PRESSURE BIOSCIENCES INC - Quarter Report: 2009 September (Form 10-Q)

PRESSURE BIOSCIENCES, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Massachusetts		04-2652826
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

14 Norfolk Avenue
South Easton, Massachusetts	02375
(Address of Principal Executive Offices)	(Zip Code)

(508) 230-1828

(Registrant’s Telephone Number, Including Area Code)

 

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.

 

x Yes       ¨ 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act).

 

¨ Yes      x No

 

 

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Item 1. Financial Statements    

 

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

		September 30,				December 31,
		2009				2008
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	1,374,947			$	868,208
Restricted cash			20,011				50,000
Accounts receivable			216,622				209,117
Inventories			735,235				571,831
Deposits			13,872				382,236
Prepaid income taxes			3,176				6,600
Prepaid expenses and other current assets			59,497				235,111
Total current assets			2,423,360				2,323,103
PROPERTY AND EQUIPMENT, NET			231,489				252,249
OTHER ASSETS
Intangible assets, net			243,184				279,658
TOTAL ASSETS		$	2,898,033			$	2,855,010
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable		$	137,068			$	263,486
Accrued employee compensation			118,675				161,374
Accrued professional fees and other			300,483				278,982
Deferred revenue			144,170				16,705
Total current liabilities			700,396				720,547
LONG TERM LIABILITIES
Deferred revenue			2,759				10,821
TOTAL LIABILITIES			703,155				731,368
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 1,000,000 shares authorized; 156,980 shares issued and outstanding on September 30, 2009 and 0 shares on December 31, 2008			1,570				-
Common stock, $.01 par value; 20,000,000 shares authorized; 2,195,283 shares issued and outstanding on September 30, 2009 and on December 31, 2008			21,953				21,953
Warrants to acquire preferred stock and common stock			882,253				-
Additional paid-in capital			8,328,872				6,803,530
Accumulated deficit			(7,039,770	)			(4,701,841	)
Total stockholders' equity			2,194,878				2,123,642
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	2,898,033			$	2,855,010

The accompanying notes are an integral part of these consolidated financial statements

 

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Net cash provided by financing activities for the nine months ended September 30, 2009 was $1,567,923.  On February 12, 2009, we completed a private placement, pursuant to which we sold an aggregate of 156,980 units for a purchase price of $11.50 per unit (the “Purchase Price”), resulting in gross proceeds to us of $1,805,270 (the “Private Placement”).  Each unit consists of  (i) one share of a newly created series of preferred stock, designated “Series A Convertible Preferred Stock,” par value $0.01 per share (the “Series A Convertible Preferred Stock”) convertible into 10 shares of our common stock, (ii) a warrant to purchase, at the purchaser’s election to be made within 7 days of the closing, either 10 shares of our common stock, at an exercise price equal to $1.25 per share, with a term expiring 15 months after the date of closing (“15 Month Common Stock Warrant”), or one share of Series A Convertible Preferred Stock at an exercise price equal to $12.50 per share, with a term expiring 15 months after the date of closing (“15 Month Preferred Stock Warrant”) (all of the purchasers elected the 15 Month Preferred Stock Warrants); and (iii) a warrant to purchase 10 shares of common stock at an exercise price equal to $2.00 per share, with a term expiring 30 months after the date of closing (the “30 Month Common Stock Warrants”).  The expenses related to the offering totaled approximately $233,000.

Net cash provided by financing activities for the nine months ended September 30, 2008 was due to an exercise of employee stock options to purchase 3,000 shares of our common stock.

 

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COMMITMENTS AND CONTINGENCIES

 

Operating Leases

Our corporate offices are currently located at 14 Norfolk Avenue, South Easton, Massachusetts 02375.  In November 2007, we signed an 18 month lease agreement commencing in February 2008 pursuant to which we leased approximately 5,500 square feet of office space, with an option for an additional 12 months.  We exercised the renewal option to extend the lease term until July 14, 2010.  We pay approximately $6,500 per month for the use of these facilities.

In connection with the reduction of staff levels and consolidation of operations in Rockville, MD and Woburn, MA, the Company moved its research and development activities within Massachusetts.

Royalty Commitments

In 1996, we acquired our initial equity interest in BioSeq, Inc., which at the time was developing our original pressure cycling technology.  BioSeq, Inc. acquired its pressure cycling technology from BioMolecular Assays, Inc. (“BMA”) under a technology transfer and patent assignment agreement.  In 1998, we purchased all of the remaining outstanding capital stock of BioSeq, Inc., and at such time, the technology transfer and patent assignment agreement was amended to require us to pay BMA a 5% royalty on sales of products or services that incorporate or utilize the original pressure cycling technology that BioSeq, Inc. acquired from BMA.  We are also required to pay BMA 5% of the proceeds from any sale, transfer, or license of all or any portion of the original pressure cycling technology.  These payment obligations terminate in 2016.  During the three months ended September 30, 2009 and 2008, we incurred $8,336 and $10,236, respectively in royalty expense associated with our obligation to BMA.  During the nine months ended September 30, 2009 and 2008, we incurred $23,339 and $18,687, respectively in royalty expense associated with our obligation to BMA.

In connection with our acquisition of BioSeq, Inc., we licensed certain limited rights to the original pressure cycling technology back to BMA.   This license is non-exclusive and limits the use of the original pressure cycling technology by BMA solely for molecular applications in scientific research and development and in scientific plant research and development.  BMA is required to pay us a royalty equal to 20% of any license or other fees and royalties, but not including research support and similar payments, it receives in connection with any sale, assignment, license or other transfer of any rights granted to BMA under the license.  BMA must pay us these royalties until the expiration of the patents held by BioSeq, Inc. in 1998, which we anticipate will be in 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.  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.

Severance and Change of Control Agreements

Each of our executive officers is entitled to receive a severance payment if terminated by the Company without cause. The severance benefits would include a payment in an amount equal to one year of each executive officer’s annualized base salary compensation plus accrued paid time off. Additionally, each executive officer will be entitled to receive medical and dental insurance coverage for one year following the date of termination. The total commitment related to these agreements in the aggregate is approximately $1.0 million.

 

Each of our executive officers, other than Mr. Richard T. Schumacher, our President and Chief Executive Officer, 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 total commitment related to these agreements in the aggregate is approximately $1.3 million. The severance payment is meant to induce the executive to become an employee of the Company and to remain in the employ of the Company, in general, and particularly in the occurrence of a change in control.

 

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RECENT ACCOUNTING STANDARDS

In June 2009, the FASB issued FASB ASC 105, Generally Accepted Accounting Principles, which establishes the FASB Accounting Standards Codification as the sole source of authoritative generally accepted accounting principles.  Pursuant to the provisions of FASB ASC 105, the Company has updated references to GAAP in its financial statements issued for the period ended September 30, 2009.  The adoption of FASB ASC 105 did not impact the Company’s financial position or results of operations.

On January 1, 2008, the Company adopted FASB ASC 820, Fair Value Measurements and Disclosures.  FASB ASC 820 defines fair value, establishes a framework for measuring the fair value of assets and liabilities, and expands disclosure requirements regarding the fair value measurement.  FASB ASC 820 does not expand the use of fair value measurements.  This statement, as issued, is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.  There was no significant effect on our financial statements.  We do not believe that the adoption of FASB ASC 820 to non-financial assets and liabilities will significantly affect our financial statements.

In December 2007, the FASB issued FASB ASC 805, Business Combinations and FASB ASC 810, Consolidations.

FASB ASC 805 significantly changes the accounting for business combinations. Under FASB ASC 805, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date at fair value with limited exceptions.  FASB ASC 805 further changes the accounting treatment for certain specific items, including:

 

-

Acquisition costs will be generally expensed as incurred;

 

-

Non-controlling interests (formerly known as “minority interests” – see FASB ASC 810 discussion below) will be valued at fair value at the acquisition date;

 

-

Acquired contingent liabilities will be recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies;

 

-

In-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date;

 

-

Restructuring costs associated with a business combination will be generally expensed subsequent to the acquisition date; and

 

-

Changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense.

 

In April 2008, the FASB issued FASB ASC 350-30, Intangibles Other Than Goodwill which requires that an entity consider its own historical experience in renewing similar arrangements, or a consideration of market participant assumptions in the absence of historical experience.  FASB ASC 350-30 also requires entities to disclose information that enables users of financial statements to assess the extent to which the expected future cash flows associated with the asset are affected by the entity’s intent and/or ability to renew or extend the arrangement. We have adopted FASB ASC 350-30.  The adoption of this statement does not have any impact to our financial statements.

FASB ASC 810 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of non-controlling interests (minority interests) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to non-controlling interests will be included in consolidated net income on the face of the income statement.  FASB ASC 810 clarifies that changes in a parent’s ownership interest in a subsidiary that does not result in deconsolidation are treated as equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the non-controlling equity investment on the deconsolidation date. FASB ASC 810 also includes expanded disclosure requirements regarding the interests of the parent and its non-controlling interest.

We have adopted FASB ASC 810 and the statement does not have a material affect on our consolidated results of operations and financial condition.

 

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In March 2008, the FASB issued FASB ASC 815, Derivatives and Hedging, which requires additional disclosures about the objectives of derivative instruments and hedging activities, the method of accounting for such instruments under FASB ASC 815 and its related interpretations, and a tabular disclosure of the effects of such instruments and related hedged items on our financial position, financial performance, and cash flows. We adopted FASB ASC 815 and our adoption of FASB ASC 815 did not have a material impact on our financial statements.

On June 30, 2009, the Company adopted FASB ASC 855, Subsequent Events, which requires disclosure of the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements.  The adoption of FASB ASC 855 did not have a material impact on our financial statements.

 

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ITEM 4T. 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 September 30, 2009, 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 are effective at the reasonable assurance level.

There have been no changes in our internal controls over financial reporting that occurred during the period covered by this Report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  

On July 9, 2009, we held a Special Meeting in Lieu of Annual Meeting of Stockholders (the “Meeting”).  At the Meeting, the stockholders elected two Class I directors to hold office until the 2012 Annual Meeting of Stockholders and until their successors are duly elected and qualified.  The remaining members of the Board of Directors whose terms continued after the meeting are J. Donald Payne, P. Thomas Vogel, and Richard T. Schumacher.  At the meeting, a total of 1,692,155 shares or 77% of the Common Stock issued and outstanding as of the record date, were represented in person or by proxy.  The voting results with respect to the election of the directors were as follows:

Name of Nominee		For				Withheld				Abstain
Calvin A. Saravis			1,650,849				41,306				0
R. Wayne Fritzsche			1,517,450				174,705				0

 

Exhibits				Reference
31.1		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		Filed herewith
31.2		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		Filed herewith
32.1		Principal Executive 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		Filed herewith
32.2		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		Filed herewith

 

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