, 2017, that expires December 31, 2018, for our corporate office. We expanded our space to
include offices, warehouse and a loading dock on the first floor starting May 1, 2017 with a monthly rent increase already reflected in the current
payments.
We extended our lease for our space in Medford, MA to December 30, 2020. The lease requires monthly payments of $6,912.75 subject to
annual cost of living increases. The lease shall be automatically extended for additional three years unless either party terminates at least six
months prior to the expiration of the current lease term.
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, 2017:
2018
2019
2020
Thereafter
Total minimum payments required
Royalty Commitments
BioMolecular Assays, Inc.
$
$
166,353
82,953
82,953
-
332,259
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 terminated on March 7, 2016. During the year ended December 31, 2016, we incurred approximately
$6,963 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. was required to pay us these royalties until the expiration in March 2016 of the patents held by BioSeq,
Inc. since 1998. We have not received any royalty payments from BioMolecular Assays, Inc. under this license.
- 65 -
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. After re-negotiating the terms of the contract in 2013, the minimum annual royalty
was $1,200 in 2014 and $2,000 in 2015; the minimum royalties are $3,000 in 2016, $4,000 in 2017 and $5,000 in 2018 and each calendar year
thereafter during the term of the agreement.
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”), a related party. 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 did not incur any royalty obligation under this agreement in 2017 or 2016.
In April 2012, we signed a non-exclusive license agreement with TDI to grant the non-exclusive use of our pressure cycling technology. We
recorded $30,000 and $20,000 of minimum royalty income in 2017 and 2016, respectively. We executed an amendment to this agreement on
October 1, 2016 wherein we agreed to pay a monthly fee of $1,400 for the use of a lab bench, shared space and other utilities, and $2,000 per day
for technical support services as needed.
Severance and Change of Control Agreements
Each of Mr. Schumacher, and Drs. Ting, Lazarev, and Lawrence, executive officers of the Company, are 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
aforementioned executives to remain in the employ of the Company, in general; and particularly in the occurrence of a change in control, as a
disincentive to the control change.
(9) Convertible Debt and Other Debt
Senior Secured Convertible Debentures and Warrants
We entered into Subscription Agreements (the “ Subscription Agreement”) with various individuals (each, a “Purchaser”) between July 23,
2015 and March 31, 2016, pursuant to which the Company sold Senior Secured Convertible Debentures (the “Debentures”) and warrants to
purchase shares of common stock equal to 50% of the number of shares issuable pursuant to the subscription amount (the “Warrants”) for an
aggregate purchase price of $6,329,549 (the “Purchase Price”).
- 66 -
The Company issued a principal aggregate amount of $6,962,504 in Debentures which includes a 10% original issue discount on the
Purchase Price. The Debenture does not accrue any additional interest during the first year it is outstanding but accrues interest at a rate equal to
10% per annum for the second year it is outstanding. The Debenture has a maturity date of two years from issuance. The Debenture is convertible
any time after its issuance date. The Purchaser has the right to convert the Debenture into shares of the Company’s common stock at a fixed
conversion price equal to $8.40 per share, subject to applicable adjustments. In the second year that the Debenture is outstanding, any interest
accrued shall be payable quarterly in either cash or common stock, at the Company’s discretion.
On various dates for the year ended December 31, 2017, the Company issued 61,307 shares of common stock based on the 10-day VWAP
prior to quarter end to holders of the Debentures in payment of the quarterly interest accrued from the Debentures first anniversary date through
June 30, 2017 for an aggregate amount of $483,054. We recognized a $218,452 gain on extinguishment of debt by calculating the difference of
the shares valued on the issuance date and the amount of accrued interest through June 30, 2017.
At any time after the Issuance Date, the Company has the option, subject to certain conditions, to redeem some or all of the then outstanding
principal amount of the Debenture for cash in an amount equal to the sum of (i) 120% of the then outstanding principal amount of the Debenture,
(ii) accrued but unpaid interest and (iii) any liquidated damages and other amounts due in respect of the Debenture.
On September 11, 2017, we notified Debenture holders that their Debentures will be extended 180 days beyond the original maturity date as
permitted in the Debenture agreement. We will continue to pay interest on the Debentures until the extended maturity date. We accounted for the
Debenture extensions as debt modifications and not extinguishment of debt since the changes in fair value are not substantial in accordance with
ASC 470-50. We started amortizing the remaining unamortized discount as of September 11, 2017 over the new term, which extends 180 days
beyond the original maturity date.
The Company issued warrants exercisable into a total of 376,759 shares of our common stock. The Warrants issued in this transaction are
immediately exercisable at an exercise price of $12.00 per share, subject to applicable adjustments including full ratchet anti-dilution in the event
that we issue any securities at a price lower than the exercise price then in effect. The Warrants have an expiration period of five years from the
original issue date. The Warrants are subject to adjustment for stock splits, stock dividends or recapitalizations and also include anti-dilution price
protection for subsequent equity sales below the exercise price.
Subject to the terms and conditions of the Warrants, at any time commencing six months from the Final Closing, the Company has the right
to call the Warrants for cancellation if the volume weighted average price of its Common Stock on the OTCQB (or other primary trading market
or exchange on which the Common Stock is then traded) equals or exceeds three times the per share exercise price of the Warrants for 15 out of
20 consecutive trading days.
In connection with the Subscription Agreement and Debenture, the Company entered into Security Agreements with the Purchasers whereby
the Company agreed to grant to Purchasers an unconditional and continuing, first priority security interest in all of the assets and property of the
Company to secure the prompt payment, performance and discharge in full of all of Company’s obligations under the Debentures, Warrants and
the other Transaction Documents.
The Company determined that the conversion feature of the Debentures met the definition of a liability in accordance with ASC 815-40 and
therefore bifurcated the conversion feature on each debt agreement and accounted for it as a derivative liability. The fair value of the conversion
feature was accounted for as a note discount and is amortized to interest expense over the life of the loan. The fair value of the conversion feature
was reflected in the conversion option liability line in the consolidated balance sheet as of December 31, 2016.
The proceeds from these convertible debts were allocated between the host debt instrument and the convertible option based on the residual
method. The estimated fair value of the convertible option was determined using a binomial formula, resulting in allocations to the convertible
option and accounted for as a liability in the Company’s consolidated balance sheet. In accordance with the provisions of ASC 815-40, the gross
proceeds are offset by debt discounts, which are amortized to interest expense over the expected life of the debt.
- 67 -
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 debt discount will be amortized to interest expense over the two-year term of these
loans. We amortized $3,740,746 of the debt discount to interest expense in 2016. The warrants issued in connection with the convertible
debentures are classified as warrant derivative liabilities because the warrants are entitled to certain rights in subsequent financings and the
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 $2,847,624 to the total warrants
out of the gross proceeds of $6,329,549. 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 early adopted ASU 2017-11 and applied the guidance to derivative accounting. We reclassified the fair value of the warrant derivative
liabilities to stockholders’ equity when we adopted ASU 2017-11.
Other convertible notes
On May 13, 2016, one lender converted an outstanding note issued on April 28, 2015 and the related accrued interest totaling $117,837
to 14,028 common shares. As of December 31, 2017, the outstanding balance on the note was zero.
On May 24, 2016, we sold an additional convertible note for $107,000 with warrants to purchase 1,667 shares of common stock at an
exercise price of $16.50 per share. The purchaser has the right to convert the notes into shares of the Company’s common stock at a fixed
conversion price equal to $13.50 per share, subject to applicable adjustments. The estimated fair value of the warrants was determined using the
binomial model, resulting in an allocation of $12,406 to the total warrants and the recognition of a beneficial conversion feature of $7,962, both of
which were recorded as a discount to the note. We evaluated the convertible note and warrants for derivative liability treatment and determined
that these instruments do not include certain rights such as price protection like our previous debt financings. Accordingly, we concluded that this
financing arrangement did not qualify for derivative accounting treatment. The loan was paid in full in fiscal year 2016.
On June 14, 2016, we sold an additional convertible note for $115,000 and issued 1,023 common shares to compensate the lender. On
July 1, 2016, the note was modified to increase the principal amount to $200,000 and we received the remaining proceeds of $85,000 on the same
date and issued 1,144 common shares as compensation to the lender. The lender has the right to convert the note into shares of the Company’s
common stock at fixed conversion price equal to $13.50 per share, subject to applicable adjustments. We valued the total 2,167 common shares
using the stock prices at the respective dates the note proceeds were received and recorded the relative fair value of the shares amounting to
$26,000 as a debt discount to be amortized over the term of the loan. We then computed the effective conversion price of the note, noting that no
beneficial conversion feature exists. We also evaluated the convertible note for derivative liability treatment and determined that the instrument
does not include certain rights such as price protection like our previous debt financing. Accordingly, we concluded that this financing
arrangement did not qualify for derivative accounting treatment. The loan was paid in full in fiscal year 2017.
On July 29, 2016, we sold an additional convertible note for $100,000 and issued 1,084 common shares to compensate the lender. The
lender has the right to convert the notes into shares of the Company’s common stock at a fixed conversion price equal to $13.50 per share, subject
to applicable adjustments. The proceeds were allocated between the convertible note and shares of common stock based on their relative fair
values. The relative fair values of the convertible note and the common shares was $87,241 and $12,759, respectively. We then computed the
effective conversion price of the note, noting that the convertible debt gave rise to a beneficial conversion feature (BCF) of $12,759. The sum of
the relative fair value of the common shares and the BCF of $25,518 was recorded as a debt discount to be amortized over the term of the loan.
We also evaluated the convertible note for derivative liability treatment and determined that the instruments does not include certain rights such as
price protection like our previous debt financings. Accordingly, we concluded that this financing arrangements did not qualify for derivative
accounting treatment. The loan was paid in full in fiscal year 2017.
On September 15, 2016, we sold an additional convertible note for $500,000 and issued 6,666 common shares to compensate the lender. The
lender has the right to convert the notes into shares of the Company’s common stock at a fixed conversion price equal to $13.50 per share, subject
to applicable adjustments. The convertible note includes an original issue discount of $40,541 and is subject to a one-time interest of 9% or
$45,000 which was recorded as a debt discount and amortized over the term of the loan. The proceeds were allocated between the convertible
note and shares of common stock based on their relative fair values. The relative fair value of the convertible note was $434,028. The allocation
of the gross proceeds to the shares of common stock was $65,972 and recorded as a debt discount to be amortized over the term of the loan. We
then computed the effective conversion price of the note, noting that no beneficial conversion feature exists. We also evaluated the convertible
note for derivative liability treatment and determined that the instrument does not include certain rights such as price protection like our previous
debt financings. Accordingly, we concluded that this financing arrangement did not qualify for derivative accounting treatment. The loan was
paid in full in fiscal year 2017.
On various dates during the quarter ended December 31, 2017, the Company issued convertible notes for net proceeds of $1,755,850 with the
following terms: a) maturity ranging from 3 to 12 months; b) annual interest rates ranging from 5% to 12%; c) convertible to the Company’s
common stock at issuance at a fixed rate of $7.50 or convertible at variable conversion rates either after 6 months after issuance or in the event of
a default. Certain of these notes were issued with shares or warrants which were fair valued at issuance dates. The relative fair values of the shares
or warrants issued with the notes were recorded as a debt discount and amortized over the term of the notes. We then computed the effective
conversion price of the notes, noting that no beneficial conversion feature exists. We also evaluated the convertible notes for derivative liability
treatment and determined that the notes did not qualify for derivative accounting treatment as of December 31, 2017.
- 68 -
The specific terms of the convertible notes and outstanding balances as of December 31, 2017 are listed in the tables below.
Convertible Notes
Loan
Amount
Outstanding
Balance
Original
Issue
Discount
Interest
Rate
Conversion
Price(Convertible
at Inception
Date)
Deferred
Finance
Fees
Discount
related
to fair
value of
conversion
feature
and
warrants/shares
$2,180,000 $ 2,180,000 $218,0002
10%3
$
8.40
$ 388,532
$
2,163,074
1,100,000
1,100,000
110,0002
10%3
$
8.40
185,956
1,022,052
150,000
150,000
15,0002
10%3
$
8.40
26,345
140,832
30,000
30,000
3,0002
10%3
$
50,000
50,000
5,0002
10%3
$
8.40
8.40
5,168
8,954
26,721
49,377
250,000
250,000
25,0002
10%3
$
8.40
43,079
222,723
50,000
50,000
5,0002
10%3
$
8.40
8,790
46,984
215,000
215,000
21,5002
10%3
$
8.40
38,518
212,399
200,000
200,000
20,0002
10%3
$
8.40
37,185
200,000
170,000
170,000
17,0002
10%3
$
8.40
37,352
170,000
360,000
360,000
36,0002
10%3
$
8.40
75,449
360,000
55,000
55,000
5,5002
10%3
$
8.40
11,714
55,000
100,000
100,000
10,0002
10%3
$
8.40
20,634
100,000
100,000
100,000
10,0002
10%3
$
8.40
24,966
50,000
50,000
5,0002
10%3
$
8.40
9,812
80,034
40,188
300,000
300,000
30,0002
10%3
$
8.40
60,887
239,113
200,000
200,000
20,0002
10%3
$
8.40
43,952
156,048
125,000
125,000
12,5002
10%3
$
8.40
18,260
106,740
360,000
360,000
36,0002
10%3
$
8.40
94,992
265,008
106,667
106,667
10,6672
10%3
$
8.40
15,427
91,240
177,882
177,882
17,7882
10%3
$
8.40
2,436
175,446
40,000
40,000
35,000
85,000
100,000
500,000
85,000
-
-
-
-
-
-
12%
$
-
12%
$
-
12%
$
-
12%
$
-
12%
$
-
85,541
9%
$
13.50
13.50
13.50
13.50
13.50
13.50
-
-
-
-
-
-
-
-
5%
-
4,250
3,680
3,899
3,373
15,048
25,518
65,972
-
Inception
Date
Term
30
months1
30
months1
30
months1
30
months1
30
months1
30
months1
30
months1
30
months1
30
months1
30
months1
30
months1
30
months1
30
months1
30
months1
30
months1
30
months1
30
months1
30
months1
30
months1
30
months1
30
months1
6
months
6
months
6
months
6
months
6
months
8
months
12
months
12
July 22, 2015
September 25,
2015
October 2,
2015
October 6,
2015
October 14,
2015
November 2,
2015
November 10,
2015
November 12,
2015
November 20,
2015
December 4,
2015
December 11,
2015
December 18,
2015
December 31,
2015
January 11,
2016
January 20,
2016
January 29,
2016
February 26,
2016
March 10,
2016
March 18,
2016
March 24,
2016
March 31,
2016
June 15, 2016
June 17, 2016
June 22, 2016
July 6, 2016
July 29, 2016
September 15,
2016
October 11,
2017
October 20,
2017(4)
October 25,
2017
October 27,
2017
November 13,
2017
November 22,
2017
November 28,
2017
November 29,
2017
November 30,
2017
December 5,
2017
December 6,
2017
December 11,
2017
December 19,
2017
December 28,
2017
December 29,
2017
months
6
months
12
months
9
months
12
months
10
months
6
months
3
months
3
months
4
months
6
months
6
months
6
months
12
months
150,000
150,000
103,000
103,000
-
-
12%
5%
$
7.50
170,000
170,000
-
5%
7,500
3,000
4,250
-
-
380,000
380,000
15,200
8%
$
7.50
15,200
100,000
100,000
10,000
5%
103,000
103,000
3,000
12%
150,000
150,000
-
15%
$
50,000
50,000
8%
$
52,500
52,500
-
10%
$
100,000
100,000
-
10%
$
130,000
130,000
1,500
5%
110,000
110,000
1,500
5%
-
-
7.50
7.50
7.50
7.50
-
-
55,000
55,000
-
15%
$
7.50
2,000
-
-
2,500
-
6,500
5,500
5,000
-
10,000
46,274
-
-
15,200
-
-
6,460
5,775
-
105,000
-
$8,973,049 $ 8,088,049 $749,696
105,000
5%
-
5,000
$1,219,108
$
-
6,124,178
1) The loan term was extended by 180 days and further extended on January 15, 2018 by 60 days to repay in common stock. The July 22,
2015 Debentures of $2,180,000 is currently past due as of March 19, 2018.
2. The original issue discount is reflected in the first year.
3. The annual interest started accruing in the second year.
4. On October 20, 2017, Company issued to EMA Financial, LLC a 5% one year convertible note in the amount of $150,000, less $7,500
from OID and fees. The note is convertible at $7.50 per share, provided however, if the Company fails to comply with Section 1.9 of the note then
the conversion price shall be 65% of the lowest sale price for the Common Stock on the Principal Market during the twenty (20) consecutive
Trading Days immediately preceding the Conversion Date or the closing bid price, whichever is lower.
As of December 31, 2017, a total of approximately $291,000 convertible debentures were purchased by related parties who were members of
the Company’s Board of Directors and management and their family members.
Deferred finance fees included cash commissions amounting to $621,500 and the fair value of the 2,101,786 warrants issued to the placement
agent amounting to $536,908. For the year ended December 31, 2017, the Company recognized amortization expense related to the debt
discounts indicated above of $1,955,193. The unamortized debt discounts as of December 31, 2017 related to the convertible debentures and other
convertible notes amounted to $433,228.
- 69 -
Revolving Note Payable
On October 28, 2016, an accredited investor (the “Investor”) purchased from us a promissory note in the aggregate principal amount of up to
$2,000,000 (the “Revolving Note”) due and payable on the earlier of October 28, 2017 (the “Maturity Date”) or on the seventh business day after
the closing of a Qualified Offering (as defined in the Revolving Note). Although the Revolving Note is dated October 26, 2016, the transaction
did not close until October 28, 2016, when we received its initial $250,000 advance pursuant to the Revolving Note. As a result, on the same day
and pursuant to the Revolving Note, we issued to the Investor a Common Stock Purchase Warrant to purchase 20,834 shares of our common stock
at an exercise price per share equal to $12.00 per share. The Investor is obligated to provide us with advances of $250,000 under the Revolving
Note, but the Investor shall not be required to advance more than $250,000 in any individual fifteen (15) day period and no more than $500,000 in
the thirty (30) day period immediately following the date of the initial advance. We received $3,500,000 pursuant to the Revolving Note as
amended of which $2,070,000 net proceeds was received in 2017 and we issued to the Investor warrants to purchase 291,667 shares of our
Common Stock at an exercise price per share equal to $12.00 per share. The terms of the Warrants are identical except for the exercise date, issue
date, and termination date which are based on the advance date.
The Revolving Note was amended on May 2, 2017 to increase the aggregate principal amount to $3,000,000, to issue 16,667 shares of our
Common Stock to the Investor, to decrease the exercise price per share of the warrants to the lower of (i) $12.00 or (ii) the per share purchase
price of the shares of our Common Stock sold in the Qualified Offering, and to change the references in the Revolving Note from “the six (6)
month anniversary of October 28, 2016” to “July 25, 2017.” The fair value of the 16,667 shares issued of $149,018 was accounted for as a note
discount and are amortized to interest expense over the life of the loan. We evaluated the accounting impact of the Revolving Note amendment
and deemed that the amendment did not have a material impact on our consolidated financial statements.
The Revolving Note was further amended on August 18, 2017 to increase the aggregate principal amount to $3,500,000 with all other terms
unchanged.
In the event that a Qualified Offering had occurred after July 25, 2017, but prior to the Maturity Date, within seven (7) Business Days of the
closing of the Qualified Offering, the Company was to pay a cash fee equal to five percent (5%) of the total outstanding amount owed by the
Company to the Holder as of the closing date of the Qualified Offering or, at the option of the Company, issue to the Holder a number of
restricted shares of the Company’s common stock equal to (x) five percent (5%) of the total outstanding amount owed by the Company to the
Holder as of the closing date of the Qualified Offering divided by (y) the purchase price provided by the documents governing the Qualified
Offering. A Qualified Offering means the completion of a public offering of the Company’s securities pursuant to which the Company receives
aggregate gross proceeds of at least Seven Million United States Dollars (US$7,000,000) in consideration of the purchase of its securities and
resulting in, pursuant to the effectiveness of the registration statement for such offering, the Company’s common stock being traded on the
NASDAQ Capital Market, NASDAQ Global Select Market or the New York Stock Exchange. A Qualified Offering did not occur on or prior to
the Maturity Date.
In the event that a Qualified Offering had not occurred after July 25, 2017, but prior to the Maturity Date, within seven (7) Business Days of
the closing of the Qualified Offering, the Company shall pay a cash fee equal to five percent (5%) of the total outstanding amount owed by the
Company to the Holder or, at the option of the Company, issue to the Holder a number of restricted shares of the Company’s common stock equal
to (x) five percent (5%) of the total outstanding amount owed by the Company to the Holder as of the Maturity Date divided by (y) the VWAP of
the Company’s common stock for the last ten trading days preceding the Maturity Date. A Qualified Offering did not occur on or prior to the
Maturity Date.
Interest on the principal balance of the Revolving Note shall be paid in full on the Maturity Date, unless otherwise paid prior to the Maturity
Date. Interest shall be assessed as follows: (i) a one-time interest of 10% on all principal amounts advanced prior to April 28, 2017; (ii) the
foregoing and 4% on any amount remaining outstanding if the principal amount is repaid between April 28, 2017 and July 28, 2017; or (iii) both
of the foregoing and 4% on any amount remaining outstanding if the principal amount is repaid between July 28, 2017 and October 28, 2017.
Broker fees amounting to $296,500, the one-time interest of $350,000 and the relative fair value of the 291,667 warrants issued to the Investor
amounting to $1,148,275 were recorded as debt discounts and amortized over the term of the revolving note. The unamortized debt discounts
related to the Revolving Note were fully amortized as of December 31, 2017.
The Revolving Note was still outstanding as of December 31, 2017 and is currently past due. We continue to accrue interest on the note.
The following table provides a summary of the changes in convertible debt and revolving note payable, net of unamortized discounts, during
2017:
Balance at January 1,
Adjustment due to ASU 2017-11
Issuance of convertible debt, face value
Deferred financing cost
Debt discount related to one-time interest charge
Debt discount from incentive shares to increase the Revolving Note aggregate principal limit
Debt discount from shares and warrants issued with the notes
Payments
Accretion of interest and amortization of debt discount to interest expense through December 31,
Balance at December 31,
Less: current portion
Convertible debt, long-term portion
- 70 -
$
$
2017
5,273,937
923,468
4,093,500
(267,650)
(225,000)
(150,000)
(750,705)
(925,541)
3,815,767
11,787,776
11,787,776
-
Other Notes
On January 20, 2016 we borrowed $50,000 from an individual with no interest or fees. We paid back the loan in March 2016.
On February 8, 2016 we signed a Merchant Agreement with a lender. Under the agreement we received $100,000 in exchange for third
position rights to all customer receipts until the lender is paid $129,900, which is collected at the rate of $927 per business day. The Company
paid $2,000 in fees in connection with this loan. We received an additional $125,000 in June 2016 under the existing Merchant Agreement of
which $48,420 was used to pay off the prior loan. The lender provided an additional $70,000 on August 16, 2016. As of December 31, 2017, the
outstanding balance on this note was zero.
On May 9, 2016 we signed a promissory note with a lender. Under the agreement we received $200,000 net of a $6,000 original issue
discount and we repaid $206,000 on August 25, 2016. In connection with this promissory note, we issued warrants exercisable into 3,333 shares
of our common stock. The warrants issued in this transaction are immediately exercisable at an exercise price of $16.50 per share. The warrants
have an expiration period of three years from the original issue date. The warrants are subject to adjustment for stock splits, stock dividends or
recapitalizations. The warrants were recorded as a component of our Stockholders’ Equity. The estimated fair value of the warrants was
determined using the binomial model, resulting in an allocation of $27,349 to the total warrants and recorded as a discount to the note to be
amortized over the term of the loan. We evaluated the warrants for derivative liability treatment and determined that these instruments do not
include certain rights such as price protection like our previous debt financings. Accordingly, we concluded that these instruments did not qualify
for derivative accounting treatment. In August 2016, the lender extended the maturity date of the note from August 11, 2016 to August 25, 2016.
Consequently, a penalty interest of $41,200 was added to the principal amount and settled through the issuance of 3,335 common shares. As of
December 31, 2016, the outstanding balance on this note was zero.
- 71 -
On February 15, 2017, we received six-month, non-convertible loans in the aggregate of $220,000 from two accredited investors. We agreed
to issue each investor 5,667 shares of restricted common stock. The loans earn no interest but carry a 10% original issue discount fee. We
recorded the fair value of the shares amounting to $43,616 as debt discounts that will be amortized to interest expense during the term of the
loans. We received a one-month extension on one loan and two one-month extensions on the other. Each extension required a 10% fee to the
lender. We treated these extensions as loan extinguishments and accordingly wrote off the original debt and recorded new debt to include the
extension fees as part of the principal amount. The extension fees of $33,000 to extend the loans were recorded as losses on extinguishment of
debt in the consolidated financial statements. Both loans were paid off entirely by October 31, 2017. We amortized the entire $63,616 of debt
discounts in the year ended December 31, 2017.
On March 14, 2017, we received an eight-month, non-convertible loan of $250,000 from a privately-held investment firm. The loan earned
an annual interest rate of 10% and included a 10% original issue discount. We also agreed to issue the investor 8,333 shares of restricted common
stock. We recorded the fair value of the shares amounting to $46,748 as a debt discount that will be amortized to interest expense during the term
of the loan. We amortized the entire $76,748 of the debt discount in the year ended December 31, 2017. In the event of default and at the option
of the holder, the loan was convertible into common stock at a 35% discount to the lowest closing stock price for the 15 trading days prior to
conversion. We paid the loan entirely by the maturity date so derivative accounting was triggered from the conversion option.
- 72 -
On March 21, 2017, we received an eight-month, non-convertible loan of $170,000 from an accredited investor. The loan earns an annual
interest rate of 10% and includes a 10% original issue discount. We also agreed to issue the investor 5,667 shares of restricted common stock. We
recorded the fair value of the shares amounting to $35,079 as a debt discount that will be amortized to interest expense during the term of the
loan. The loan still remains outstanding as of December 31, 2017 with a balance of $170,000. The lender extended the term to December 31, 2017
and further to March 31, 2018 in exchange for a total of 9,500 shares of common stock. We amortized $44,841 of debt discounts in the year ended
December 31, 2017. The unamortized debt discount as of December 31, 2017 was $7,238.
On April 19, 2017, we received a 7-month non-convertible loan of $250,000 from a privately-held investment firm. The loan earned an annual
interest rate of 10% and included a 10% original issue discount. We agreed to issue 833 shares at closing. Until the loan was repaid, we agreed
that over the next one hundred eighty (180) days to issue 2,500 shares to the Investor every sixty (60) days for a total issuance of 8,333 shares. We
recorded the fair value of the 8,333 shares amounting to $43,687 as a debt discount that was amortized to interest expense during the term of the
loan. We amortized $68,687 of debt discounts in the year ended December 31, 2017. The unamortized debt discount as of December 31, 2017
was zero. In the event of default and at the option of the holder, the loan was convertible into common stock at a 35% discount to the lowest
closing stock price for the 15 trading days prior to conversion. We paid the loan entirely by the maturity date so derivative accounting was
triggered from the conversion option.
On May 19, 2017, we received a 45-day non-convertible loan of $630,000 from a private investor. The loan provides guaranteed interest of
$63,000 and has an origination fee of $32,000. We paid a broker $31,500 in connection with this loan. The unamortized debt discount as of
December 31, 2017 was zero. We used these proceeds to pay off in full our September 2016 loan of $589,189. The loan remains outstanding and
is currently past due. We continue to accrue interest at a 20% annual rate from the maturity date.
On August 1, 2017, we signed a non-convertible installment loan with a lender. Under the agreement we received a loan of $75,000 with a
weekly repayment of $3,500 until payment in full. The loan includes $18,750 representing an original issue discount, interest and fees resulting in
a total payable of $93,750. The loan remains outstanding as of December 31, 2017 with a balance of approximately $16,750.
On September 12, 2017, we received a 9-month non-convertible loan of $225,000 from a privately-held investment firm. The loan earns an
annual interest rate of 10%. The Company paid total fees of $25,000 including original issue discount and other costs related to this loan. We
agreed to issue 3,333 shares at closing. We recorded the fair value of the shares as a debt discount that will be amortized to interest expense
during the term of the loan. We amortized $15,311 of debt discounts in the year ended December 31, 2017. The unamortized debt discount as of
December 31, 2017 was $22,689. In the event of default and at the option of the holder, the loan is convertible into common stock at a 35%
discount to the average of the two lowest daily volume weighted average closing stock price for the 20 trading days prior to conversion.
- 73 -
Merchant Agreements
We have signed various Merchant Agreements which entitle the lenders to our customer receipts. We accounted for the Merchant
Agreements as loans under ASC 860 because while we provided rights to current and future receipts, we still had control over the receipts. The
following table shows our Merchant Agreements as of December 31, 2017.
Inception Date
January 6, 2016
February 8, 2016
August 16, 2016
August 26, 2016
February 6, 2017
March 2, 2017
June 6, 2017
June 21, 2017
July 17, 2017
September 29, 2017
October 25, 2017
December 7, 2017
December 12, 2017
Purchase
Price
Purchased
Amount
Outstanding
Balance
250,000
100,000
70,000
125,000
125,000
75,750
250,000
150,000
125,000
75,000
110,000
160,000
160,000
1,775,750 $
322,500 $
129,900
90,930
166,250
161,250
97,718
330,000
190,500
160,000
102,000
153,890
212,800
212,800
2,330,538 $
-
-
-
-
-
-
-
-
-
(1,200)
71,233
157,088
159,186
386,307
Daily
Payment
1,279.76
927.00
650.00
1,386.00
1,343.75
775.74
1,833.00
1,361.00
1,250.00
1,200.00
1,539.00
1,251.76
1,251.76
$
Interest
Rate
Deferred
Finance
Fees
14%
15%
15%
6%
15%
7%
5%
15%
7%
15%
15%
25%
15%
2,500
2,000
1,590
2,535
1,250
750
6,250
1,498
1,250
1,500
8,800
5,799
5,258
$ 40,980
Note
1
1) The Company recognized a gain in fiscal year 2016 on the settlement of the previous loan of $5,044 which was credited to interest expense.
We amortized $312,870 and $40,802 of debt discounts during the years ended December 31, 2017 and 2016, respectively for all non-
convertible notes. The total unamortized discount for all non-convertible notes as of December 31, 2017 was $48,194.
Related Party Notes
During the year ended December 31, 2016, the Company received advances from certain officers of the Company amounting to $20,000.
These advances were non-interest bearing and payable on demand. As of December 31, 2016 there are no outstanding notes to related parties.
- 74 -
(10) Stockholders’ (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:
1) 20,000 shares have been designated as Series A Junior Participating Preferred Stock (“Junior A”)
2) 313,960 shares have been designated as Series A Convertible Preferred Stock (“Series A”)
3) 279,256 shares have been designated as Series B Convertible Preferred Stock (“Series B”)
4) 88,098 shares have been designated as Series C Convertible Preferred Stock (“Series C”)
5) 850 shares have been designated as Series D Convertible Preferred Stock (“Series D”)
6) 500 shares have been designated as Series E Convertible Preferred Stock (“Series E”)
7) 240,000 shares have been designated as Series G Convertible Preferred Stock (“Series G”)
8) 10,000 shares have been designated as Series H Convertible Preferred Stock (“Series H”)
9) 21 shares have been designated as Series H2 Convertible Preferred Stock (“Series H2”)
10) 6,250 shares have been designated as Series J Convertible Preferred Stock (“Series J”)
11) 15,000 shares have been designated as Series K Convertible Preferred Stock (“Series K”)
As of December 31, 2017 and 2016, there were no shares of Junior A, and Series A, B, C, and E issued and outstanding.
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 per unit, resulting in gross proceeds to us of $843,000 (the “Series D Placement”). Each unit (“Series D Unit”) consisted of (i) one share
of Series D Convertible Preferred Stock, $0.01 par value per share (the “Series D Convertible Preferred Stock”) convertible into 84 shares of our
common stock, (subject to adjustment for stock splits, stock dividends, recapitalization, etc.) and (ii) one five-year warrant to purchase
approximately 21 shares of our common stock at a per share exercise price of $24.30, 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.
The proceeds from the sale of each Series D Unit were 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, 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 84 shares of common stock (based upon an initial conversion price of
$19.50 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 OTCQB (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.
- 75 -
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
The Series D Warrants originally had an exercise price equal to $24.30 per share of common stock. In April 2012, the number of Series D
Warrants increased by 17,681 to a total of 34,930 and each Series D Warrant had an exercise price reset to $12.00 per share of common stock. In
December of 2013 the number of Series D Warrants increased by 20,958 to a total of 55,887 and each Series D Warrant had an exercise price reset
to $7.50 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 are 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 and number of Series D Warrant shares issuable thereunder shall be increased such that
the aggregate exercise price payable thereunder, after taking into account the decrease in the exercise price, shall be equal to the aggregate
exercise price prior to such adjustment. Unless waived under certain circumstance by the holder of a Series D Warrant, such holder may not
exercise the Series D 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.
On May 10, 2017, we received net proceeds of $140,214 from the exercise of 19,889 stock purchase warrants from the Series D registered
direct offering on November 10, 2011. In consideration for the warrant exercises, we issued to the investors warrants to purchase 39,778 shares of
our Common Stock at an exercise price per share equal to $8.40 per share. The warrants expire on the third year anniversary date. We determined
the fair value of $186,802 for these warrants and recorded the value as other expenses.
- 76 -
Series G Convertible Preferred Stock
On July 6 and November 15, 2012, we completed a private placement, pursuant to which we sold an aggregate of 4,844 units for a purchase
price of $150.00 per unit (the “Series G Purchase Price”), resulting in gross proceeds to us of $726,600 (the “Series G Private Placement”). Each
unit (“Series G Unit”) consists of (i) one share of Series G Convertible Preferred Stock, $0.01 par value per share (the “Series G Preferred Stock”)
convertible into 1 share of our common stock, (subject to adjustment for stock splits, stock dividends, recapitalization, etc.) and (ii) a three-year
warrant to purchase 1 share of our common stock at a per share exercise price of $15.00 (the “Series G Warrant”). The Series G Warrants will be
exercisable until the close of business on the third anniversary of the applicable closing date of the Series G Private Placement.
Each share of Series G Preferred Stock will receive a cumulative dividend at the annual rate of (i) four percent (4%) on those shares of Series
G Preferred Stock purchased from the Company by an individual purchaser with an aggregate investment of less than $100,000, (ii) six percent
(6%) on those shares of Series G Preferred Stock purchased from the Company by an individual purchaser with an aggregate investment of at
least $100,000 but less than $250,000, and (iii) twelve percent (12%) on those shares of Series G Preferred Stock purchased from the Company by
an individual purchaser with an aggregate investment of at least $250,000. Dividends accruing on the Series G Preferred Stock shall accrue from
day to day until, and shall be paid within fifteen (15) days of, the first anniversary of, the original issue date of the Series G Preferred Stock;
provided, however, if any shares of the Company’s Series E Preferred Stock are outstanding at such time, payment of the accrued dividends on
the Series G Preferred Stock shall be deferred until no such shares of Series E Convertible Preferred Stock remain outstanding. The Company
may pay accrued dividends on the Series G Preferred Stock in cash or in shares of its common stock equal to the volume weighted average price
of the common stock as reported by the OTCQB for the ten (10) trading days immediately preceding the Series G’s first anniversary.
At the election of the Company and upon required advanced notice, each share of Series G Preferred Stock will automatically be converted
into shares of common stock at the Conversion Ratio then in effect: (i) if, after 6 months from the original issuance date of the Series G Preferred
Stock, the common stock trades on the OTCQB (or other primary trading market or exchange on which the common stock is then traded) at a
price equal to at least $22.50, for 7 out of 10 consecutive trading days with average daily trading volume of at least 334 shares, (ii) on or after the
first anniversary of the original issuance date of the Series G Preferred Stock or (iii) upon completion of a firm-commitment underwritten
registered public offering by the Company at a per share price equal to at least $22.50, with aggregate gross proceeds to the Company of not less
than $2.5 million. Unless waived under certain circumstances by the holder of the Series G Preferred Stock, such holder’s Series G Preferred
Stock may not be converted if upon such conversion the holder’s beneficial ownership would exceed certain thresholds.
The holders of Series G 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 as required by
law.
Series G Warrants
The Series G Warrants issued in the Series G Private Placement had an exercise price equal to $15.00 per share and expired on July 6, 2015.
- 77 -
Series H Convertible Preferred Stock
On December 28, 2012 the Company amended the Articles of Incorporation to authorize 10,000 shares of Series H Convertible Preferred
Stock. On January 4, 2013, the Company reported that it had entered into a securities purchase and exchange agreement with an investor, pursuant
to which the Company agreed to exchange 33,334 shares of the Company’s common stock, par value $0.01 per share of common stock held by
the investor for an aggregate of 10,000 shares of a newly created series of preferred stock, designated Series H Convertible Preferred Stock, par
value $0.01 per share (the “Series H Preferred Stock”) in a non-cash transaction. The investor originally purchased the common stock from the
Company for $24.08 per share. The exchange ratio was 4 shares of common stock per share of Series H Preferred Stock at a stated conversion
price of $24.08 per share.
Series H2 Convertible Preferred Stock
On December 23, 2014 the Company amended the Articles of Incorporation to authorize 21 shares of Series H2 Convertible Preferred Stock.
On December 23, 2014, the Company reported that it had entered into a securities purchase and exchange agreement with an investor, pursuant to
which the Company agreed to exchange 70,000 shares of the Company’s common stock, par value $0.01 per share of common stock held by the
investor for an aggregate of 21 shares of a newly created series of preferred stock, designated Series H2 Convertible Preferred Stock, par value
$0.01 per share (the “Series H2 Preferred Stock”) in a non-cash transaction. The investor originally acquired the common stock from the
Company for $7.50 per share in the warrant reset transaction on December 23, 2014. The exchange ratio was 3,334 shares of common stock per
share of Series H2 Preferred Stock at a stated conversion price of $7.50 per share.
Series J Convertible Preferred Stock
On February 6, March 28 and May 20, 2013, the Company entered into a Securities Purchase with various individuals pursuant to which the
Company sold an aggregate of 5,087.5 units for a purchase price of $400.00 per unit (the “Purchase Price”), or an aggregate Purchase Price of
$2,034,700. Each unit purchased in the initial tranche consists of (i) one share of a newly created series of preferred stock, designated Series J
Convertible Preferred Stock, par value $0.01 per share (the “Series J Convertible Preferred Stock”), convertible into 34 shares of the Company’s
common stock, par value $0.01 per share and (ii) a warrant to purchase 34 shares of common stock at an exercise price equal to $12.00 per share.
The warrants expire three years from the issuance date.
From the date of issuance of any shares of Series J Convertible Preferred Stock and until the earlier of the first anniversary of such date, the
voluntary conversion of any shares of Series J Convertible Preferred Stock, or the date of any mandatory conversion (solely under the Company’s
control based upon certain triggering events) of the Series J Convertible Preferred Stock, dividends will accrue on each share of Series J
Convertible Preferred Stock at an annual rate of (i) four percent (4%) of the Purchase Price on those shares of Series J Convertible Preferred
Stock purchased from the Company pursuant to the Securities Purchase Agreement by an individual purchaser who purchased from the Company
shares of Series J Convertible Preferred Stock with an aggregate Purchase Price of less than $250,000, and (ii) six percent (6%) of the Purchase
Price on those shares of Series J Convertible Preferred Stock purchased from the Company pursuant to the Securities Purchase Agreement by an
individual purchaser who purchased shares of Series J Convertible Preferred Stock with an aggregate purchase price of at least $250,000.
Dividends accruing on the Series J Convertible Preferred Stock shall accrue from day to day until the earlier of the first anniversary of the date of
issuance of such shares of Series J Convertible Stock, the voluntary conversion of any shares of Series J Convertible Preferred Stock, or the date
of any mandatory conversion of the Series J Convertible Preferred Stock, and shall be paid, as applicable, within fifteen (15) days of the first
anniversary of the original issue date of the Series J Convertible Preferred Stock, within five (5) days of the voluntary conversion of shares of the
Series J Convertible Preferred Stock, or within five (5) days of the mandatory conversion of shares of the Series J Convertible Preferred Stock.
The Company may pay accrued dividends on the Series J Convertible Preferred Stock in cash or, in the sole discretion of the Board of Directors
of the Company, in shares of its common stock in accordance with a specified formula.
Each share of Series J Convertible Preferred Stock is convertible into 34 shares of common stock at the option of the holder on or after the
six-month anniversary of the issuance of such share, subject to adjustment for stock splits, stock dividends, recapitalizations and similar
transactions (the “Conversion Ratio”). Unless waived under certain circumstances by the holder of Series J Convertible Preferred Stock, such
holder’s shares of Series J Convertible Preferred Stock may not be converted if upon such conversion the holder’s beneficial ownership would
exceed certain thresholds.
At the election of the Company and upon required advance notice, each share of Series J Convertible Preferred Stock will automatically be
converted into shares of common stock at the Conversion Ratio then in effect: (i) on or after the six-month anniversary of the original issuance
date of the Series J Convertible Preferred Stock, the common stock trades on the OTCQB (or other primary trading market or exchange on which
the common stock is then traded) at a price per share equal to at least $24.00 for 7 out of 10 consecutive trading days with average daily trading
volume of at least 1,667 shares, (ii) on the first anniversary of the original issuance date of the Series J Convertible Preferred Stock or (iii) within
three days of the completion of a firm-commitment underwritten registered public offering by the Company at a per share price equal to at least
$24.00, with aggregate gross proceeds to the Company of not less than $2.5 million. Unless waived under certain circumstances by the holder of
the Series J Convertible Preferred Stock, such holder’s Series J Convertible Preferred Stock may not be converted if upon such conversion the
holder’s beneficial ownership would exceed certain thresholds.
The holders of Series J 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 as
required by law.
Series J Warrants
The Series J Warrants issued in the Series J Private Placement had an exercise price equal to $12.00 per share and expired on February 6,
March 28 and May 20, 2016.
- 78 -
Registration Rights Agreement
In connection with the Private Placement, the Company has agreed that, if, at any time after February 1, 2014, the Company files a
Registration Statement relating to an offering of equity securities of the Company (the “Registration Statement”), subject to certain exceptions,
including a Registration Statement relating solely to an offering or sale of securities having an aggregate public offering price of less than
$5,000,000, the Company shall include in the Registration Statement the resale of the shares of common stock underlying the Warrants. Shares of
common stock issued upon conversion of Series J Convertible Preferred Stock or in payment of the dividend on the Series J Convertible Preferred
Stock will not be registered and will not be subject to registration rights. This right is subject to customary conditions and procedures.
Series K Convertible Preferred Stock
On December 12, 2013, the Company entered into a Securities Purchase with various individuals pursuant to which the Company sold an
aggregate of 4,000 units for a purchase price of $250.00 per unit (the “Purchase Price”), for an aggregate Purchase Price of $1,000,000. Each unit
purchased in the initial tranche consists of (i) one share of a newly created series of preferred stock, designated Series K Convertible Preferred
Stock, par value $0.01 per share (the “Series K Convertible Preferred Stock”), convertible into 34 shares of the Company’s common stock, par
value $0.01 per share and (ii) a warrant to purchase 17 shares of common stock at an exercise price equal to $9.38 per share. The warrants expired
three years from the issuance date. Of the $1,000,000 invested in the Private Placement, $572,044 was received in cash and $427,956 was from
the conversion of outstanding indebtedness and interest. The Company incurred $43,334 of fees in conjunction with this private placement. The
purchasers in the initial tranche of the private placement consisted of certain existing and new investors in the Company as well as all of the
members of the Company’s Board of Directors.
From the date of issuance of any shares of Series K Convertible Preferred Stock and until the earlier of the first anniversary of such date, the
voluntary conversion of any shares of Series K Convertible Preferred Stock, or the date of any mandatory conversion (solely under the
Company’s control based upon certain triggering events) of the Series K Convertible Preferred Stock, dividends will accrue on each share of
Series K Convertible Preferred Stock at an annual rate of (i) four percent (4%) of the Purchase Price on those shares of Series K Convertible
Preferred Stock purchased from the Company pursuant to the Securities Purchase Agreement by an individual purchaser who purchased from the
Company shares of Series K Convertible Preferred Stock with an aggregate Purchase Price of less than $100,000, and (ii) six percent (6%) of the
Purchase Price on those shares of Series K Convertible Preferred Stock purchased from the Company pursuant to the Securities Purchase
Agreement by an individual purchaser who purchased shares of Series K Convertible Preferred Stock with an aggregate purchase price of at least
$100,000. Dividends accruing on the Series K Convertible Preferred Stock shall accrue from day to day until the earlier of the first anniversary of
the date of issuance of such shares of Series K Convertible Stock, the voluntary conversion of any shares of Series K Convertible Preferred Stock,
or the date of any mandatory conversion of the Series K Convertible Preferred Stock, and shall be paid, as applicable, within fifteen (15) days of
the first anniversary of the original issue date of the Series K Convertible Preferred Stock, within five (5) days of the voluntary conversion of
shares of the Series K Convertible Preferred Stock, or within five (5) days of the mandatory conversion of shares of the Series K Convertible
Preferred Stock. The Company may pay accrued dividends on the Series K Convertible Preferred Stock in cash or, in the sole discretion of the
Board of Directors of the Company, in shares of its common stock in accordance with a specified formula.
Each share of Series K Convertible Preferred Stock is convertible into 34 shares of common stock at the option of the holder on or after the
six-month anniversary of the issuance of such share, subject to adjustment for stock splits, stock dividends, recapitalizations and similar
transactions (the “Conversion Ratio”). Unless waived under certain circumstances by the holder of Series K Convertible Preferred Stock, such
holder’s shares of Series K Convertible Preferred Stock may not be converted if upon such conversion the holder’s beneficial ownership would
exceed certain thresholds.
At the election of the Company and upon required advance notice, each share of Series K Convertible Preferred Stock will automatically be
converted into shares of common stock at the Conversion Ratio then in effect: (i) on or after the six-month anniversary of the original issuance
date of the Series K Convertible Preferred Stock, the common stock trades on the OTCQB (or other primary trading market or exchange on which
the common stock is then traded) at a price per share equal to at least $24.00 for 7 out of 10 consecutive trading days with average daily trading
volume of at least 1,667 shares, (ii) on the first anniversary of the original issuance date of the Series K Convertible Preferred Stock or (iii) within
three days of the completion of a firm-commitment underwritten registered public offering by the Company at a per share price equal to at least
$24.00, with aggregate gross proceeds to the Company of not less than $2.5 million. Unless waived under certain circumstances by the holder of
the Series K Convertible Preferred Stock, such holder’s Series K Convertible Preferred Stock may not be converted if upon such conversion the
holder’s beneficial ownership would exceed certain thresholds.
- 79 -
The proceeds from the sale of each Series K Unit were allocated between the Series K Convertible Preferred Stock and the Series K Warrants
based on the relative fair value method. The estimated fair value of the Series K Warrants was determined using a Black-Scholes formula,
resulting in an allocation of the gross proceeds of $271,422 to the total warrants issued. The allocation of the gross proceeds to the Series K
Convertible Preferred Stock was $685,245, net of $43,334 in fees. In accordance with the provisions of ASC 470-20, an additional adjustment in
the aggregate between Additional Paid in Capital and Accumulated Deficit of $1,495,415 was recorded for all tranches of Series K to reflect an
implicit, deemed non-cash dividend related to the allocation of proceeds between the stock and warrants issued. The $1,495,415 represents the
aggregate value of the adjustment to additional paid in capital related to the beneficial conversion feature of the Series K Convertible Preferred
Stock. The value adjustment was calculated by subtracting the fair market value of the underlying common stock on the closing dates issuable
upon conversion of the Series K Convertible Preferred Stock from the fair market value of the Series K Convertible Preferred Stock as
determined when the Company performed a fair market value allocation of the proceeds to the Series K Convertible Preferred Stock and warrants.
On January 29, 2014, the Company entered into a Securities Purchase Agreement with various accredited investors, pursuant to which the
Company sold an aggregate of 4,875 units for a purchase price of $250.00 per unit or an aggregate Purchase Price of $1,218,750. This was the
second tranche of a $1.5 million private placement previously disclosed by the Company in its Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 12, 2013, which is incorporated by reference herein. The Purchasers in the second tranche of
the Private Placement consisted of certain existing and new investors in the Company, as well as all of the members of the Company’s board of
directors.
Each unit purchased in the second tranche consists of (i) one share of Series K Convertible Preferred Stock, par value $0.01 per share,
convertible into 34 shares of the Company’s common stock, par value $0.01 per share and (ii) a warrant to purchase 17 shares of common stock at
an exercise price equal to $9.38 per share, with a term that expired on January 29, 2017.
On February 28, 2014, the Company entered into a Securities Purchase Agreement with various accredited investors, pursuant to which the
Company sold an aggregate of 1,854 units for a purchase price of $340.00 per unit or an aggregate Purchase Price of $630,360. This was the third
tranche of a $1.5 million private placement previously disclosed by the Company in its Current Report on Form 8-K filed with the Securities and
Exchange Commission on December 12, 2013, which is incorporated by reference herein. The Purchasers in the third tranche of the Private
Placement consisted of certain existing and new investors in the Company.
Each unit purchased in the third tranche consists of (i) one share of Series K Convertible Preferred Stock, par value $0.01 per share
convertible into 34 shares of the Company’s common stock, par value $0.01 per share and (ii) a warrant to purchase 17 shares of common stock at
an exercise price equal to $12.75 per share, with a term that expired on February 28, 2017.
On June 30, 2014, the Company entered into a Securities Purchase Agreement with various accredited investors, pursuant to which the
Company sold an aggregate of 734 units for a purchase price of $300.00 per unit or an aggregate Purchase Price of $220,000. This was the fourth
tranche of a $1.5 million private placement previously disclosed by the Company in its Current Report on Form 8-K filed with the Securities and
Exchange Commission on December 12, 2013, which is incorporated by reference herein. The Purchasers in the fourth tranche of the Private
Placement consisted of certain existing and new investors in the Company.
Each unit purchased in the fourth tranche consists of (i) one share of Series K Convertible Preferred Stock, par value $0.01 per share
convertible into 34 shares of the Company’s common stock, par value $0.01 per share and (ii) a warrant to purchase 17 shares of common stock at
an exercise price equal to $11.25 per share, with a term that expired on June 30, 2017.
On November 12, 2014, the Company entered into a Securities Purchase Agreement with various accredited investors, pursuant to which the
Company sold an aggregate of 1,052 units for a purchase price of $250.00 per unit or an aggregate Purchase Price of $263,000. This was the fifth
tranche of a $1.5 million private placement previously disclosed by the Company in its Current Report on Form 8-K filed with the Securities and
Exchange Commission on December 12, 2013, which is incorporated by reference herein. The Purchasers in the fourth tranche of the Private
Placement consisted of certain existing and new investors in the Company.
- 80 -
Each unit purchased in the fifth tranche consists of (i) one share of Series K Convertible Preferred Stock, par value $0.01 per share
convertible into 34 shares of the Company’s common stock, par value $0.01 per share and (ii) a warrant to purchase 17 shares of common stock at
an exercise price equal to $9.38 per share, with a term that expired on November 12, 2017.
The Private Placement was originally expected to raise $1.5 million and close on or before January 31, 2014. On January 29, 2014, the
Company’s Board of Directors voted to increase the subscription amount of the Private Placement by $718,750. The Board of Directors also
voted to extend the Private Placement until February 28, 2014. On February 28, 2014 the Company’s Board of Directors voted to increase the
subscription amount once again to a total of $3.5 million and extended the closing to April 4, 2014. On April 13, 2014 the Company’s Board of
Directors voted to increase the subscription amount by $1 million, to a total of $4.5 million, and extended the closing to May 31, 2014. On July 7,
2014 the Company’s Board of Directors voted to extend the closing to August 15, 2014. Together with the initial tranche of $1,000,000 that
closed on December 12, 2013, the second tranche of $1,218,750 that closed January 29, 2014, the third tranche of $630,360 that closed February
28, 2014, the fourth tranche of $220,000 that closed June 30, 2014, and the fifth tranche of $263,000 that closed November 12, 2014,the total
consideration received by the Company in the Private Placement is $3,332,110, which is comprised of $2,511,404 in cash and $820,706 from the
conversion of outstanding indebtedness and Board of Director fees. The placement was closed after the November 12, 2014 round.
On September 22, 2014 the Company issued 2,134 shares of common stock for the conversion of 64 shares of Series K Preferred Convertible
Stock. In 2017, the Company returned 64 shares of Series K Preferred Convertible Stock as issued and outstanding. The conversion was done
erroneously. The Company agreed to allow the recipient to keep the 2,134 shares of common stock, with a fair value of $15,992, as issued for
services to be rendered in 2018 for the Company.
In connection with the Series K Warrants, we calculated the fair value of the warrants received as described above using the Black- Scholes
formula with the below assumptions:
Assumptions
Contractual life (in
months)
Expected volatility
Risk-free interest
rate
Exercise price
Fair value per
warrant
$
$
Series K
Warrants
December 12, 2013
Series K
Warrants
Series K
Warrants
January 29, 2014
February 28, 2014
Series K
Warrants
June 30, 2014
Series K
Warrants
November 12, 2014
36
136.1
0.39%
$
9.38
6.00
$
36
152.4
0.39%
$
9.38
9.00
$
36
152.7
0.39%
$
12.75
11.10
$
36
153.9
0.90%
$
11.25
8.70
$
36
153.9
0.90%
9.38
6.90
The holders of Series K 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 as
required by law.
Series K Warrants
The warrants issued in the Private Placement have an exercise price equal to $9.38 per share, for the December 12, 2013 and January 29, 2014
warrants, $12.75 per share for the February 28, 2014 warrants, $11.25 per share for the June 30, 2014 warrants and $9.38 per share for the
November 12, 2014 warrants, with a term expiring three years from the issuance date. The warrants also permit the holder to conduct a “cashless
exercise” at any time the holder of the warrant is an affiliate of the Company. The exercise price and/or number of shares issuable upon exercise
of the warrants will be subject to adjustment for stock dividends, stock splits or similar capital reorganizations, as set forth in the warrant
agreement.
Subject to the terms and conditions of the warrants, at any time commencing six months from the closing date of the sale of Units under the
Securities Purchase Agreement the Company has the right to call the warrants for cancellation if the volume weighted average price of its
common stock on the OTCQB (or other primary trading market or exchange on which the common stock is then traded) equals or exceeds three
times the per share exercise price of the warrants for either (i) 10 consecutive trading days or (ii) 15 out of 25 consecutive trading days. All Series
K warrants have expired.
- 81 -
Registration Rights Agreement
In connection with the Private Placement, the Company has agreed that, if, at any time after February 1, 2014, the Company files a
Registration Statement relating to an offering of equity securities of the Company (the “Registration Statement”), subject to certain exceptions,
including a Registration Statement relating solely to an offering or sale of securities having an aggregate public offering price of less than
$5,000,000, the Company shall include in the Registration Statement the resale of the shares of common stock underlying the warrants. Shares of
common stock issued upon conversion of Series K Convertible Preferred Stock or in payment of the dividend on the Series K Convertible
Preferred Stock will not be registered and will not be subject to registration rights. This right is subject to customary conditions and procedures.
Common Stock
Stock Options and Warrants
Our stockholders approved our amended 2005 Equity Incentive Plan (the “2005 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 2005 Plan. Under the 2005
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, 2017, options to acquire 35,274
shares were outstanding under the 2005 Plan.
On December 12, 2013 at the Company’s special meeting the shareholders approved the 2013 Equity Incentive Plan (the “ 2013 Plan”)
pursuant to which 3,000,000 shares of our common stock were reserved for issuance upon exercise of stock options or other equity awards under
the 2013 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, 2017,
options to acquire 82,481 shares were outstanding under the Plan with 2,917,519 shares available for future grant under the 2013 Plan.
- 82 -
On November 29, 2015 the Company’s Board of Directors adopted the 2015 Nonqualified Stock Option Plan (the “ 2015 Plan”) pursuant to
which 5,000,000 shares of our common stock were reserved for issuance upon exercise of non-qualified stock options under the 2015 Plan. Under
the Plan, we may award non-qualified stock options 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, 2017, non-qualified options to acquire 129,937 shares were outstanding
under the Plan with 4,870,063 shares available for future grants under the 2015 Plan.
All of the outstanding non-qualified options had an exercise price that was at or above the Company’s common stock share price on
December 31, 2017.
The following tables summarize information concerning options and warrants outstanding and exercisable:
Stock Options
Warrants
Total
Balance outstanding, January 1, 2016
Granted
Exercised
Expired
Forfeited
Balance outstanding, December 31, 2016
Granted
Exercised
Expired
Forfeited
Balance outstanding, December 31, 2017
Weighted
Average
price per
share
13.20
-
-
30.00
15.30
12.60
8.40
-
30.00
9.82
10.95
Shares
185,708 $
-
-
(6,200)
(3,866)
175,642 $
87,198
-
(3,202)
(11,946)
247,692 $
Shares
974,256 $
272,652
(2,334)
(362,585)
-
881,989 $
245,661
(19,889)
(208,219)
-
899,542 $
Weighted
Average
price per
share
13.20
12.60
9.30
16.50
-
12.00
11.14
7.50
11.46
-
12.03
Shares
1,159,964
272,652
(2,334)
(368,785)
(3,866)
1,057,631
332,859
(19,889)
(211,421)
(11,946)
1,147,234
Exercisable
1,055,483
991,032
1,073,850
Range of
Exercise Prices
Number of
Options
Options Outstanding
Weighted Average
Remaining
Contractual
Life (Years)
Exercise
Price
Number of
Options
Options Exercisable
Weighted Average
Remaining
Contractual
Life (Years)
Exercise
Price
$
$
7.50 - $11.99
12.00 – 14.99
15.00 – 17.99
18.00 – 20.99
21.00 – 30.00
7.50 - $30.00
133,580
88,705
7,547
12,854
5,006
247,692
8.3 $
7.7
4.6
2.1
2.7
7.5 $
8.63
12.00
15.00
18.00
30.00
10.95
80,997
67,904
7,547
12,854
5,006
174,308
7.7 $
7.6
4.6
2.1
2.7
7.0 $
8.78
12.00
15.00
18.00
30.00
11.59
There was $392,590 of total unrecognized compensation cost, net of estimated forfeitures, related to non-vested stock options granted as of
December 31, 2017. This cost is expected to be recognized over a period of 1.66 years, and will be adjusted for any future changes in estimated
forfeitures.
The Series D Warrants issued in connection with the registered direct offering of Series D Convertible Preferred were measured at fair value
and liability-classified because 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 $171,733 to the warrants issued in the Series D registered direct offering. The fair value was 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
early adopted ASU 2017-11 and applied the guidance to derivative accounting. Therefore, we reclassified the warrant and conversion option
liabilities to equity and stopped fair valuing the instruments in 2017.
In connection with the senior secured convertible debentures issued in our private placement with closings in 2015 and 2016, we issued
warrants to the lenders to purchase an aggregate 292,262 and 83,902 shares of the Common Stock, respectively, at an exercise price of $12.00 per
share, expiring five years after the issuance date. We also issued, in 2015 and 2016, warrants to the placement agent to purchase an aggregate
56,310 and 13,750 shares of the Common Stock, respectively, at an exercise price of $12.00 per share, expiring five years after the issuance date.
- 83 -
In November 2016 we issued warrants to purchase 11,000 shares of restricted common stock to an investor relations firm for services
rendered with a total fair value of $84,735.
In January 2017, we issued warrants to purchase 3,334 shares of restricted common stock with a fair value of $15,558 to an investor relations
firm for services performed.
Common Stock Issuances
On various dates from January to March 2017, the Company issued 27,000 shares of restricted common stock to investors as compensation
for loans provided to us.
On June 9, 2017, one shareholder converted 6,000 shares of Series G Convertible Preferred Stock into 2,000 shares of common stock and
converted 63 shares of Series J Convertible Preferred Stock into 2,100 shares of common stock.
On various dates for the year ended December 31, 2017, the Company issued 61,307 shares of common stock based on the 10-day VWAP
prior to quarter end to holders of the Debentures in payment of the quarterly interest accrued from the Debentures first anniversary date through
June 30, 2017 for an aggregate amount of $483,054. We recognized a $218,452 gain on extinguishment of debt by calculating the difference of
the shares valued on the issuance date and the amount of accrued interest through June 30, 2017.
On April 1, 2017, we issued 1,667 shares of restricted common stock to an investor relations firm and recorded the common stock’s fair value
of $15,000 as administrative expense in the year ended December 31, 2017.
On April 19, 2017, we received a 7-month non-convertible loan of $250,000 from a privately-held investment firm. The loan earns an annual
interest rate of 10% and includes a 10% original issue discount. We agreed to issue 833 shares at closing. Until the loan was repaid, we agreed
that over the next one hundred eighty (180) days to issue 2,500 shares to the Investor every sixty (60) days for a total issuance of 8,333 shares. As
of December 31, 2017, the outstanding balance on this note was zero. We have issued 8,333 shares including the closing shares since inception of
the loan.
The Revolving Note was amended on May 2, 2017 to increase the aggregate principal amount to $3,000,000. In exchange for this increase,
we agreed to issue 16,667 shares of our Common Stock to the Investor, to decrease the exercise price per share of the warrants to the lower of (i)
$12.00 or (ii) the per share purchase price of the shares of our Common Stock sold in a qualified offering, and to change the trigger date in the
Revolving Note from April 28, 2017 (the six month anniversary of October 28, 2016) to July 25, 2017. The Revolving Note was further amended
on August 18, 2017 to increase the aggregate principal amount to $3,500,000 with all other terms unchanged.
On May 10, 2017, we received $149,164 from the exercise of 19,889 stock purchase warrants from the Series D registered direct offering on
November 10, 2011. We paid $8,950 to a broker in connection with the warrant exercises. In consideration for the warrant exercises, we issued to
the investors warrants to purchase 39,778 shares of our Common Stock at an exercise price per share equal to $8.40 per share. The warrants expire
on the third year anniversary date. We determined the fair value of $186,802 for these warrants and recorded the value as other expenses.
On September 12, 2017, we received a 9-month non-convertible loan of $225,000 from a privately-held investment firm. The loan earns an
annual interest rate of 10%. The Company paid total fees of $25,000 including original issue discount and other costs related to this loan. We
agreed to issue 3,333 shares at closing. We recorded the fair value of the shares amounting to $13,000 as a debt discount that will be amortized to
interest expense during the term of the loan.
On September 20, 2017, we issued 4,000 shares of restricted common stock to an investor relations firm and recorded the common stock’s
fair value of $16,000 as administrative expense in the year ended December 31, 2017.
On December 11, 2017 the Company issued 2,500 shares with a fair value of $9,500 to a noteholder for an extension on a loan of $170,000
until February 15, 2018.
On December 12, 2017, we issued 150,000 shares of restricted common stock in connection with the acquisition of assets of BaroFold Corp.
We recorded the common stock’s fair value of $600,000 as part of Intangibles cost in the consolidated balance sheets.
On December 31, 2017, the Company awarded 2,134 shares of common stock for services to be rendered in 2018 for the Company.
During the quarter ended December 31, 2017, the Company issued 9,700 shares of common stock on its convertible notes. The relative fair
value of these notes totaling $37,435 was recognized as a debt discount to the notes (see Note 9).
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(11) Subsequent Events
During the three months ended March 31, 2018, we issued to Debenture holders 12,494 shares of common stock for quarterly interest of
$52,371 issued in stock in lieu of cash. Of the 12,494 shares issued, 1,092 shares were issued to members of the Company’s Board of Directors,
who are also Debenture holders.
On various dates in March 2018, we received six-month, convertible loans of $150,000 from three accredited investors. The loans include a
10% original issue discount and are convertible into a qualified offering at the deal price.
On March 14, 2018, we received a three month, non-convertible loan of $50,000 from a related party who was a member of the Company’s
Board of Directors.
On March 12, 2018, we received a six-month, convertible loan of $253,000 from an accredited investor. The loan has an original issue
discount of $53,000. The loan can be converted at any time into common stock at a conversion price of $7.50. We agreed to issue the investor
6,750 shares of restricted common stock.
On March 12, 2018, we received a six-month convertible loan of $85,000 from a privately-held investment firm. The Company paid total
fees of $5,400 related to this loan.
The Revolving Note was further amended on January 30, 2018 to increase the aggregate principal amount to $4,000,000 with all other terms
unchanged. We received the additional $500,000 advances in January and March 2018.
On February 22, 2018 we signed a Merchant Agreement with a lender. Under the agreement we received $110,000 in exchange for rights to
all customer receipts until the lender is paid $147,400, which is collected at the rate of $921.25 per business day. The payments were secured by
second position rights to all customer receipts until the loan has been paid in full.
On February 12, 2018, we received a six-month, convertible loan of $100,000 from an accredited investor. The loan earns a one-time interest
of 10%. $50,000 of the proceeds were used to pay off the outstanding balance of a previous loan from this lender. The loan can be converted at
any time into common stock at a conversion price of $7.50. We issued the investor 5,000 shares of restricted common stock.
On February 12, 2018, we issued 3,500 shares of restricted common stock to an accredited investor to extend the maturity date of our eight-
month, non-convertible loan of $170,000 originated on March 21, 2017 to February 15, 2018. The accredited investor agreed to a further
extension to March 31, 2018 in exchange for 3,500 shares of restricted common stock yet to be issued.
On January 19, 2018, we received a six-month, convertible loan of $150,000 from an accredited investor. The loan earns a one-time interest
of 10% and includes a 10% original issue discount. We also issued the investor 4,000 shares of restricted common stock. The loan can be
converted at any time into common stock at a conversion price of $7.50.
On January 16, 2018, we received a one year, convertible loan of $131,250 from an accredited investor. The loan earns interest of 4% per
year. The loan can be converted into common stock after 180 calendar days at a discount of 40% to market price as defined in the loan.
On January 3, 2018, we received a one year, convertible loan of $95,000 from an accredited investor. The loan includes a 5% original issue
discount. The loan can be converted into common stock after 180 calendar days at a discount of 40% to market price as defined in the loan.
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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, 2017, 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, 2017
due to limited resources for adequate personnel to prepare and file reports under the Securities Exchange Act of 1934 within the required periods,
and 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 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.
We have assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. 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 (2013).
Based on this assessment, management believes that, as of December 31, 2017, the Company did not maintain effective internal control over
financial reporting because of the effect of material weaknesses 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 on a timely basis. Based upon this definition, our management concluded that, as of
December 31, 2017, a material weakness existed in our internal control over financial reporting related to accounting for complex equity
transactions.
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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 resulted in audit adjustments to the annual consolidated financial statements and revisions to related disclosures.
● Limited policies and procedures that cover recording and reporting of financial transactions.
● Lack of multiple levels of review over the financial reporting process
Our plan to remediate those material weaknesses is as follows:
● Improve the effectiveness of the accounting group by augmenting our existing resources with additional consultants or employees to assist
in the analysis and recording of complex accounting transactions, and to simultaneously achieve desired organizational structuring for
improved segregation of duties. We plan to mitigate this identified deficiency by hiring an independent consultant once we generate
significantly more revenue or raise significant additional working capital.
● Improve expert review and achieve desired 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 2017 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 December 31, 2017.
Name
Age
Position
Board Committees
Richard T. Schumacher
67
President, Chief Executive Officer,
Treasurer, Clerk and Director
Jeffrey N. Peterson
Dr. Mickey Urdea
Vito J. Mangiardi
Kevin A. Pollack
62
65
69
47
Chairman of the Board
Audit, Compensation, Nominating
Director
Director
Director
Scientific Advisory Board
Audit, Compensation, Nominating
Audit, Compensation, Nominating
Term of
office
expires:
2020
2018
2018
2019
2019
The following noteworthy experience, qualifications, attributes and skills for each Board member, together with the biographical information for
each nominee described below, led to our conclusion that the person should serve as a director in light of our business and structure:
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 August 1978 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 a research scientist and clinical laboratory director at 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.
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Mr. Jeffrey N. Peterson has served as a director of the Company since July 2011 and as Chairman of the Board starting in 2012. 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 and CEO of TDI’s majority-owned subsidiary, Veritomyx, Inc., which is completing development and commercialization
of software tools for accurate peptide, protein and isoform identification and characterization. Prior to incorporating and 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. Prior to that, he spent 9 years in key management roles in Abbott Laboratories’
Diagnostics and International (Pharmaceuticals, Hospital Products, Nutritionals, and 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, as well as 6 issued US
patents. He served 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 served as a cofounder of the Coalition for 21st Century
Medicine, and of BIO’s Personalized Medicine & Diagnostics Working Group. He served on the Board of Advisors for the Center for
Professional Development and Entrepreneurship at the University of Texas MD Anderson Cancer Center. He currently serves on the Advisory
Board of the California Technology Council.
Mr. Vito J. Mangiardi has served as a director of the Company since July 2012. Mr. Mangiardi is an accomplished senior executive with proven
experience as a President, CEO and COO in the Life Sciences and Bio-Energy product and service sectors. He is a strong P&L performer and
corporate strategist in General Management, Operations, Sales/Marketing, and Science. Mr. Mangiardi has held positions as a Research Chemist
for Bio-Rad Laboratories, Inc.; Sales & Marketing Director for Baxter Travenol, Inc.; Executive VP and COO for Quintiles Transnational Corp.;
President and CEO of Diagnostics Laboratories, Inc., Clingenix, Inc., and Bilcare, Inc.; and President of AAI Pharma, Inc. More recently he was
the COO/Deputy Director of Operations and Production at the University of California Lawrence Berkeley National Laboratory Joint Genome
Institute. Mr. Mangiardi has experience with three start-ups, two midsize, and several mature companies, and has international experience leading
and managing organizations on four continents. He has vast experience in leading alliances, acquisitions, due diligence, and post-acquisition
assimilation. Mr. Mangiardi has been on the Board of Directors of three companies and has proven success in working with both national and
international investment groups to raise funds. Mr. Mangiardi earned a BS in Biology/Chemistry from Eastern Illinois University and two MBA
degrees from Golden Gate University - in General Management and in Marketing. Mr. Mangiardi is listed as an inventor in four patents and
various publications in protein separation techniques in the area of metabolism, thyroid, anemia/hematology and cancer, and is a member of
numerous professional organizations. Mr. Mangiardi is the founding partner, President and CEO of Marin Bay Partners, LLC (MBP), a consulting
firm focused on life sciences, pharmaceutical development and clinical diagnostics.
Mr. Kevin A. Pollack has served as a director of the Company since July 2012. Mr. Pollack serves as an advisor to Opiant Pharmaceuticals, Inc.
(OPNT-NASDAQ), a specialty pharmaceutical company developing pharmacological treatments for substance use, addictive, and eating
disorders. He previously served as its Chief Financial Officer and as a member of its Board of Directors from 2012 until 2017. He also serves as
President of Short Hills Capital LLC, where he provides a range of services. Previously, Mr. Pollack worked in asset management at Paragon
Capital LP, focusing primarily on U.S.-listed companies, and as an investment banker at Banc of America Securities LLC, focusing on corporate
finance and mergers and acquisitions. Mr. Pollack started his career at Sidley Austin LLP (formerly Brown & Wood LLP) as a securities attorney
focusing on corporate finance, and mergers and acquisitions. He currently sits on the Board of Directors of MagneGas Corporation (MNGA-
NASDAQ), the developer of a technology that converts liquid waste into a hydrogen-based metal-working fuel and natural gas alternative. Mr.
Pollack graduated magna cum laude from the Wharton School of the University of Pennsylvania and received a dual J.D./M.B.A. from Vanderbilt
University, where he graduated with Beta Gamma Sigma honors.
Dr. Michael S. “Mickey” Urdea has served as a director of the Company since February 8, 2013. Dr. Urdea founded and is a Founder and Partner
for Halteres Associates, a biotechnology consulting firm. He also founded and served as Chief Executive Officer of Tethys Bioscience, a
proteomics-based diagnostics company involved in preventative personalized medicine. Additionally, Dr. Urdea is a founder and the Chairman of
Catalysis Foundation for Health, an organization addressing gaps in global healthcare caused by inefficiencies in disease diagnosis and
monitoring. He serves as an expert consultant to the life sciences industry and is on the scientific advisory boards and boards of directors of a
number of biotechnology, diagnostics, venture capital and philanthropic organizations. Prior to his current business activities, Dr. Urdea founded
the Nucleic Acid Diagnostics group at Chiron Corporation, and with colleagues, invented branched DNA molecules for amplification of signal in
nucleic acid complexes. Application of this technology resulted in the first commercial products for quantification of human hepatitis B, hepatitis
C, and human immunodeficiency viruses (HBV, HCV, and HIV, respectively). He then became business head of the Molecular Diagnostics
Group and Chief Scientific Officer at Bayer Diagnostics. He continues to serve as a diagnostics industry, product development and scientific
advisor to the Bill and Melinda Gates Foundation, acted as co-chair of two of the Grand Challenges grant review committees, and served as a
member of its Diagnostic Forum. Dr. Urdea is an author on nearly 200 peer-reviewed scientific publications, nearly 300 abstracts and
international scientific presentations, and more than 100 issued and pending patents. He received his BS in Biology and Chemistry from Northern
Arizona University in Flagstaff and his Ph.D in Biochemistry from Washington State University.
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Executive Officers
Our executive officers are appointed by, and serve at the discretion of, our board of directors. The following table sets forth information
about our executive officers.
Name
Richard T. Schumacher
Edmund Ting, Ph.D.
Nathan P. Lawrence, Ph.D.
Alexander Lazarev, Ph.D.
Joseph L. Damasio, Jr.
Age
67
64
63
53
43
Position
President, Chief Executive Officer, Treasurer, Clerk and Director
Senior Vice President of Engineering
Vice President of Marketing
Vice President of Research and Development
Vice President of Finance, Chief Financial Officer,
Mr. Richard T. Schumacher – Mr. Schumacher’s biography can be found under the Directors heading.
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., 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. has been our Vice President of Finance and Chief Financial Officer since April 2017. Mr. Damasio has over 20 years
of finance and accounting experience. Prior to joining PBI, Mr. Damasio was Finance Director at Nelipak Packaging, a private equity backed
medical packaging manufacturer with $130 million in global annual sales, from April 2016 to April 2017. Before joining Nelipak, between
November 2012 and April 2016, Mr. Damasio held various financial positions at CP Bourg, IQE KC, and Kopin Corporation. Prior to Kopin, Mr.
Damasio was employed by PBI, first as Accounting Manager (2007), then as Controller (2008), and finally as Vice President of Finance and
Administration (2011). Prior to joining PBI in 2007, Mr. Damasio was a senior accountant at BearingPoint, Inc. (formerly KPMG Consulting)
and an auditor at 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 and is a Certified Public Accountant in Massachusetts.
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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, 2017 were made on a timely basis with the exception of our officers, directors and greater than 10 percent beneficial owners listed in the table
below:
Name
Number of
Late Reports Number and Description of Transactions Not Reported on a Timely Basis
Richard T. Schumacher
Kevin A. Pollack
Michael S. Urdea
Edmund Ting
Code of Ethics
1
1
1
1
1 transaction was not reported on a timely basis following the acquisition of convertible
securities in the year ended December 31, 2017.
1 transaction was not reported on a timely basis following the acquisition of convertible
securities in the year ended December 31, 2017.
1 transaction was not reported on a timely basis following the acquisition of convertible
securities in the year ended December 31, 2017.
1 transaction was not reported on a timely basis following the acquisition of convertible
securities in the year ended December 31, 2017.
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.
Corporate Governance
Term of Office
Our directors are appointed for a three-year term to hold office until the annual general meeting of our shareholders or until removed
from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
Audit Committee
The Audit Committee was established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. Messrs. Pollack
(chairman), Mangiardi and Peterson are currently the members of the Audit Committee.
The Board of Directors has determined that Mr. Pollack qualifies as an “audit committee financial expert” as defined in Item 407(d)(5) of
Regulation S-K and is “independent” as defined by SEC and OTC Market rules.
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.
Compensation Committee
The Board of Directors has a Compensation Committee, consisting of Messrs. Peterson, Pollack and Mangiardi. The Compensation
Committee’s duties 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 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.
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Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers has, during the past ten years:
● been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor
offenses);
● had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business
association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to
that time;
● been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or
federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of
business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons
engaged in any such activity;
● been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended,
or vacated;
● been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently
reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation
of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance
companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or
temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or
fraud in connection with any business entity; or
● been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity
Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons
associated with a member.
Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or executive officers
has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed
pursuant to the rules and regulations of the Commission.
- 92 -
ITEM 11. EXECUTIVE COMPENSATION
Executive Officer Compensation
Summary Compensation Table
The Summary Compensation Table below sets forth the total compensation paid or earned for the fiscal years ended December 31, 2017 and 2016
for: (i) each individual serving as our chief executive officer (“CEO”) or acting in a similar capacity during any part of fiscal 2017; 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 2017.
Name and Principal Position
Fiscal
Year Salary(1) Bonus
Stock
Awards
Option
Awards(2)
Non-Qualified
Deferred
Compensation
Earning
All other
Compensation(3) Total
Richard T. Schumacher
President, CEO
2017 $ 300,583 $
2016 300,583
Edmund Ting, Ph.D
Senior Vice President of
Engineering
2017 207,480
2016 207,100
Alexander Lazarev, Ph.D
Vice President of
Research and Development
2017 173,880
2016 173,561
- $
-
-
-
-
-
- $ 142,285 $
-
-
-
-
31,303
-
-
-
28,457
-
- $
-
-
-
-
-
11,079 $ 453,947
40,832 349,795
1,227 240,010
1,261 208,361
7,739 210,076
7,736 181,297
(1) Salary refers to base salary compensation paid through our normal payroll process. No bonus was paid to any named executive officer for
2017 or 2016.
(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 accompanying Notes to Consolidated Financial Statements for the fiscal year ended December 31, 2017, for the
relevant assumptions used to determine the valuation of stock option grants.
(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
$8,379 in premiums we paid for a life insurance policy to which Mr. Schumacher’s wife is the beneficiary. In 2016, Mr. Schumacher received
$29,708 for unused earned time off. “All Other Compensation” for Dr. Lazarev includes $6,000 paid to Dr. Lazarev in lieu of his participation in
the medical benefit plan offered by the Company.
- 93 -
Outstanding Equity Awards at Fiscal Year End
The following table sets forth certain information regarding outstanding stock options awards for each of the Named Executive Officers as of
December 31, 2017.
Name
Richard T. Schumacher
President, CEO
Edmund Y. Ting, Ph.D
Senior Vice President of
Engineering
Alexander V. Lazarev, Ph.D
Vice President of Research &
Development
Option Awards
Number of
Securities
Underlying
Unexercised
Options
Exercisable
Number of
Securities
Underlying
Unexercised
Options
Unexercisable (1)
Option
Exercise
Price ($)
Option
Expiration
Date
2,500
500
1,000
2,500
10,000
27,778
6,250
400
1,400
500
584
1,800
6,667
2,889
1,375
334
1,167
500
500
1,500
5,000
2,556
1,250
$
-
$
-
$
-
$
-
-
$
13,889(2) $
18,750(3) $
-
$
$
-
$
-
$
-
$
-
-
$
1,445(2) $
4,125(3) $
-
$
$
-
$
-
$
-
$
-
$
-
1,278(2) $
3,750(3) $
18.00
30.00
18.00
12.00
9.00
12.00
8.40
30.00
18.00
30.00
18.00
12.00
9.00
12.00
8.40
30.00
18.00
30.00
18.00
12.00
9.00
12.00
8.40
3/12/2019
9/9/2021
3/13/2022
5/14/2023
9/24/2024
12/31/2025
3/16/2027
9/25/2018
3/12/2019
9/9/2021
3/13/2022
5/14/2023
9/24/2024
12/31/2025
3/16/2027
9/25/2018
3/12/2019
9/9/2021
3/13/2022
5/14/2023
9/24/2024
12/31/2025
3/16/2027
(1) All unvested stock options listed in this column were granted to the Named Executive Officer pursuant to our 2005 Equity Incentive Plan,
our 2013 Equity Incentive Plan, and our 2015 Non-Qualified Stock Option 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 December 31, 2015 to each of the Named Executive Officers, of which the
stock options will vest monthly from the date of grant over the three year vesting period.
(3) Options to purchase shares of common stock were granted on March 16, 2017 to each of the Named Executive Officers, of which the stock
options will vest monthly from the date of grant over the 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.
- 94 -
Severance Arrangements
Each of Mr. Schumacher, Dr. Ting, Dr. Lazarev, and Dr. Lawrence, executive officers of the Company, are 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.
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 equity incentive plans, 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 2017.
Name
Vito J. Mangiardi
Jeffrey N. Peterson
Kevin A. Pollack
Michael S. Urdea, Ph. D.
Fees Earned or
Paid in Cash ($) (1) Stock Awards ($) (1)
-
-
-
-
40,000
60,000
40,000
40,000
Option Awards ($)(2)
(3)
23,330
38,884
23,330
14,693
Total ($)
63,330
98,884
63,330
54,693
Our non-employee directors receive the following compensation for service as a director:
(1) Each director currently earns a quarterly stipend of $10,000 for attending meetings of the full board of directors (whether telephonic or in-
person) and attending committee meetings in 2017. Mr. Peterson currently earns $15,000 per quarter as chairman of the board of directors. There
is no limit to the number of board of directors or committee meetings 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 accompanying Notes to the Consolidated Financial Statements for the fiscal year ended December 31, 2017, 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, 2017 that have been issued as director
compensation.
Name
Vito J. Mangiardi
Jeffrey N. Peterson
Kevin A. Pollack
Michael S. Urdea, Ph. D.
Aggregate
Number of Stock
Options
Outstanding
13,102
22,578
13,102
10,185
- 95 -
Report from Compensation Committee
General
Messrs. Peterson, Pollack and Mangiardi 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 Securities
Exchange Act of 1934, 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 there under).
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 CEO, 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 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.
- 96 -
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 www.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 2017. The Compensation Committee is also authorized to delegate any of its
responsibilities to sub committees or individuals as it deems appropriate. The Compensation Committee did not delegate any of its responsibilities
in fiscal 2017.
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 March 15, 2018 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 1,357,079 shares of our
common stock issued and outstanding as of March 15, 2018. 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 March 15,
2018, 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 of Beneficial Owner
Richard T. Schumacher(1)
Jeffrey N. Peterson(2)
Kevin A. Pollack(3)
Michael S. Urdea(4)
Vito J. Mangiardi(5)
Edmund Y. Ting, Ph.D(6)
Alexander V. Lazarev, Ph.D(7)
All other officers
Amount and
Nature of
Beneficial Ownership
96,964
44,093
37,993
31,618
26,650
17,523
14,199
18,812
Percent of Class
6.83%
3.18%
2.75%
2.30%
1.94%
1.28%
1.04%
1.37%
All Executive Officers and Directors as a Group (8)
287,852
18.52%
- 97 -
1)
2)
3)
4)
5)
Includes (i) 57,936 shares of Common Stock issuable upon exercise of options; (ii) 2,620 shares of Common Stock issuable upon
conversion of Convertible Debentures; (iii) 1,191 shares of Common Stock issuable upon the exercise of warrants and (iv) 35,217 shares
of Common Stock. Does not include 672 shares of Common Stock held by Mr. Schumacher’s minor son as Mr. Schumacher’s wife
exercises all voting and investment control over such shares.
Includes (i) 22,578 shares of Common Stock issuable upon exercise of options; (ii) 5,500 shares of Common Stock issuable upon
conversion of Convertible Debentures; (iii) 2,500 shares of Common Stock issuable upon the exercise of warrants; and (iv) 13,515 shares
of Common Stock.
Includes (i) 13,102 shares of Common Stock issuable upon exercise of options; (ii) 6,112 shares of Common Stock issuable upon
conversion of Convertible Debentures; (iii) 2,778 shares of Common Stock issuable upon the exercise of warrants and (iv) 16,001 shares
of Common Stock.
Includes (i) 10,185 shares of Common Stock issuable upon exercise of options; (ii) 6,024 shares of Common Stock issuable upon
conversion of Convertible Debentures; and (iii) 2,739 shares of Common Stock issuable upon the exercise of warrants; and (iv) 12,670
shares of Common Stock.
Includes (i) 13,102 shares of Common Stock issuable upon exercise of options; (ii) 1,310 shares of Common Stock issuable upon
conversion of Convertible Debentures; and (iii) 596 shares of Common Stock issuable upon the exercise of warrants; and (iv) 11,642
shares of Common Stock.
6)
Includes (i) 16,708 shares of Common Stock issuable upon exercise of options and (ii) 815 shares of Common Stock.
7)
Includes (i) 13,789 shares of Common Stock issuable upon exercise of options and (ii) 410 shares of Common Stock.
8)
Includes (i) 165,448 shares of Common Stock issuable upon exercise of options; (ii) 21,566 shares of Common Stock issuable upon
conversion of Convertible Debentures; (iii) 9,804 shares of Common Stock issuable upon the exercise of warrants and (iv) 91,034 shares
of Common Stock.
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, 2017 regarding the shares of
our common stock available for grant or granted under our equity compensation plans.
Plan Category
Equity compensation plan approved by security holders - 2005
Equity Incentive Plan
Equity compensation plan approved by security holders - 2013
Equity Incentive Plan
Equity compensation plan adopted by the Board of Directors -
2015 Non-Qualified Stock Option Plan
Number of
securities to be
issued upon
exercise of
outstanding
options
Weighted-average
exercise price of
outstanding
options
Number of
securities
available for
future issuance
under equity
compensation plans
35,274 $
82,481 $
129,937 $
17.38
9.38
10.19
0
2,917,519
4,870,063
- 98 -
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; AND DIRECTOR INDEPENDENCE.
The following is a summary of transactions since January 1, 2016 to which we have been or will be a party in which the amount involved
exceeded or will exceed $19,700 (one percent of the average of our total assets at year-end for our last two completed fiscal years) and in which
any of our directors, executive officers or beneficial holders of more than 5% of any class of our capital stock, or any immediate family member
of, or person sharing a household with, any of these individuals, had or will have a direct or indirect material interest, other than compensation
arrangements that are described under the section captioned “Executive compensation.”
During the year ended December 31, 2016, we received advances from certain officers of ours amounting to $20,000 and we repaid the loans.
These advances were non-interest bearing and were payable on demand.
On March 10, 2016, a relative of Mr. Schumacher invested $50,000 into the Company’s 2015/2016 convertible debenture financing. The loan
remains outstanding. The Holder was paid a 10% original investment discount (“OID”) for the first year, and will earn 10% annual interest during
the second year. The loan can be converted into common stock at any time by the Holder, at a fixed price of $0.28 per share. The loan is due two
years after the loan origination date.
On March 23, 2016, Mr. Pollack invested $46,549 into the Company’s 2015/2016 convertible debenture financing. The loan remains
outstanding. The Holder was paid a 10% original investment discount (“OID”) for the first year, and will earn 10% annual interest during the
second year. The loan can be converted into common stock at any time by the Holder, at a fixed price of $0.28 per share. The loan is due two
years after the loan origination date.
On March 31, 2016, Mr. Peterson invested $42,000 into the Company’s 2015/2016 convertible debenture financing. The loan remains
outstanding. The Holder was paid a 10% original investment discount (“OID”) for the first year, and will earn 10% annual interest during the
second year. The loan can be converted into common stock at any time by the Holder, at a fixed price of $0.28 per share. The loan is due two
years after the loan origination date.
On March 31, 2016, Mr. Mangiardi invested $10,000 into the Company’s 2015/2016 convertible debenture financing. The loan remains
outstanding. The Holder was paid a 10% original investment discount (“OID”) for the first year, and will earn 10% annual interest during the
second year. The loan can be converted into common stock at any time by the Holder, at a fixed price of $0.28 per share. The loan is due two
years after the loan origination date.
On March 31, 2016, Mr. Schumacher invested $20,000 into the Company’s 2015/2016 convertible debenture financing. The loan remains
outstanding. The loan was paid a 10% original investment discount (“OID”) for the first year, and will earn 10% annual interest during the second
year. The loan can be converted into common stock at any time by the Holder, at a fixed price of $0.28 per share. The loan is due two years after
the loan origination date.
On March 31, 2016, a relative of Mr. Schumacher invested $30,000 into the Company’s 2015/2016 convertible debenture financing. The loan
remains outstanding. The loan was paid a 10% original investment discount (“OID”) for the first year, and will earn 10% annual interest during
the second year. The loan can be converted into common stock at any time by the Holder, at a fixed price of $0.28 per share. The loan is due two
years after the loan origination date.
On March 31, 2016, Dr. Urdea invested $46,000 into the Company’s 2015/2016 convertible debenture financing. The loan remains
outstanding. The loan was paid a 10% original investment discount (“OID”) for the first year, and will earn 10% annual interest during the second
year. The loan can be converted into common stock at any time by the Holder, at a fixed price of $0.28 per share. The loan is due two years after
the loan origination date.
- 99 -
In March 2010, we signed a strategic product licensing, manufacturing, co-marketing, and collaborative research and development agreement
with 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 respective 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 did not incur any royalty obligation under this agreement in 2017 or 2016. We executed an amendment to this agreement on October
1, 2016 wherein we agreed to pay a monthly fee of $1,400 for the use of a lab bench, shared space and other utilities, and $2,000 per day for
technical support services as needed. Mr. Jeffrey N. Peterson, the chief executive officer of TDI, has served as a director of the Company since
July 2011 and as Chairman of the Board starting in 2012.
Board Independence
Our board of directors has reviewed the qualifications of each of Messrs. Peterson, Mangiardi, Pollack, and Dr. Urdea 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 OTC Markets. 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”).
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The Audit Committee appointed MaloneBailey LLP, an independent registered public accounting firm, to audit the Company’s consolidated
financial statements for the fiscal year ended December 31, 2017.
Independent Registered Public Accounting Fees
The following is a summary of the fees billed to the Company by MaloneBailey LLP, the Company’s independent registered public
accounting firm, respectively for the fiscal year ended December 31, 2017 and 2016:
Audit Fees
Audit-Related Fees
Tax and Other Fees
Fiscal 2017 Fees
Fiscal 2016 Fees
$
$
118,549 $
-
-
118,549 $
107,156
-
-
107,156
Audit Fees. Consists of fees billed for professional services performed for the audit of our annual financial statements, the review of interim
financial statements, and related services that are normally provided in connection with registration statements, including the registration
statement for our public offering. Included in the 2017 Audit Fees is an aggregate of $26,500 of fees billed in connection with our public offering.
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.”
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.
- 100 -
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit
Number
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12
3.13
4.1
Exhibit Description
Restated Articles of Organization of the Company.
Articles of Amendment to Restated Articles of the
Organization of the Company
Articles of Amendment to Restated Articles of the
Organization of the Company
Articles of Amendment to Restated Articles of the
Organization of the Company
Articles of Amendment to Restated Articles of the
Organization of the Company
Articles of Amendment to Restated Articles of the
Organization of the Company
Articles of Amendment to Restated Articles of the
Organization of the Company
Articles of Amendment to Restated Articles of the
Organization of the Company
Articles of Amendment to Restated Articles of the
Organization of the Company
Articles of Amendment to Restated Articles of the
Organization of the Company
Articles of Amendment to Restated Articles of the
Organization of the Company
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
- 101 -
Incorporated by Reference
Form Exhibit
S-1
10-Q
3.1
3.1
Filing Date
10/08/1996
11/23/2004
Filed or
Furnished
Herewith
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
S-1
10-K
10-KSB
3.1
3.1
3.1
3.1
3.1
3.1
3.1
3.1
3.1
3.2
3.3
4.1
02/18/2009
04/12/2011
11/10/2011
01/04/2013
02/13/2013
12/12/2013
02/05/2014
12/31/2014
07/28/2015
10/08/1996
3/31/2003
04/22/2005
Incorporated by Reference
Form Exhibit
8-K
8-K
8-K
10-K
4.1
4.2
4.1
10.11
Filing Date
07/28/2015
07/28/2015
4/24/2017
03/27/2008
10-K
10.12
03/27/2008
10-K
10.13
03/27/2008
8-K
8-K
8-K
S-8
8-K
10-K
10-K
10-K
S-8
10-K
10-Q
8-K
8-K
10-Q
10-Q
8-K
8-K
8-K
10.1
10.2
10.1
99.1
10.1
10.5
10.6
10.7
4.1
10.13
10.1
10.1
10.2
10.1
10.2
10.1
10.2
10.1
07/28/2015
07/28/2015
11/03/2016
09/26/2005
09/29/2008
03/27/2008
03/27/2008
03/27/2008
04/24/2015
03/22/2017
11/14/2016
04/24/2017
04/24/2017
05/15/2017
05/15/2017
05/26/2017
05/26/2017
12/18/2017
Filed or
Furnished
Herewith
X
X
X
X
X
X
X
Exhibit
Number
4.2
4.3
4.4
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
10.18
10.19
10.20
10.21
10.22
21.1
23.1
31.1
31.2
32.1
32.2
Exhibit Description
Form of Debenture
Form of Warrant
Form of Debenture
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.
Subscription Agreement
Security Agreement
Promissory Note, dated October 26, 2016
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*
2013 Equity Incentive Plan.*
2015 Nonqualified Stock Option Plan.*
Securities Purchase Agreement
Securities Purchase Agreement, dated March 14, 2017
Letter Agreement, dated April 19, 2017
Amendment to the July 1, 2016 $200,000 Convertible Note
between Vision Capital and Pressure BioSciences, Inc.
Securities Purchase Agreement dated March 14, 2017
Amendment Number 1 to October 26 Promissory Note, dated
May 2, 2017
Promissory Note, dated May 19, 2017
Asset Purchase Agreement between Pressure BioSciences,
Inc. and BaroFold, Inc., dated December 12, 2017.
Amendment Number 2 to October 26 Promissory Note, dated
May 2, 2017
List of Subsidiaries
Consent of Independent Registered Public Accounting Firm
(Malone Bailey LLP)
Principal Executive 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 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.**
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.**
*Management contract or compensatory plan or arrangement.
**In accordance with SEC Release 33-8238, Exhibit 32.1 is furnished and not filed.
- 102 -
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.
Date: April 2, 2018
Pressure BioSciences, Inc.
SIGNATURES
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
Capacity
/s/ Richard T. Schumacher
Richard T. Schumacher
President, Chief Executive Officer, Treasurer, Clerk and Director
(Principal Executive Officer)
Date
April 2, 2018
April 2, 2018
/s/ Joseph L. Damasio
Joseph L. Damasio
/s/ Jeffrey N. Peterson
Jeffrey N. Peterson
/s/ Mickey Urdea
Michael S.Urdea, Ph.D.
/s/ Vito Mangiardi
Vito J. Mangiardi
/s/ Kevin Pollack
Kevin A. Pollack
Chief Financial Officer
(Principal Financial Officer)
Chairman of the Board of Directors
April 2, 2018
Director
Director
Director
- 103 -
April 2, 2018
April 2, 2018
April 2, 2018
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS PROMISSORY NOTE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B)
AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT
TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.
PRESSURE BIOSCIENCES, INC.
AMENDMENT NUMBER 2 TO OCTOBER 26, 2016 PROMISSORY NOTE
Original Principal: US$2,000,000
Original Issue Date: October 26, 2016
Amendment No. 1
Principal: US$3,000,000
Amendment No. 2
Principal: US$3,500,000
Amendment No. 1 Issue Date: May 2, 2017
Amendment No. 2 Issue Date: August 18, 2017
WHEREAS, PRESSURE BIOSCIENCES, INC., a corporation incorporated under the laws of the Commonwealth of
Massachusetts and located at 14 Norfolk Avenue, South Easton, MA 02375 (the “ Company”) previously issued a Promissory Note (the
“Original Note”) on October 26, 2016 (the “Original Issue Date”), in favor of XXXXX, an individual residing at 175 West Jackson Blvd,
Suite 400, Chicago, IL 60091 (the “Holder”) for the principal sum of Two Million United States Dollars (US$2,000,000);
WHEREAS, the Company and the Holder amended the Original Note on May 2, 2017 (the “Amendment Number 1 Issue Date”),
to, among other amendments, increase the principal sum to Three Million United States Dollars (US$3,000,000) (“Amendment Number
1”); and
WHEREAS, the Company and the Holder wish to again amend the Original Note with such amendment having an issue date of
August 18, 2017 (this “Amendment Number 2”), the Original Note having the Original Issue Date, and Amendment Number 1 having the
Amendment Number 1 Issue Date.
NOW, THEREFORE, in consideration of, among other things, the premises, representations, respective covenants and
agreements contained herein, each party hereby agrees to the following:
1. Capitalized terms used, but not defined, herein, shall have the meanings ascribed to such terms in the Original Note as amended
by Amendment Number 1.
2. The definition of Principal Amount in the Original Note as amended by Amendment Number 1 is changed to Three Million
Five Hundred United States Dollars (US$3,500,000).
3. All other terms and conditions of the Original Note as amended by Amendment Number 1 shall remain in full force and effect.
4. This Amendment Number 2 may be executed in any number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one
and the same instrument. This Amendment Number 2 may be executed by facsimile transmission, PDF, electronic signature or
other similar electronic means with the same force and effect as if such signature page were an original thereof.
[Signature page follows]
IN WITNESS WHEREOF, this Amendment Number 2 has been executed and delivered on the Amendment No. 2 Issue Date
specified above.
COMPANY:
PRESSURE BIOSCIENCES, INC.
Richard T. Schumacher
President and CEO
By:
Name:
Title:
HOLDER:
XXXXXX
[signature page to Amendment Number 2]
Pressure BioSciences, Inc. – Subsidiaries
PBI BioSeq, Inc. (U.S.A.)
Pressure BioSciences Europe (Poland)
EXHIBIT 21.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-30320, 333-24749, 333-128594,
333-155405 and 333-203609) of our report dated April 2, 2018, with respect to the audited consolidated financial statements of Pressure
BioSciences, Inc., which is included in this Annual Report on Form 10-K as of and for the year ended December 31, 2017. Our report
contains an explanatory paragraph regarding the Company’s ability to continue as a going concern.
EXHIBIT 23.1
/s/ Malone Bailey LLP
www.malonebailey.com
Houston, Texas
April 2, 2018
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: April 2, 2018
/s/ Richard T. Schumacher
By:
Name: Richard T. Schumacher
Title:
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.2
I, Joseph L. Damasio, 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: April 2, 2018
/s/ Joseph L. Damasio
By:
Name: Joseph L. Damasio
Title: Chief Financial Officer
(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, 2017 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: April 2, 2018
/s/ Richard T. Schumacher
Richard T. Schumacher
President and Chief Executive Officer
(Principal Executive 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.
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 32.2
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, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Joseph L.
Damasio, Chief Financial 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: April 2, 2018
/s/ Joseph L. Damasio
Joseph L. Damasio
Chief Financial Officer
(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.