PRESSURE
BIOSCIENCES, INC., AND SUBSIDIARIES
(FORMERLY
BOSTON BIOMEDICA INC. AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2005
As
a
result of the above transactions, the unaudited consolidated financial
statements included herein, and the accompanying notes to such consolidated
financial statements, report the results of the Company’s remaining operations,
which consist of all pressure cycling technology ( PCT) related activities,
including the PCT related activities of PBI Source, PBI BioSeq, and the portion
of corporate activities directly associated with the Company’s remaining
corporate functions including costs associated with being a public
company. As described above, operating results of PBI Source, excluding
any PCT related activities, together with Source Scientific, LLC are reported
as
“Other operating charges, net” hereunder. The operating results of the Company’s
PBI Diagnostics and PBI Biotech divisions, together with the results of the
discontinued operations of the Company’s clinical laboratory testing services
segment (sold in February 2001) are reported as “Discontinued Operations”
hereunder. Certain amounts included in the prior period’s financial
statements have been reclassified to conform to the current period’s
presentation. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Use
of Estimates
To
prepare the unaudited consolidated financial statements in conformity with
accounting principles generally accepted in the United States, management
is
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 unaudited consolidated financial statements
and
the reported amounts of revenues and expenses during the reporting period.
In
addition, significant estimates were made in estimating future cash flows
to
quantify impairment of assets, in estimates regarding the realizability of
loans
(plus accrued interest) made to a director/Chief Executive Officer including
sufficiency of collateral, deferred tax assets, the net realizable value
of the
Company’s inventory, as well as an estimate for remaining liabilities associated
with discontinued operations.
On an
on-going basis, the Company evaluates its estimates. The Company bases its
estimates on historical experience and on various other assumptions that
are
believed 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 by management.
Cash
and Cash Equivalents
As
of
September 30, 2005, the Company had $6,090,097 invested in US Treasury money
market funds and certificates of deposits which were in increments of less
than
$100,000 and insured under the FDIC.
The
Company’s policy is to invest available cash in short-term, investment grade,
interest-bearing obligations, including money market funds and certificates
of
deposit. Investments purchased with initial maturities of three months or
less are valued at cost plus accrued interest, which approximates fair market
value.
The
Company’s restricted cash of $163,296 consisted of payments from customers of
its former business units who inadvertently remitted payments to the Company
in
error. The cash is deposited in the Company’s lockbox system, analyzed, and
where appropriate, remitted to SeraCare in a timely fashion. The balances
reflected are those affected by timing of funds transferred to SeraCare.
At the
time the cash is classified as restricted, a corresponding liability is
established to have no effect on net assets of the Company.
Investment
in Marketable Securities
The
Company’s investment in marketable securities reflects its holdings of common
stock of Panacos Pharmaceuticals Inc. (formerly V.I. Technologies (“Vitex”)), a
publicly traded company listed on the Nasdaq National Market. The Company
held shares in Panacos Pharmaceuticals Inc. (Panacos), a private company
prior
to its merger with Vitex in March 2005, and this investment was reflected
on a
cost basis as presented on the December 31, 2004 financial statements. As
a result of Vitex’s merger with Panacos Pharmaceuticals in March 2005, and the
Company’s subsequent receipt of shares of Vitex common stock in exchange for all
of its shares of Panacos, the Company’s investment commencing with the first
quarter of fiscal 2005 has been accounted for under SFAS 115 “Accounting for
Certain Investments in Debt and Equity Securities”, as available for sale. At
September 30, 2005 the fair value of the Company’s remaining shares of Panacos
common stock was approximately $6.7 million based on the closing price of
$9.74
per share of Panacos common stock as reported on the Nasdaq National Market
on
September 30, 2005 (See Note 11).
Stock-Based
Compensation
PRESSURE
BIOSCIENCES, INC., AND SUBSIDIARIES
(FORMERLY
BOSTON BIOMEDICA INC. AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2005
The
Company has elected to follow Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” (APB 25) and related
interpretations in accounting for its employee stock options. Under APB 25,
the intrinsic value method is used to account for stock options granted
to
employees. The Company has adopted the disclosure-only provisions of Statement
of Financial Accounting Standards No. 123, “Accounting for Stock-Based
Compensation” (SFAS 123).
As
the
Company accounts for its plans under the recognition and measurement principles
of APB 25, “Accounting for Stock Issued to Employees,” and related
interpretations, no compensation cost has been recognized under SFAS 123
because
the exercise price of employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is
recorded. SFAS 123 was amended by SFAS 148 “Accounting for Stock-Based
Compensation- Transition and Disclosure”, which requires companies to disclose
in interim financial statements the pro forma effect on net income per common
share of the estimated fair market value of stock options or warrants issued
to
employees. Had compensation cost for awards under those plans been determined
based on the grant date fair values, consistent with the method required
under
SFAS 123, the Company’s net income and net income per share would have been
impacted by the pro forma amounts indicated below:
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
September
30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
Net
income - as reported
|
|
$
|
2,007,328
|
|
$
|
14,764,743
|
|
$
|
875,361
|
|
$
|
14,259,931
|
|
Add
back: Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
net income, as reported
|
|
|
-
|
|
|
281,737
|
|
|
-
|
|
|
281,737
|
|
Deduct:
Stock-based employee compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense
determined under fair value based method
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
all awards, net of related tax effects
|
|
|
(29,785
|
)
|
|
(281,994
|
)
|
|
(117,293
|
)
|
|
(355,996
|
)
|
Net
Income - pro forma
|
|
$
|
1,977,543
|
|
$
|
14,764,486
|
|
$
|
758,068
|
|
$
|
14,185,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share - as reported
|
|
$
|
0.83
|
|
$
|
2.15
|
|
$
|
0.28
|
|
$
|
2.08
|
|
Basic
net income per share - pro forma
|
|
$
|
0.82
|
|
$
|
2.15
|
|
$
|
0.24
|
|
$
|
2.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share - as reported
|
|
$
|
0.79
|
|
$
|
2.15
|
|
$
|
0.27
|
|
$
|
2.08
|
|
Diluted
net income per share - pro forma
|
|
$
|
0.78
|
|
$
|
2.15
|
|
$
|
0.24
|
|
$
|
2.07
|
|
On
June
16, 2005, the Company’s stockholders approved the Company’s 2005 Equity
Incentive Plan (the “Plan”), pursuant to which an aggregate of 1,000,000 shares
of common stock of the Company are reserved for issuance upon exercise of
stock
options or other equity awards made under the Plan. Under the Plan, the Company
may award stock options, stock issuances and other equity interests in the
Company to employees, officers, directors, consultants and advisors of the
Company and its subsidiaries and to any other persons the Board of Directors
determines to have made or is expected to make contributions to the Company.
Since approval of the Plan, 360,000 options have been granted under the
Plan.
Correction
of Error
In
May
2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections”,
which replaces APB 20, “Accounting Changes”, and SFAS 3, “Reporting Accounting
Changes in Interim Financial Statements - An Amendment of APB Opinion No.
28”.
SFAS 154 provides guidance on the accounting for and the reporting of accounting
changes and error corrections. It establishes retrospective application,
or the
latest practicable date, as the required method for reporting a change in
accounting principle and the reporting of a correction of an error. SFAS
154 is
the required method for reporting a change in accounting principle and the
reporting of a correction of an error. The Company has adopted SFAS 154 to
correct an error made during the quarter ended September 30, 2005 and discovered
during the quarter ended March 31, 2006.
PRESSURE
BIOSCIENCES, INC., AND SUBSIDIARIES
(FORMERLY
BOSTON BIOMEDICA INC. AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2005
On
March
15, 2006, the Company received $1,094,162 from Wells Fargo Corporate Trust
Escrow Services, representing the remaining principal and interest held in
escrow from the 2004 sale of the assets and certain liabilities of the BBI
Core
Businesses to SeraCare Life Sciences Inc., (“SeraCare”). The receipt of these
funds triggered the recognition of taxable income, accounted for as an
installment sale for federal income tax purposes. During the financial statement
closing process for the quarter ended March 31, 2006, management determined
that
a deferred tax liability of approximately $220,000 should have been established
during the quarter ended September 30, 2005, the period in which the
Company filed its federal income tax return. It was also determined
that the Company’s deferred tax liability in connection with the unrealized gain
on Panacos Pharmaceuticals, Inc., should be reduced by approximately
$123,000.
For
the
nine months ended September 30, 2005, the impact to basic and diluted earnings
per share from discontinued operations was a decrease from $0.30 to $0.23
and
from $0.30 to $0.22, respectively. For the three months ended September 30,
2005, the impact to basic and diluted earnings per share from discontinued
operations was a decrease from $0.38 to $0.29 and from $0.36 to $0.27,
respectively.
(2)
Recent
Accounting Standards
In
December 2004, the Financial Accounting Standards Board (FASB) issued a revision
of Statement of Financial Accounting Standards No. 123, “Accounting for
Stock-Based Compensation” (SFAS 123R). SFAS 123R supersedes APB Opinion No. 25,
“Accounting for Stock Issued to Employees,” and its related implementation
guidance and eliminates the alternative to use Opinion 25’s intrinsic value
method of accounting that was provided in Statement 123 as originally issued.
Under Opinion 25, issuing stock options to employees generally resulted in
recognition of no compensation cost. SFAS 123(R) requires all entities recognize
compensation expense in an amount equal to the fair value of share-based
payments (e.g. stock options and restricted stock) granted to employees.
This
applies to all transactions involving the issuance of our own equity in exchange
for goods or services, including employee services. Upon adoption of SFAS
123(R), all stock option awards to employees will be recognized as expense
in
the income statement, typically over any related vesting period. SFAS 123(R)
carried forward the guidance from SFAS 123 for payment transactions with
non-employees. The Securities and Exchange Commission amended the compliance
date on April 14, 2005, to require public companies to adopt the standard
as of the beginning of the first annual period that begins after June 15,
2005. We will, therefore, be required to adopt SFAS 123(R) in the first quarter
of 2006.
SFAS
123(R) permits public companies to adopt its requirements using one of two
methods:
|
1. |
Modified
Prospective Method under which compensation cost is recognized
beginning
with the effective date (a) based on the requirements of SFAS 123(R)
for all share-based payments granted after the effective date and
(b) based on the requirements of SFAS 123 for all awards granted to
employees prior to the effective date of SFAS 123(R) that remain
unvested
on the effective date.
|
|
2. |
Modified
Retrospective Method which includes the requirements of the modified
prospective method described above, but also permits entities to
restate
based on the amounts previously recognized under SFAS 123 for purposes
of
pro forma disclosures either (a) all prior periods presented or
(b) prior interim periods of the year of
adoption.
|
At
this
time, we have not determined which method of adoption we will use.
In
May
2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections”,
which replaces APB 20, “Accounting Changes”, and SFAS 3, “Reporting Accounting
Changes in Interim Financial Statements - An Amendment of APB Opinion No.
28”.
SFAS 154 provides guidance on the accounting for and the reporting of accounting
changes and error corrections. It establishes retrospective application,
or the
latest practicable date, as the required method for reporting a change in
accounting principle and the reporting of a correction of an error. SFAS
154 is
the required method for reporting a change in accounting principle and the
reporting of a correction of an error. The Company has adopted SFAS 154 to
correct an error made during the quarter ended September 30, 2005 and discovered
during the quarter ended March 31, 2006.
On
March
15, 2006, the Company received $1,094,162 from Wells Fargo Corporate Trust
Escrow Services, representing the remaining principal and interest held in
escrow from the 2004 sale of the assets and certain liabilities of the BBI
Core
Businesses to SeraCare. The receipt of these funds triggered the recognition
of
taxable income, accounted for as an installment sale for federal income tax
purposes. During the financial statement closing process for the quarter
ended
March 31, 2006, management determined that a deferred tax liability of
approximately $220,000 should have been established during the quarter ended
September 30, 2005, the period in which the Company filed its
federal income tax return. It was also determined that the Company’s deferred
tax liability in connection with the unrealized gain on Panacos Pharmaceuticals,
Inc., should be reduced by approximately $123,000.
PRESSURE
BIOSCIENCES, INC., AND SUBSIDIARIES
(FORMERLY
BOSTON BIOMEDICA INC. AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2005
(3) Discontinued
Operations
(a)
BBI
Diagnostics and BBI Biotech Segments
On
September 14, 2004, the Company completed the sale of substantially all of
the assets and selected liabilities of its BBI Diagnostics and BBI Biotech
divisions, previously classified as assets and liabilities held for sale
as of
September 30, 2004, to SeraCare pursuant to the Asset Purchase Agreement,
for a
purchase price of $30 million in cash of which $27.5 million was paid
at the closing and the remaining $2.5 million was deposited in escrow
pursuant to an escrow agreement expiring in March 2006. Following the
release to SeraCare of $1.4 million of the escrow funds to satisfy the final
adjustment amount in February 2005, approximately $1.1 million remains in
escrow
until March 2006 to secure our continuing indemnification obligations for
breaches of representations and warranties, covenants or other agreements
that
remain in accordance with the terms of the Asset Purchase Agreement. The
amounts
associated with the sale of these assets and selected liabilities to SeraCare
are reported as discontinued operations in the accompanying financial
statements, in accordance with paragraphs 30 and 42 of Statement of Financial
Accounting Standards No. 144 “Accounting for the Impairment or Disposal of
Long-Lived Assets”.
(b)
Clinical
Laboratory Testing Services Segment
In
February 2001, the Company sold the business and certain assets and liabilities
of its clinical laboratory business, BBI Clinical Laboratories, Inc. (“BBICL”),
a wholly-owned subsidiary of the Company, to a third party for an adjusted
purchase price of $8,958,000. The Company retained certain other assets and
liabilities of BBICL, primarily property, plant and equipment, together with
the
facility lease subsequent to the closing date. The Company wrote down all
of the
retained assets not otherwise redistributed to other business units to their
estimated net realizable value. The Company’s estimate of remaining short and
long term accrued liabilities to exit the clinical laboratory testing business
is approximately $89,000 as of September 30, 2005. The major component of
this
accrual is for potential tax audit adjustments associated with the sale of
assets and the long term record retention of medical and related records.
The
statute of limitations for the relevant tax year lapses in the last quarter
of
2005 and will be adjusted accordingly.
(4)
Assets
and Liabilities Transferred Under Contractual
Arrangement
In
June 2004, PBI Source Scientific, Inc. transferred certain of its
assets and liabilities to a newly formed limited liability company known
as
Source Scientific, LLC. At the time of the transfer, PBI Source
Scientific, Inc. owned 100% of the ownership interests of Source
Scientific, LLC. PBI Source Scientific, Inc. subsequently sold 70% of its
ownership interests of Source Scientific, LLC to Mr. Richard Henson and
Mr. Bruce A. Sargeant pursuant to a purchase agreement (the “Source
Scientific Agreement”). As a result of the sale of 70% of PBI Source’s ownership
interests, Mr. Henson and Mr. Sargeant each own 35% and PBI Source
owns the remaining 30% of Source Scientific, LLC. Under the Source Scientific
Agreement, the Company received notes receivable in the aggregate amount
of
$900,000 (the “Notes”) payable at the end of three years bearing 8% interest.
Despite the Company’s intent to exit the laboratory instrumentation business,
the Company may be viewed as having a continuing involvement in the business
of
Source Scientific, LLC due to the fact that the Company has the right to
designate one or potentially three members of the Board of Managers of Source
Scientific, LLC. Because of this factor, even though the transaction is treated
as a divestiture for legal purposes, the Company has not recognized the
transaction as a divestiture for accounting purposes in accordance with
Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”)
Topic 5E, Accounting
for Divestiture of a Subsidiary or Other Business Operation
. In
accordance with SAB Topic 5E, the Company has recorded the assets and
liabilities associated with the Source Scientific, LLC operation on the
Company’s unaudited consolidated balance sheet as of September 30, 2005 under
the captions “Assets transferred under contractual arrangements” and
“Liabilities transferred under contractual arrangements” and has recorded a
charge to income under the caption “Other operating (charges), net” in the
Company’s unaudited consolidated statements of operations for the three and nine
months ended September 30, 2005 and 2004 equal to the amount of the loss
attributable to the business of Source Scientific for the respective periods
presented. In accordance with SAB Topic 5E, the Company will continue this
accounting treatment until circumstances have changed or until the net assets
of
the Source Scientific, LLC business have been written down to zero (or a
net
liability is recognized in accordance with U.S. GAAP. As of September 30,
2005
assets and liabilities transferred under contractual arrangement consist
of the
following:
PRESSURE
BIOSCIENCES, INC., AND SUBSIDIARIES
(FORMERLY
BOSTON BIOMEDICA INC. AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2005
|
|
|
|
Cash
|
|
$
|
122,797
|
|
Accounts
receivable, net
|
|
|
210,685
|
|
Inventory
|
|
|
559,356
|
|
Prepaid
assets
|
|
|
106,754
|
|
Fixed
assets, net
|
|
|
99,102
|
|
Goodwill
|
|
|
227,084
|
|
All
other assets
|
|
|
61,753
|
|
Total
assets transferred under contractual arrangement
|
|
|
1,387,531
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(323,149
|
)
|
Accrued
expenses and compensation
|
|
|
(268,845
|
)
|
Deferred
revenue
|
|
|
(407,583
|
)
|
Equity
contributions
|
|
|
(57,860
|
)
|
Total
liabilities transferred under contractual arrangement
|
|
|
(1,057,437
|
)
|
|
|
|
|
|
Net
assets and liabilities transferred under contractual
obligations
|
|
$
|
330,094
|
|
(5)
Computation
of Net Income (Loss) per Share
Basic
income (loss) per share is computed by dividing income (loss) available to
common shareholders by the weighted average number of common shares outstanding.
Diluted income (loss) per share is computed by dividing income (loss) available
to common shareholders by the weighted average number of common shares
outstanding plus additional common shares that would have been outstanding
if
potential dilutive common shares had been issued. For purposes of this
calculation, stock options are considered common stock equivalents in periods
in
which they have a dilutive effect. Options that are anti-dilutive are excluded
from the calculation.
Potentially
dilutive securities having a net effect of 113,798 and 44,606 common shares
for
the three and nine months ended September 30, 2005 are reflected below.
Options that are anti-dilutive of 24,500 and 79,000 common shares for the
three
and nine months ended September 30, 2005 respectively, were not included
in the
computation of diluted income (loss) per share for these periods because
to do
so would have been antidilutive. Potentially dilutive securities having a
net effect of 131,233 and 80,898 common shares for the three and nine months
ended September 30, 2004 were not included in the calculation as to do so
would
have been anti-dilutive. Options that were anti-dilutive of 46,540 and 6,001
for
the three and nine months ended September 2004 was not included in the
computation of diluted income (loss) per share because to do so would have
been
anti-dilutive.
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
September
30,
|
|
Numerator:
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
Income
(loss) from continuing operations, basic & diluted
|
|
$
|
1,308,969
|
|
$
|
(663,070
|
)
|
$
|
171,667
|
|
$
|
(1,749,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demoninator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares Outstanding, basic
|
|
|
2,424,189
|
|
|
6,824,075
|
|
|
3,157,495
|
|
|
6,843,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
effect of dilutive common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equivalents-based
on treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
method
using average market price
|
|
|
113,798
|
|
|
-
|
|
|
44,606
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares Outstanding, diluted
|
|
|
2,537,987
|
|
|
6,824,075
|
|
|
3,202,101
|
|
|
6,843,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) per share from continuing operations, - basic
|
|
$
|
0.54
|
|
$
|
(0.10
|
)
|
$
|
0.05
|
|
$
|
(0.26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss)per share from continuing operations, - diluted
|
|
$
|
0.52
|
|
$
|
(0.10
|
)
|
$
|
0.05
|
|
$
|
(0.26
|
)
|
PRESSURE
BIOSCIENCES, INC., AND SUBSIDIARIES
(FORMERLY
BOSTON BIOMEDICA INC. AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2005
(6)
Related
Party Transaction
In
January 2002, the Company pledged the $1,000,000 interest bearing deposit
at a financial institution to secure its limited guaranty of loans in the
aggregate amount of $2,418,000 from the financial institution to an entity
controlled by Richard T. Schumacher, a Director and the Company’s current
President and Chief Executive Officer. In January 2003, the $1,000,000 held
in the interest bearing deposit account pledged to the financial institution
to
secure the Company’s limited guaranty was used by the financial institution to
satisfy its limited guaranty obligation to the financial institution. As
of
September 30, 2005, the Company maintained a $1.0 million loan receivable
from Mr. Schumacher. The Company previously maintained a junior security
interest in collateral pledged by Mr. Schumacher to the financial
institution. The collateral includes all of Mr. Schumacher’s shares of PBI
common stock. Following the payment in full by Mr. Schumacher of his loan
to the financial institution in February 2005, the Company became the
holder of a first priority security interest in 489,659 of Mr. Schumacher’s
shares of common stock of Pressure BioSciences to secure the repayment of
the
Company’s $1,000,000 loan receivable together with associated accrued interest
from Mr. Schumacher and are held as collateral. The collateral and personal
assets of Mr. Schumacher may not be sufficient to permit the Company to
fully recover the principal, interest and other costs associated with this
loan
receivable. If the value of the collateral decreases, the Company may have
to
write down or write off the loan receivable or associated accrued interest.
Therefore, the Company cannot be certain that it will collect the full amount
of
the loan receivable.
As
of
September 30, 2005, the Company evaluated the recoverability of the $1,000,000
loan receivable from Mr. Richard T. Schumacher, which is reflected on the
balance sheet in stockholders’ equity as a loan receivable and any accrued
interest as of September 30, 2005. In connection with the Company’s evaluation
of the recoverability of the loan receivable as of September 30, 2005 the
Company performed a test for impairment of the loan receivable by analyzing
the
value of the collateral. This test included, among other things, a review
of the
current trading price of the Company’s common stock after taking into account
factors that may affect the Company’s ability to sell such stock in the event it
were to foreclose on the collateral to repay the loan receivable and any
accrued
and unpaid interest. After performing the impairment test, the Company
determined that the loan receivable was not impaired. The ultimate value
that
the Company may recover is dependent on numerous factors including the Company’s
stock price, market conditions relative to the value of and ability to sell
the
collateral, and the financial status of the Company’s President and Chief
Executive Officer. Based on the Company’s assessment as of September 30, 2005,
the Company estimates that the value of the collateral approximates the amount
of the recorded loan receivable. If actual market conditions are less
favorable, the Company’s stock price declines or other factors arise that are
significantly different than those experienced as of September 30, 2005,
an
impairment of the loan receivable together with associated accrued interest
is
likely to be required. The Company plans to continue to monitor and test
the collateral for impairment due in large part to the relatively low trading
volume of the Company’s common stock and recent volatility in our stock price,
ranging from a low of $2.50 per share to a high of $6.70 per share from July
1,
2005 to September 30, 2005.
(7)
Segment
Reporting and Related Information
SFAS
No. 131, “Disclosures about Segments of an Enterprise and Related
Information,” establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements
and
requires selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. Operating segments are
components of an enterprise for which separate financial information is
available that is evaluated regularly by senior management in deciding how
to
allocate resources and in assessing the performance of each segment. The
Company
is organized along legal entity lines and senior management regularly reviews
financial results for all entities, focusing primarily on revenue and operating
income. The Company’s underlying accounting records are maintained on a legal
entity basis for government and public reporting requirements, as well as
for
segment performance and internal management reporting.
Following
the Company’s sale of its core businesses and its laboratory instrumentation
business unit, the single remaining segment is the pressure cycling technology
(PCT) family of products and services.
(8)
Debt
The
Company does not currently have debt obligations beyond its lease for the
Gaithersburg, MD office as described in Note 10, nor does the Company have
a
line of credit from which it can borrow.
PRESSURE
BIOSCIENCES, INC., AND SUBSIDIARIES
(FORMERLY
BOSTON BIOMEDICA INC. AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2005
(9)
Inventories
Inventories
represented are primarily finished units available for sale and those units
at
various stages of manufacturer. As of September 30, 2005, finished goods
included Barocycler™ NEP3229 units and PULSE™ Tubes.
As
of
September 30, 2005, inventories were comprised as follows:
|
|
|
|
|
|
Raw
materials
|
|
$
|
28,593
|
|
$
|
122,253
|
|
Work-in-process
|
|
|
71,015
|
|
|
31,764
|
|
Finished
goods
|
|
|
244,340
|
|
|
3,800
|
|
|
|
$
|
343,948
|
|
$
|
157,817
|
|
(10) Commitments
and Contingencies
Leases
On
May 5, 2005, the Company entered into a lease agreement with Saul Holdings
Limited Partnership to lease approximately 2,784 square feet of office space
located at 209 Perry Parkway, Gaithersburg, Maryland for a term of twelve
months
with a base annual rent in the amount of $55,680, or $4,640 per month during
the
initial term of the lease, plus $1,245 per month for operating
expenses.
Royalty
Commitments
In
1998,
the Company acquired all the remaining common stock outstanding of
BioSeq Inc., a development stage company involved with PCT. In accordance
with the provisions of a technology transfer agreement assumed in the
transaction, the Company is obligated to pay a 5% royalty on net sales until
March 2016 of future sales by the Company utilizing PCT. Net sales include
the trade revenues related to units sold or leased as well as PULSE™ Tube
revenues. The Company announced the availability of its PCT products for
commercial sale in the latter part of year 2002. The Company’s minimum royalty
payment requirements ceased in the fourth quarter of 2003 in accordance with
contractual provisions. The royalty obligation for the third quarter of 2005
was
approximately $545.
Purchase
Commitments
In
June 2004, Source Scientific, LLC agreed to provide engineering,
manufacturing, and other related services for the Company’s pressure cycling
technology products until September 30, 2005. Under the agreement, it was
estimated that reimbursement to Source Scientific, LLC by the Company was
expected to be at the rate of $25,000 per month. Since the Company has met
the
minimum commitment under the agreement, and there are no future minimum
payments, all obligations are contingent upon actual services being rendered
to
us by Source Scientific LLC. The Company expects to continue to utilize
the services of Source Scientific, LLC for the Company’s pressure cycling
technology products on a purchase order basis.
Indemnifications
In
connection with the sale of substantially all of the assets of the Company’s BBI
Diagnostics and BBI Biotech business units to SeraCare, pursuant to the Asset
Purchase Agreement, the Company agreed to indemnify SeraCare for any losses
from
breaches of most of the Company’s representations, warranties or covenants that
occur prior to June 14, 2006. The Company’s indemnification obligations for
breaches of some representations and warranties, however, extend for a longer
period of time. The Company’s indemnification obligations are limited by an
overall cap equal to the adjusted purchase price.
PRESSURE
BIOSCIENCES, INC., AND SUBSIDIARIES
(FORMERLY
BOSTON BIOMEDICA INC. AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2005
In
November 2004, in accordance with the terms of the Asset Purchase
Agreement, SeraCare delivered the closing balance sheet, which reflected
a
deficiency of approximately $3.1 million when compared to the target net
asset value of $8.5 million. The Company objected to certain calculations
in the closing balance sheet, including, without limitation, SeraCare’s
calculation of accounts receivable and inventory. In December 2004, the
Company settled its dispute with SeraCare concerning the collectibility of
accounts receivable sold to SeraCare in connection with the Asset Purchase
Agreement. The Company agreed that, solely for purposes of settling its dispute
with SeraCare, $412,192 of accounts receivable would be deemed past due,
therefore resulting in an adjustment to the purchase price requiring the
Company
to pay SeraCare that amount. The Company also agreed that the $412,192
deficiency would be released from the $2.5 million held in escrow; thereby
leaving approximately $2.1 million remaining in escrow. In
February 2005, the Company further agreed with SeraCare to settle the
parties remaining differences relating to the closing balance sheet, including
the calculation of inventory, by releasing to SeraCare an additional $1,000,000
from the escrow account. Additionally, the parties released all claims they
may
have had against the other with respect to the closing balance sheet and
certain
other representations and warranties contained in the Asset Purchase Agreement
relating to the closing balance sheet items. Following the release of the
escrow
funds, approximately $1.1 million remains in escrow until March 2006
to secure the Company’s continuing indemnification obligations for breaches of
representations and warranties, covenants or other agreements that remain
in
accordance with the terms of the Asset Purchase Agreement. The combined effect
of these two settlements relating to the closing balance sheet resulted in
a
$1,412,192 reduction in the purchase price and a corresponding reduction
in the
gain on sale.
On
March
22, 2005, the Company received a claim for indemnification from SeraCare
relating to testing and other services performed by the Company for the
University of Pittsburgh prior to the sale of the BBI Diagnostics and BBI
Biotech business units to SeraCare. The claim for indemnification is for
an unspecified amount relating to the cost of retesting certain of the samples
previously tested by the Company. The Company believes the cost of
retesting to be not material. However, this claim for indemnification, as
well
as the possibility of additional notices or claims for indemnification from
SeraCare could reduce or eliminate altogether the amount the Company ultimately
receives from the escrow account. If the Company is required to pay an
additional amount in excess of the escrow amount, the Company will have less
cash available to fund its operations, its business may be harmed and, if
it is
subject to additional indemnification claims or unanticipated expenses or
liabilities, it may be difficult to continue the Company’s business as planned
unless it is able to obtain equity or debt financing.
(11)
Investments
in Marketable Securities
On
March 11, 2005,V.I. Technologies Inc. (“Vitex”) announced that it had
closed its merger with Panacos Pharmaceuticals, Inc. (“Panacos”), pursuant
to the Agreement and Plan of Merger dated as of June 2, 2004, as amended on
November 5, 2004, November 28, 2004, December 8, 2004, and
February 14, 2005 (the “Merger Agreement”). The merger was approved by the
stockholders of both Vitex and Panacos at their respective meetings on
March 10, 2005. Panacos stockholders received an aggregate of approximately
227,500,000 shares of Vitex common stock, or slightly over 80% of the
outstanding shares of Vitex Common Stock, after giving effect to the merger,
and
before giving effect to Vitex’s 1:10 reverse stock split, which was announced on
March 14, 2005. The shares of Vitex common stock issued to the Panacos
stockholders were registered with the Securities and Exchange Commission
on a
Registration Statement on Form S-4. Panacos stockholders received 6.75275
shares of Vitex common stock for each share of Panacos common or preferred
stock
held by them at the effective time of the merger. As a result of the merger
and
the subsequent reverse stock split, the Company owned 1,012,920 shares of
Vitex
common stock in place of its Panacos capital stock. Fifteen percent of Vitex
stock owned by former owners of Panacos stock, including fifteen percent
of the
Vitex common stock owned by the Company, or 151,938 shares, is being held
in
escrow per the Merger Agreement until September 2006.
On
August
18, 2005, V.I. Technologies formerly changed its company name to Panacos
Pharmaceticals Inc. and changed its trading symbol on the Nasdaq National
Market
to “PANC”. During July and August of 2005, the Company sold 328,986 shares
of Panacos stock which resulted in a realized gain of $2,838,491 during the
quarter ended September 30, 2005.
On
September 30, 2005, the closing price of Panacos common stock was $9.74 per
share as quoted on the Nasdaq National Market. As of September 30, 2005 the
Company had remaining 683,934 shares of Panacos common stock, that includes
151,938 shares held in escrow noted above, which had a fair market value
of
$6,661,517.
(12)
Fixed
Assets
Fixed
assets are comprised primarily of PCT related demonstration equipment, of
which
one PCT Barocycler TM
NEP2017
unit has been placed with a third party pursuant to an open term rental
agreement. Depreciation on PCT demonstration units is allocated over the
expected useful life of approximately two years. Upon the Company’s sale
of assets to SeraCare in September 2004 and establishment of new corporate
offices, approximately $40,000 has been capitalized related to office furniture
and computer and related communication equipment and $25,000 related to lab
equipment. Property and equipment at September 30, 2005 consisted of the
following:
PRESSURE
BIOSCIENCES, INC., AND SUBSIDIARIES
(FORMERLY
BOSTON BIOMEDICA INC. AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2005
|
|
As
of
|
|
|
|
September
30, 2005
|
|
|
|
|
|
Laboratory
and manufacturing equipment
|
|
$
|
155,508
|
|
Office
equipment
|
|
|
57,428
|
|
PCT
demonstration equipment
|
|
|
210,536
|
|
|
|
|
423,472
|
|
|
|
|
|
|
Less
accumulated depreciation
|
|
|
363,453
|
|
Net
book value
|
|
$
|
60,019
|
|
Depreciation
expense for the nine months ended September 30, 2005 and 2004 was and $24,772
and $78,727, respectively.
(13)
Intangible
Assets
The
Company has classified as intangible assets those costs associated with the
fair
value of certain assets of the PCT business previously acquired by the Company.
Intangible assets as of September 30, 2005 reflect acquired patents and related
capitalized costs associated with the Company’s pressure cycling technology are
being amortized to expense on a straight line basis at the rate of $12,158
per
quarter over the remaining useful life. The Company’s policy is to expense all
patent related legal costs as incurred. Intangible assets at September 30,
2005
consisted of the following:
|
|
As
of
|
|
|
|
September
30, 2005
|
|
|
|
|
|
PCT
Patents
|
|
$
|
778,156
|
|
Less
accumulated amortization
|
|
|
340,444
|
|
Net
Book Value
|
|
$
|
437,712
|
|
Amortization
expense for the nine months ended September 30, 2005 and 2004 was and $36,476
and $36,476 respectively.
14)
Prepaid
Income Tax
Following
the completion and filing its 2004 federal tax return, the Company recorded
prepaid income taxes of $647,479 as a gain from discontinued operations.
The prepayment reflects an overpayment of federal taxes related to the 2004
estimated tax liability and payments associated with the Company’s sale of
assets to SeraCare in September 2004. In September 2005 we performed a review
of
our estimated 2005 tax liability which included our year to date operating
loss,
the Panacos shares sold during the third quarter of 2005, along with estimates
for the remainder of the year and determined to apply the 2004 overpayment
to
the estimated 2005 tax obligation of $458,226, resulting in a net prepaid
income
tax of $189,253 as of the quarter ended September 30, 2005.
15)
Income
Tax Receivable
Pursuant
to completing and filing its 2004 state tax returns, the Company recorded
an
income tax receivable of $122,666. The overpayment is related to taxes
paid to the State of Maryland and associated to the allocation of the 2004
sale
of assets to SeraCare and estimated tax liability and payments made in December
2004. The Company has applied for a refund.
(16)
Stockholders’
Equity
Pursuant
to the completion of the Company’s tender offer on February 11, 2005, 5,203,001
shares were purchased from shareholders at $3.50 per share which included
754,275 shares issued upon exercise of stock options. The Company utilized
approximately $16.3 million of available cash, net of proceeds from the exercise
of the stock options, to complete the transaction. The purchase of the
shares was accounted for under the treasury method and cost in excess or
par
value for the common shares was charged to additional paid in
capital.
PRESSURE
BIOSCIENCES, INC., AND SUBSIDIARIES
(FORMERLY
BOSTON BIOMEDICA INC. AND SUBSIDIARIES)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2005
Recent
Business Developments
On
November 3 rd
and
November 4 Th,
2005
the Company sold an aggregate of 100,000 shares of Panacos stock for which
we
received approximately $882,990, net of charges and commission. We
continue to hold an additional 431,996 shares of Panacos and may receive
an
additional 151,938 shares which are being held in escrow until September
2006,
per the terms of the March 10, 2005 merger between Vitex and Panacos
Pharmaceuticals. The closing price per share of Panacos common stock as reported
on the Nasdaq National Market on November 8, 2005 was $8.83.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
Overview
Following
the closing of the sale of the assets and selected liabilities of BBI
Diagnostics and BBI Biotech to SeraCare Life Sciences on September 14,
2004, the transfer of certain assets and liabilities of PBI Source
Scientific, Inc. to Source Scientific, LLC and subsequent sale of 70% of
our ownership interests of Source Scientific, LLC in June 2004, our
operations now consist primarily of our pressure cycling technology (PCT)
business. The results of operations discussed herein focus on the PCT business
activities and the corporate functions associated with being a public company.
Operating results of PBI Source Scientific, Inc., excluding any PCT related
activities, together with Source Scientific, LLC, are reported as “Other
operating charges, net” hereunder. The operating results of our BBI Diagnostics
and BBI Biotech divisions prior to their sale on September 14, 2004,
together with the results of the discontinued operations of our clinical
laboratory testing services segment (sold in February, 2001), are reported
as
“Discontinued Operations” hereunder. Certain amounts included in the prior
period’s financial statements have been reclassified to conform to the current
period’s presentation.
Our
pressure cycling technology uses an instrument that is capable of cycling
pressure between ambient and high levels at controlled temperatures to rapidly
and repeatedly control the interactions of biomolecules. PCT utilizes our
Barocycler™ instrument and disposable PULSE™ Tubes to release nucleic acids and
proteins from plant/animal cells and tissues, as well as other organisms
that
are not easily disrupted by standard chemical and physical methods. We believe
that our patented and proprietary pressure cycling technology employs a unique
approach that has the potential for broad applications in a number of
established and emerging fields, including genomics, proteomics, drug discovery
and development, protein purification, pathogen inactivation, immunodiagnostics,
food safety, and DNA sequencing.
To
date,
we have primarily applied PCT to the area of sample preparation for genomics
and
proteomics. We have also developed scientific collaborations with several
leading laboratories and academic institutions in the United States, which
we
expect will remain ongoing in 2005 and beyond. We further expect that the
data
generated by our collaborators will be publicly released in scientific
publications and presentations, and that this could have an important positive
impact on future sales of our PCT products. We have investigated the use
of PCT
for the inactivation of pathogens in human blood plasma, therapeutics, and
diagnostic reagents and believe we have demonstrated the technical feasibility
of applying PCT to immunodiagnostics, protein purification, pathogen
inactivation, food safety, and DNA sequencing. We have obtained thirteen
US and
four foreign patents containing multiple claims covering the foregoing
areas.
As
of
September 30, 2005 we have invested in excess of $12.4 million in the
development of our pressure cycling technology since 1997, with the funds
coming
from both internal and public sources. To date, we have received seven Small
Business Innovative Research (“SBIR”) grants from the National Institutes of
Health (“NIH”) aggregating approximately $2,000,000 (including two SBIR Phase II
grants each in excess of $750,000) to develop PCT in the areas of microbial
inactivation, sample processing, and Mycobacterium sample preparation. Most
recently, in May 2004 we were awarded a $150,000 SBIR Phase I grant to
study the use of PCT in applications to combat bio-terrorism. We have recently
submitted proposals for three additional SBIR research grants and one non-SBIR
grant and intend to continue to submit proposals to obtain grants in the
future. The review process generally takes six months for a proposal to
receive feedback regarding the grants.
In
September 2002, we released for sale our first commercial PCT instrument,
the Barocycler™ NEP 2017. In 2002, we also released for sale PULSE™ Tubes, which
are single-use, disposable processing and storage tubes that work in conjunction
with the Barocycler™ NEP 2017. Sales of these products have been extremely
limited. To date we have leased one and sold two pressure cycling technology
systems (“PCT Sample Preparation System”) and a limited number of PULSE™ Tubes.
We believe that sales of our pressure cycling technology products have been
adversely affected primarily as a result of the following factors: (1) the
initial design and selling price of the Barocycler™, (2) the limited amount
of research data available demonstrating its capabilities and potential,
(3) the absence of a strong sales and marketing management team,
(4) the absence of a strong promotional campaign after the commercial
release of the Barocycler™ NEP 2017, (5) the inability to execute our sales
plan as a result of financial constraints prior to 2005, (6) current US
economic conditions and uncertainties which negatively affected capital spending
on laboratory instruments, (7) the financial condition of our company
during 2003 and 2004, (8) the focus of our resources on other projects,
including the sale of our BBI Diagnostics, BBI Biotech, and selected assets
and
liabilities of our laboratory instrumentation business units, a process that
began in October 2002 and was completed in September 2004, (9) the
time required to complete post-transaction issues related to the sale of
BBI
Diagnostics and BBI Biotech, and (10) the effort required during 2005 to
restructure the Company including the effort to build a new corporate
infrastructure.
To
address some of these factors associated with the disappointing sales of
the
Barocycler™ NEP 2017, we have developed a less expensive and smaller, bench top
version of the Barocycler™, the NEP 3229, which we expect will facilitate an
easier and quicker purchase decision by potential customers. We have also
generated additional research data to support our sales efforts. We believe
that
the new bench top Barocycler™ will fill an immediate and growing need in the
genomics and proteomics sample preparation market for a smaller, more affordable
instrument that still provides the quality, reproducibility, and safety of
the
NEP 2017 PCT Sample Preparation System.
To
increase market awareness of our products, in June 2005 we initiated a program
to place up to twelve Barocycler™ NEP3229 units in selected strategic customer
sites by December 31, 2005 for a three month trial period, a period of time
that
we believe is sufficient to provide potential customers with the opportunity
to
develop and collect independent and objective data and statistical information.
We believe that we will be able to generate sales of our products from these
customers after the customer experiences the performance, reliability, and
safety of the sample preparation process provided by the PCT Sample Preparation
System. After the trial period, it is our expectation that a number of users
will either purchase or lease the PCT Barocycler™ instrument.
From
June
to September 2005, we installed four bench top instruments under a “reagent
rental agreement”, whereby the “collaborating sites” have full use of the
instrument in their own facility, have agreed to purchase a certain number
of
PULSE™ Tubes over the trial period, and have further agreed to use the PCT
Sample Preparation System to generate data for public dissemination. In
October 2005, we installed an additional two units in collaborating sites
under
the reagent rental Agreement. In September 2005 we received the first purchase
order for
the PCT
Sample Preparation System, which the Company delivered and installed on October
6, 2005. On November 1, 2005, we received a signed lease agreement for a
second
instrument. The Company believes that it will be successful in placing the
remaining units prior to December 31, 2005.
RESULTS
OF OPERATIONS
THREE
MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
Revenue
We
had
total revenue of $11,742 for the three months ended September 30, 2005, as
compared to $68,901 for the three months ended September 30, 2004.
PCT
products & services:
Product revenue totaled $11,742 for the three months ended September 30,
2005,
compared to $2,383 for the corresponding period of 2004. Product revenue
in 2005
and 2004 includes lease payments from one customer and sales in 2005 of PULSE™
Tubes to five customers in association with the collaboration agreements
noted
previously. There were no Barocycler™ sales in the quarters ended September 30,
2005 or September 30, 2004.
Grant
Revenue:
Grant revenue has consisted predominately of SBIR (Small Business Innovation
Research) funding activity through the National Institutes of Health. Grant
revenue is reflective of high research and development costs, and consists
predominately of “cost plus” contacts. There was no grant revenue for the
three months ended September 30, 2005 compared to $66,518 for the corresponding
period in 2004. The decrease in PCT grants and services revenue was primarily
related to the completion of work in early and mid-2004 on two Phase-II SBIR
Grants resulting in a lower level of research conducted under these
grants. We expect to continue to submit new SBIR and other research grant
proposals to fund future research. The review process generally takes six
months
for a proposal to receive feedback regarding the grants.
During
the three months ended September 30, 2005, we placed 3 additional bench top
instruments under a “reagent rental agreement”, whereby the “collaborating
sites” have full use of the instrument in their own facility, have agreed to
purchase a certain number of PULSE™ Tubes over the trial period, and have
further agreed to use the PCT Sample Preparation System to generate data
for
public dissemination.
Cost
of PCT Products and Services
The
cost
of PCT products and services was $33,966 for the three months ended September
30, 2005 compared to $20,654 for the comparable period in 2004. The increase
in
2005 was primarily the result of a higher sales volume of PULSE™ Tubes related
to increased PULSE™ Tube revenues, transportation costs related to rental units
of Barocycler™ units pursuant to reagent rental agreements, and the inclusion of
field support and deployment costs related to the placement of collaboration
site units.
Cost
of Grant Revenue
We
did
not perform any services or incur any costs under grant projects during the
third quarter of 2005. Costs of grant projects billed in the third quarter
of 2004 are included in research and development.
Research
and Development
PCT
related research and development expenditures decreased to $156,529 in the
three
months ended September 30, 2005 from $239,315 for the comparable period of
2004. The decrease was primarily due to the lower level of research and
development expenditures on SBIR grants as described above, reduced headcount,
and more efficient expenditures on the development of the new bench top
Barocycler™ through our outsourcing partner, Source Scientific, LLC. As
described elsewhere, in connection with the Source Scientific Agreement,
Source
Scientific, LLC agreed to provide engineering, manufacturing, and other related
services for our pressure cycling technology products until September 30,
2005. Since we have met the minimum commitment under the agreement, and
there are no future minimum payments; all obligations are contingent upon
actual
services being rendered to us by Source Scientific LLC. We do expect to continue
to utilize the services of Source Scientific, LLC for the continued development
and manufacture of the Company’s pressure cycling technology
products.
Selling
and Marketing
PCT
related selling and marketing expenses increased to $39,954 for the three
months
ended September 30, 2005 from $12,278 for the comparable period of 2004,
an
increase of $27,676. This increase was due to higher headcount, increased
attendance at trade shows, and the cost of placement activities for
collaboration sites.
General
and Administrative
General
and administrative costs totaled $320,195 for the three months ended September
30, 2005, as compared to $140,597 for the comparable period of 2004, an increase
of $179,598. This increase was primarily due to an increase in headcount,
costs of a new corporate office, and other infrastructure expenses not present
in the same quarter 2004.
Stock
Based Compensation
In
conjunction with the Asset Sale on September 14, 2004, the Company’s Board
of Directors voted to extend the termination date of all stock options granted
to employees of BBI Diagnostics and BBI Biotech to the later of 90 days from
the
closing of the SeraCare transaction or the termination of the contemplated
tender offer. In accordance with the provisions of FASB Interpretation No.
44,
we recognized non-cash stock-based compensation of $281,737 in the third
quarter
of 2004. There were no charges for the three months ended September 30,
2005.
Operating
Loss from Continuing Operations
The
operating loss of the PCT business was $538,902 for the three months ended
September 30, 2005 as compared to an operating loss of $625,680 for the
comparable period in 2004, a decrease in loss of $86,778. The decrease in
the
operating loss for the three months ended September 30, 2005 compared to
the
same period of 2004 was primarily due to higher charges in 2004 related to
the
non-cash stock based compensation charge referred to above offset somewhat
by
increased selling and general administrative expenses.
Gain
on Sale of Securities
In
the
three months ended September 30, 2005, we recorded a gain on the sale of
328,986
shares of our Panacos Pharmaceuticals shares available for sale (formerly
V.I.
Technologies). The shares sold in the three month period generated a gain
of $2,838,491. We recorded a tax liability related to the sale of the
securities in the quarter of $1,088,360 reflected in tax provision. As indicated
in our press release of August 9, 2005, we continue to monitor the stock
price
and sales volume of Panacos, and may decide to sell additional shares from
time
to time.
Other
Operating (Charges), net
The
non-PCT related activities of PBI Source Scientific, Inc., which reflects
the activity of Source Scientific, LLC, had an operating loss of $140,648
for
the three months ended September 30, 2005, as compared to an operating loss
of
$30,612 for the three months ended September 30, 2004. The increased loss
was
the result of lower revenues caused by a delay in orders at Source Scientific
LLC.
Interest
Income / (Expense)
Interest
income totaled $62,699 for the three months ended September 30, 2005.
There was no interest expense for the three months ended September 30,
2005. Interest income totaled $11,705 for the three months ended September
30, 2004 which was offset by interest expense of $18,483 for the same period.
Increased interest income was in part the result of interest earned on
investments from the proceeds associated with the sale of our BBI Diagnostics
and BBI Biotech business units to SeraCare and interest earned on cash proceeds
related to the sale of shares in Panacos Pharmaceuticals’ stock.
In
the
third quarter of 2005, we have recognized the benefit of accrued interest
paid
related to the Director / CEO’s loan receivable in the amount of $21,147. In
2004, accrued interest related to the loan receivable was not recognized.
Additionally, in 2004 we incurred an interest payment on a previous line
of
credit totaling $18,483.
Income
Taxes
In
the
quarter ended September 30, 2005 we recorded a net tax provision of
$912,671. We recorded a tax provision of $1,088,360 as a result of the
sale of securities which was somewhat offset by a tax benefit of $175,689
related to the operating loss for the period. There was no benefit
recorded in the same quarter of 2004.
Income
(loss) from discontinued operations
The
amounts associated with the sale of our BBI Diagnostics and BBI Biotech business
units to SeraCare are reported as discontinued operations in the accompanying
financial statements, in accordance with paragraphs 30 and 42 of Statement
of
Financial Accounting Standards No. 144 “Accounting for the Impairment or
Disposal of Long-Lived Assets” as previously described above.
For
the
three months ended September 30, 2005, the net loss from discontinued operations
was $3,340, as compared to a net loss of $440,212 for the same period in
2004. The decrease in net loss from discontinued operations is a result of
negative operating margin generated from revenues realized of our former
BBI
Diagnostics and BBI Biotech business units included in the September 2004
quarter. These businesses are not part of our operations in 2005.
Gain
on Sale of Net Assets Related to Discontinued Operations
For
the
three months ended September 30, 2005, we recorded a benefit of $701,699
for the
overpayment of 2004 taxes related to the sale of net assets in 2004. The
impact resulted from the utilization of favorable treatment of tax credits,
utilization of installment sale tax treatment related to sale of assets,
and
treatment of the sale of the Company’s 70% interest in Source Scientific
LLC. For the third quarter of 2004, we recorded a benefit for the
sale of the BBI Diagnostics and BBI Biotech business units of $15,868,025
net of
tax estimates of $3,925,200.
Net
Income
Overall,
for the quarter ended September 30, 2005 we realized net income of $2,007,328
compared to net income for the quarter ended September 30, 2004 of $14,764,743
for reasons outlined above.
NINE
MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
Revenue
We
had
total revenue of $21,984 for the nine months ended September 30, 2005, as
compared to $304,993 for the nine months ended June 31, 2004, a decline of
$283,009.
PCT
products & services:
Product revenue totaled $21,984 for the nine months ended September 30, 2005,
compared to $12,939 for the corresponding period of 2004. Product revenue
in
2005 and 2004 included lease payments from one customer and sales of PULSE™
Tubes from several customers pursuant to the collaboration agreements in
place.
There were no Barocycler™ sales in the nine months ended September 30, 2005 or
2004.
Grant
Revenue:
Grant
revenue has consisted predominately of SBIR funding activity through the
National Institutes of Health. There was no grant revenue for the nine months
ended September 30, 2005 compared to $292,054 for the corresponding period
in
2004. The decrease in PCT grants and services revenue was primarily related
to
the completion of work in 2004 on two Phase-II SBIR Grants resulting in a
lower
level of research conducted under SBIR research grants in 2005. We expect
to continue to submit new SBIR and other research grant proposals to fund
future
research. The review process generally takes six months for a proposal to
receive feedback regarding the grants.
Cost
of Grant Services
We
did
not perform any services or incur any costs under grant projects during the
nine
months ended September 30, 2005 compared to the nine months ended September
30,
2004. Costs related to grant activities in 2004 have been included in
research and development.
Cost
of PCT Products and Services
The
cost
of PCT products and services was $61,653 in the nine months ended September
30,
2005 compared to $55,673 for the comparable period of 2004. The increase
in 2005
was primarily the result of a higher sales volume of PULSE™ Tubes related to
increased PULSE™ Tube revenues, amortization costs related to rental units
of Barocycler™ units pursuant to reagent rental agreements, and the inclusion of
increased field support and deployment costs related to the placement of
collaboration site units.
Research
and Development
PCT
related research and development expenditures decreased to $374,147 in the
nine
months ended September 30, 2005 from $672,087 for the comparable period of
2004.
The decrease was primarily due to the lower level of research and development
expenditures related to the SBIR grants as described above, reduced headcount,
and decreased expenditures on the development of the new bench top Barocycler™
through our outsourcing partner, Source Scientific, LLC. As described elsewhere,
in connection with the Source Scientific Agreement, Source Scientific, LLC
agreed to provide engineering, manufacturing, and other related services
for our
pressure cycling technology products until September 30, 2005. During the
nine months ended September 30, 2005 we incurred charges of approximately
$170,000.
Selling
and Marketing
PCT
related selling and marketing expenses decreased to $93,590 for the nine
months
ended September 30, 2005 from $138,158 for the comparable period of 2004.
The
decrease was due to reduced headcount, a reduction in trade shows attended
in
first half of 2005 verses 2004, and lower production of marketing
materials.
General
and Administrative
General
and administrative costs for the nine months ended September 30, 2005 totaled
$1,361,157 compared to $762,597 for the same period of 2004, an increase
of
$598,560. This increase was primarily due to a compensation charge
of $400,000 relating to payments made to Mr. Schumacher (i) as a reimbursement
of costs and expenses, as well as lost wages and severance benefits, resulting
from his termination of employment in February 2003, and (ii) as a bonus
to
reward Mr. Schumacher for his valuable contributions to the Company and our
stockholders in the overall restructuring and repositioning of our company
over
the past two years. In addition, we provided reimbursement of $94,985 in
the
first quarter of 2005 to Mr. Schumacher for certain legal bills incurred
relative to his termination as Chairman and Chief Executive Officer of PBI
on
February 13, 2003.
Stock
Based Compensation
In
conjunction with the Asset Sale on September 14, 2004, the Company’s Board
of Directors voted to extend the termination date of all stock options granted
to employees of BBI Diagnostics and BBI Biotech to the later of 90 days from
the
closing of the SeraCare transaction or the termination of the contemplated
tender offer. In accordance with the provisions of FASB Interpretation No.
44,
we recognized non-cash stock-based compensation of $281,737 in the third
quarter
of 2004.
There
were no charges for the nine months ended September 30, 2005.
Operating
Loss from Continuing Operations
The
operating loss of the PCT business was $1,868,563 for the nine months ended
September 30, 2005 as compared to an operating loss of $1,605,259 for the
comparable period in 2004. The increase in the operating loss for the nine
months ended September 30, 2005 compared to the same period of 2004 was
primarily due to increased general and administrative costs as described
above,
together with the establishment of basic infrastructure to support the new
corporate office.
Gain
on Sale of Securities
For
the
nine months ended September 30, 2005, we recorded a gain on the sale of 328,986
shares of our Panacos Pharmaceuticals shares. The shares sold in the nine
months
ended September 30, 2005 generated a gain of $2,838,491. We recorded a tax
liability from the sale of the securities in the nine month period of
$1,088,360. As of September 30, 2005, we had a total of 683,934 Panacos
shares remaining, including shares held in escrow of 151,938. As
indicated in our press release of August 9, 2005, we continue to monitor
the
stock price and sales volume of Panacos, and may decide to sell additional
shares from time to time.
Other
Operating (Charges) net
The
non-PCT related activities of PBI Source Scientific, Inc., which reflects
the activity of Source Scientific, LLC, had an operating loss of $528,285
for
the nine months ended September 30, 2005, as compared to an operating loss
of
$333,607 for the nine months ended September 30, 2004. The increased loss
was
the result of lower revenues caused by a delay in orders and reduced margins
generated by Source Scientific LLC.
Interest
Income / (Expense)
Interest
income totaled $187,559 for the nine months ended September 30, 2005.
There was no interest expense for the nine months ended September 30,
2005. For the nine months ended September 30, 2004 we had $15,243 of
interest income offset by $69,453 of interest expense incurred as interest
payment on a previous line of credit terminated in September 2004.
Increased interest income was in part the result of interest earned on
investments from the proceeds associated with the sale of our BBI Diagnostics
and BBI Biotech business units to SeraCare and interest earned on cash proceeds
related to the sale of shares in Panacos Pharmaceuticals’ stock.
Additionally,
in the nine months ended September 30, 2005, we have recognized the benefit
of
accrued interest paid related to the Director / CEO’s loan receivable in the
amount of $69,453. In 2004, accrued interest related to the loan receivable
was
not recognized.
Income
Taxes
For
the
nine months ended September 30, 2005 we recorded a net tax provision of $457,535
on income from continuing operations, as compared to a benefit in the nine
months ended September 30, 2004 of $244,036 related to our operating losses
from
continuing operations. We recorded a tax provision of $1,088,360 as a result
of
the sale of securities which was somewhat offset by a tax benefit of $630,825
related to the operating loss for the nine months ending September 30, 2005.
In 2004, as a result of the sale of certain assets and liabilities to
SeraCare, and the resulting gain on the sale, we estimated and paid taxes
of
approximately $3.2 million. Historically, we maintained a full valuation
allowance for our deferred tax assets largely comprised of temporary differences
in accordance with Statement of Financial Accounting Standards No. 109 and
in consideration of three consecutive years of losses from continuing
operations. We elected to record a tax benefit at this time as we anticipate
utilizing the tax benefit from operating losses to mitigate the tax effect
related to the gain on sale of Panacos securities sold.
Income
(loss) from discontinued operations
The
amounts associated with the sale of our BBI Diagnostics and BBI Biotech business
units to SeraCare are reported as discontinued operations in the accompanying
financial statements, in accordance with paragraphs 30 and 42 of Statement
of
Financial Accounting Standards No. 144 “Accounting for the Impairment or
Disposal of Long-Lived Assets” as previously described above.
For
the
nine months ended September 30, 2005, the net income from discontinued
operations was $1,995, as compared to net income of $140,946 for the same
period
in 2004. The decrease in net income from discontinued operations is a
result of operating margin generated from revenues of our former BBI Diagnostics
and BBI Biotech business units realized and included in the September 2004
quarter. These businesses are not part of our operations in 2005.
Gain
on Sale of Net Assets Related to Discontinued Operations
In
the
nine months ended September 30, 2005, we recorded a benefit of $701,699 for
the
overpayment of 2004 taxes related to the sale of net assets in 2004. The
impact resulted from the favorable treatment of ACE credits, utilization
of
installment sale tax treatment related to sale of assets, and tax treatment
of
our sale of our 70% interest in Source Scientific LLC. For the same
nine month period of 2004, we recorded a benefit for the sale of the BBI
Diagnostics and BBI Biotech operating units of $15,868,025 net of tax estimates
of $3,925,200.
Net
Income
For
the
nine months ended September 30, 2005 we realized net income of $875,361 compared
to net income for the nine months ended September 30, 2004 of $14,259,931
for
the reasons discussed above.
LIQUIDITY
AND FINANCIAL CONDITION
As
of
September 30, 2005, our working capital position was $7,134,631 (excluding
restricted cash of $163,296), a decrease of $13,840,935 from our working
capital
position of $20,975,566 as of December 31, 2004. This decrease in working
capital was primarily a result of the use of cash for the repurchase of shares
from stockholders as part our tender offer in February 2005.
Net
cash
used in continuing operations for the nine months ended September 30, 2005
was
$2,321,346 as compared to net cash used by operations of $1,180,743 for the
nine
months ended September 30, 2004. The cash used in operations for the first
nine
months of fiscal 2005 was to support on-going operations.
Net
cash
provided by investing activities for the nine months ended September 30,
2005
was $2,776,512. The sale of Panacos shares provided $2,841,510 in the
third quarter, while funds of $64,998 were utilized to purchase property
and
equipment associated with the new corporate headquarters office in West
Bridgewater, Massachusetts and our new laboratory and office space in
Gaithersburg, Maryland, along with laboratory equipment for the Gaithersburg
facility.
Net
cash
used in financing activities for the nine months ended September 30, 2005
was
$16,437,342 as compared to cash used in financing activities of $2,416,727
for
same period of 2004. In February 2005, we utilized approximately $16.3 million
to complete our issuer tender offer in which we purchased from stockholders
5,203,001 shares of our common stock, which included 754,275 shares issued
upon
exercise of stock options.
Net
cash
provided by discontinued operations for the nine months ended September 30,
2005
was $870,483 as compared to net cash provided from discontinued operations
of
$28,225,626 for same period of 2004. The decrease in net cash from
discontinued operations in 2005 was the result of the generation of cash
from
the sale of net assets in September 2004.
Investment
in Panacos Pharmaceuticals (former V.I. Technologies
Investment)
On
June 11, 2005, V.I. Technologies, Inc. (“Vitex”) announced that it had
closed its merger with Panacos Pharmaceuticals, Inc. (“Panacos”), pursuant
to the Agreement and Plan of Merger dated as of June 2, 2004, as amended on
November 5, 2004, November 28, 2004, December 8, 2004, and
February 14, 2005 (the “Merger Agreement”). As a result of the merger and a
subsequent reverse stock split, we received 1,012,920 shares of Vitex common
stock in place of our Panacos capital stock. Fifteen percent of Vitex stock
owned by former owners of Panacos stock, including fifteen percent of the
Vitex
common stock owned by us, are being held in escrow per the Merger Agreement.
On
September 30, 2005, the closing price of Panacos common stock was $9.74 per
share as quoted on the Nasdaq National Market. On August 18, 2005, V.I.
Technologies formerly changed its company name to Panacos Pharmaceuticals
Inc.
and changed its trading symbol on the Nasdaq National Market to
“PANC”.
In
July
and August 2005 we sold an aggregate of 328,986 shares of Vitex for which
we
received $2,841,510 in cash proceeds, net of charges and commission. On
November 3, and November 4, 2005 the Company sold an aggregate of 100,000
shares
of Panacos stock for which we received approximately $882,990, net of charges
and commission. We continue to hold an additional 431,996 shares of
Panacos and may receive an additional 151,938 shares which are being held
in
escrow until September 2006, per the terms of the Marth 10, 2005 merger between
Vitex and Panacos Pharmaceuticals. The closing price per share of Panacos
common stock as reported on the Nasdaq National Market on November 8, 2005
was
$8.83.
Related
Party Transaction
As
of
September 30, 2005, we evaluated the recoverability of a $1,000,000 loan
receivable (originating January 1, 2003 at an average interest rate of 6.5%
per annum) from Mr. Richard T. Schumacher, a Director and our current
President and Chief Executive Officer, which is reflected on our balance
sheet
in stockholders’ equity as of September 30, 2005. Our review included an
evaluation of the collateral associated with the loan, which consists of
common
stock of Pressure BioSciences. In February 2005, Mr. Schumacher repaid
in full a loan outstanding between an entity controlled by him and a financial
institution with proceeds from the sale of 130,000 shares of our common stock
in
connection with our tender offer completed on February 11, 2005. As a
result, we currently maintain a first priority security interest in this
collateral previously held by the financial institution, which currently
consists of 489,659 shares of common stock of Pressure BioSciences.
In
connection with the Company’s evaluation of the recoverability of the loan
receivable as of September 30, 2005, the Company performed a test for impairment
of the loan receivable by analyzing the value of the collateral. This test
included, among other things, a review of the current trading price of the
Company’s common stock after taking into account factors that may affect the
Company’s ability to sell such stock in the event it were to foreclose on the
collateral to repay the loan receivable and any accrued and unpaid interest.
After performing the impairment test, the Company determined that the loan
receivable was not impaired. The ultimate value that the Company may recover
is
dependent on numerous factors including the Company’s stock price, market
conditions relative to the value of and ability to sell the collateral, and
the
financial status of the Company’s President and Chief Executive Officer. Based
on the Company’s assessment as of September 30, 2005, the Company estimates that
the value of the collateral approximates the amount of the recorded loan
receivable. If actual market conditions are less favorable, the Company’s
stock price declines or other factors arise that are significantly different
than those experienced as of September 30, 2005, an impairment of the loan
receivable together with associated accrued interest is likely to be
required. The Company plans to continue to monitor and test the collateral
for impairment due in large part to the relatively low trading volume of
the
Company’s common stock and recent volatility in our stock price, ranging from a
low of $2.50 per share to a high of $6.70 per share from July 1, 2005 to
September 30, 2005.
Recent
Accounting Pronouncements
In
December 2004, the Financial Accounting Standards Board (FASB) issued a revision
of Statement of Financial Accounting Standards No. 123, “Accounting for
Stock-Based Compensation” (SFAS 123R). SFAS 123R supersedes APB Opinion No. 25,
“Accounting for Stock Issued to Employees,” and its related implementation
guidance and eliminates the alternative to use Opinion 25’s intrinsic value
method of accounting that was provided in Statement 123 as originally issued.
Under Opinion 25, issuing stock options to employees generally resulted in
recognition of no compensation cost. SFAS 123(R) requires all entities recognize
compensation expense in an amount equal to the fair value of share-based
payments (e.g. stock options and restricted stock) granted to employees.
This
applies to all transactions involving the issuance of our own equity in exchange
for goods or services, including employee services. Upon adoption of SFAS
123(R), all stock option awards to employees will be recognized as expense
in
the income statement, typically over any related vesting period. SFAS 123(R)
carried forward the guidance from SFAS 123 for payment transactions with
non-employees. The Securities and Exchange Commission amended the compliance
date on April 14, 2005, to require public companies to adopt the standard
as of the beginning of the first annual period that begins after June 15,
2005. We will, therefore, be required to adopt SFAS 123(R) in the first quarter
of 2006.
SFAS
123(R) permits public companies to adopt its requirements using one of two
methods:
|
1. |
Modified
Prospective Method under which compensation cost is recognized
beginning
with the effective date (a) based on the requirements of SFAS 123(R)
for all share-based payments granted after the effective date and
(b) based on the requirements of SFAS 123 for all awards granted to
employees prior to the effective date of SFAS 123(R) that remain
unvested
on the effective date.
|
|
2. |
Modified
Retrospective Method which includes the requirements of the modified
prospective method described above, but also permits entities to
restate
based on the amounts previously recognized under SFAS 123 for purposes
of
pro forma disclosures either (a) all prior periods presented or
(b) prior interim periods of the year of
adoption.
|
At
this
time, we have not determined which method of adoption we will use.
In
May
2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections”,
which replaces APB 20, “Accounting Changes”, and SFAS 3, “Reporting Accounting
Changes in Interim Financial Statements - An Amendment of APB Opinion No.
28”.
SFAS 154 provides guidance on the accounting for and the reporting of accounting
changes and error corrections. It establishes retrospective application,
or the
latest practicable date, as the required method for reporting a change in
accounting principle and the reporting of a correction of an error. SFAS
154 is
the required method for reporting a change in accounting principle and the
reporting of a correction of an error. The Company has adopted SFAS 154 to
correct an error made during the quarter ended September 30, 2005 and discovered
during the quarter ended March 31, 2006.
On
March
15, 2006, the Company received $1,094,162 from Wells Fargo Corporate Trust
Escrow Services, representing the remaining principal and interest held in
escrow from the 2004 sale of the assets and certain liabilities of the BBI
Core
Businesses to SeraCare. The receipt of these funds triggered the recognition
of
taxable income, accounted for as an installment sale for federal income tax
purposes. During the financial statement closing process for the quarter
ended
March 31, 2006, management determined that a deferred tax liability of
approximately $220,000 should have been established during the quarter ended
September 30, 2005, the period in which the Company filed its
federal income tax return. It was also determined that the Company’s deferred
tax liability in connection with the unrealized gain on Panacos Pharmaceuticals,
Inc., should be reduced by approximately $123,000.
CRITICAL
ACCOUNTING POLICIES
The
critical accounting policies we utilized in the preparation of the accompanying
financial statements are set forth in Part II, Item 6 of our Annual Report
on
Form 10-KSB for the year ended December 31, 2004, under the heading
“Management’s Discussion and Analysis of Financial Condition or Plan of
Operation”. There have been no material changes to these policies since
December 31, 2004, except as follows:
Investment
in Marketable Securities
The
Company’s investment in marketable securities reflects its holdings of common
stock of Panacos Pharmaceuticals Inc. (formerly V.I. Technologies (“Vitex”)), a
publicly traded company listed on the Nasdaq National Market. The Company
held shares in Panacos Pharmaceuticals (Panacos), a private company prior
to
its
merger
with Vitex in March 2005, and this investment was reflected on a cost basis
as
presented on the December 31, 2004 financial statements. As a result of
Vitex’s merger with Panacos Pharmaceuticals in March 2005, and the Company’s
subsequent receipt of shares of Vitex common stock in exchange for all of
its
shares of Panacos, the Company’s investment commencing with the first quarter of
fiscal 2005 has been accounted for under SFAS 115 “Accounting for Certain
Investments in Debt and Equity Securities”, as available for sale. At September
30, 2005, the fair value of the Company’s remaining shares of Panacos common
stock was approximately $6.7 million based on the closing price of $9.74
per
share of Panacos common stock as reported on the Nasdaq National Market on
September 30, 2005.
CONTRACTUAL
OBLIGATIONS
There
have been no material changes to our contractual obligations and commitments
from those described in our Annual Report on Form 10-KSB, except that we
entered
into a lease agreement dated May 5, 2005 (the “Lease”) with Saul Holdings
Limited Partnership, pursuant to which have agreed to lease approximately
2,784
square feet of office space located at 209 Perry Parkway, Gaithersburg, Maryland
20877 for a term of twelve months.
The
following is a summary of our future contractual obligations as of September
30,
2005:
|
|
Payments
Due by Period
|
|
Contractual
Obligations
|
|
Total
|
|
Less
than
1
year
|
|
More
than
1
year
|
|
|
|
|
|
|
|
|
|
Lease
for Maryland operating office (1)
|
|
$
|
42,144
|
|
$
|
42,144
|
|
|
0
|
|
Obligations
relating to Discontinued Operations (2)
|
|
|
88,888
|
|
|
54,888
|
|
|
34,000
|
|
|
|
|
|
|
|
|
|
|
0
|
|
Total
Contractual Obligations
|
|
$
|
131,032
|
|
$
|
97,032
|
|
$
|
34,000
|
|
(1)
On May 5, 2005 we entered into a lease with Saul Holdings Limited Partnership
for approximately 2,784 square feet of office space located at 209 Perry
Parkway, Gaithersburg, Maryland 20877 for a term of twelve months. We will
pay base annual rent in the amount of $55,680, or $4,640 per month during
the
initial term of the Lease, plus $1,245 per month for operating
expense.
(2)
In December 2000, we exited the clinical laboratory testing services
segment and in February 2001, we sold the assets of our wholly owned
subsidiary, BBI Clinical Laboratories, Inc. to Specialty Laboratories, Inc.
of
Santa Monica, CA. Our estimate of remaining short and long term accrued
liabilities to exit the clinical laboratory testing business is $89,500 as
of
September 30, 2005. See also Note 3b of Notes to Consolidated
Financial Statements included in Part I, Item 1 of this Form
10-QSB.
FORWARD-LOOKING
STATEMENTS
This
Quarterly Report on Form 10-QSB contains forward-looking statements which
involve risks and uncertainties, including statements regarding the Company’s
plans, objectives, expectations and intentions. 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 made regarding the expected recovery and value
of
the loan receivable from our President and Chief Executive Officer; our belief
that we have sufficient liquidity to finance operations through 2006; the
amount of cash necessary to operate our business; our ability to raise
additional capital when and if needed; our plans and expectations with
respect to sales of our pressure cycling technology products and services;
our
plans and expectations with respect to the use of our available cash; and
the
anticipated future financial performance of our company and 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 best estimates and assumptions
only as of the date of this report. 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 the report
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,
risks and uncertainties which might cause actual results to differ materially
from those projected in the forward-looking statements contained herein include
the following:
|
•
|
We
may require additional capital to further develop our pressure
cycling
technology products and services and cannot assure that additional
capital
will be available on acceptable terms or at
all.
|
|
•
|
Our
business may be harmed if we encounter problems, delays, expenses
and
complications that typically affect early-stage
companies.
|
|
•
|
Our
business is dependent on the success of our pressure cycling technology
products and services, which has a limited operating history and
has
generated substantial losses and only a limited amount of revenues
to
date.
|
|
•
|
Our
pressure cycling technology business has a history of operating
losses.
|
|
•
|
Our
pressure cycling technology products and services are new and have
limited
market awareness or acceptance.
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|
•
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The
sales cycle of our pressure cycling technology products has been
lengthy
and as a result, we have incurred and may continue to incur significant
expenses and we may not generate any significant revenue related
to those
products.
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•
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If
we are unable to protect our patents and other proprietary technology
relating to our pressure cycling technology products, our business
will be
harmed.
|
|
•
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If
we infringe on the intellectual property rights of others, our
business
will be harmed.
|
|
•
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We
may be unable to adequately respond to rapid changes in
technology.
|
|
•
|
The
market price of Panacos common stock could decline and we may be
unable to
sell Panacos shares at such times or prices as we may
desire.
|
|
•
|
The
shares of Panacos common stock currently held in escrow may not
be
released to us in September 2006.
|
|
•
|
We
may not be able to compete
successfully.
|
|
•
|
We
currently have very few employees and our future success is dependent
on
the continued services of Richard T. Schumacher, our President
and Chief
Executive Officer.
|
|
•
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We
rely on third parties for our manufacturing, engineering and other
related
services.
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|
•
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In
connection with the sale of our BBI Diagnostics and BBI Biotech
business
units, we continue to be exposed to contingent liabilities up to
an amount
equal to the purchase price for the BBI Diagnostics and BBI Biotech
business units, which could prevent us from pursuing our remaining
business operations in the event an indemnification claim is brought
against us.
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|
•
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We
may not be able to fully collect the $900,000 in aggregate principal
amount of promissory notes, which we received in connection with
the sale
of 70% of the ownership interests in Source Scientific,
LLC.
|
|
•
|
We
may not be able to fully collect the principal and interest due
on a
$1,000,000 loan receivable from our President and Chief Executive
Officer,
which could harm our business and financial
condition.
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|
•
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The
market price for our common stock may fluctuate due to low trading
volume,
and it may be difficult for you to sell your stock at the prices
and times
you desire.
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|
•
|
Mr. Richard
T. Schumacher controls a significant percentage of voting power
and may
exercise his voting power in a manner adverse to other stockholders’
interests.
|
|
•
|
Provisions
in our charter and by-laws and our stockholders rights plan may
discourage
or frustrate stockholders’ attempts to remove or replace our current
management.
|
Certain
of these and other factors which might cause actual results to differ materially
from those projected are more fully set forth under the caption “Risk Factors”
in the Company’s Annual Report on Form 10-KSB for the year ended December 31,
2004 and in the Company’s other reports and statements the Company files from
time to time with the SEC.
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Securities Exchange Act reports
is
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
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
In
connection with the preparation of our Quarterly Report on Form 10-QSB for
the quarter ended March 31, 2006, we completed an internal review of our
tax
liability associated with the 2004 sale of assets and certain liabilities
of our
BBI Core Businesses to SeraCare. As a result of this review, we concluded
that
the tax liability related to discontinued operations recorded in the third
quarter of 2005 was understated by approximately $220,000. In connection
with
our internal tax review, we also determined to reduce by approximately $60,000
the estimate of our deferred tax liability for the unrealized gain from our
investment in Panacos Pharmaceuticals, Inc. and to increase by approximately
$23,000 the income tax provision from continuing operations. We therefore
decided to restate our previously issued financial statements for the year
ended
December 31, 2005 and our financial statements for the quarter ended September
30, 2005 to reflect these changes. We have amended our Annual Report on
Form 10-KSB for the year ended December 31, 2005 to restate our financial
results for the year ended December 31, 2005 and this Quarterly Report on
Form 10-QSB/A for the quarter ended September 30, 2005 restates our
financial results for the quarter ended September 30, 2005. In connection
with the filing of these amendments, we carried out a further evaluation,
as of
September 30, 2005, under the supervision and with the participation of our
management, including our President (Principal Executive Officer) and Chief
Financial Officer (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 President (Principal Executive Officer) and
Chief Financial Officer (Principal Financial Officer) concluded that our
disclosure controls and procedures were not effective as of September 30,
2005 in enabling us to record, process, summarize, and report information
required to be included in our periodic SEC filings within the required time
period. We believe that the hiring of our new Chief Financial Officer, effective
as of April 3, 2006, has enabled us to conclude that our disclosure controls
and
procedures are now effective.
As
of
March 31, 2006, we carried out an evaluation, under the supervision and with
the
participation of our management, including our President and Chief Executive
Officer (Principal Executive Officer) and Chief Financial Officer (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 President and Chief Executive Officer (Principal Executive Officer) and
Chief Financial Officer (Principal Financial Officer) concluded that our
disclosure controls and procedures are effective in enabling us to record,
process, summarize and report information required to be included in our
periodic SEC filings within the required time period.
Other
than the changes described above, there have been no changes in our internal
control 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 control over financial reporting.
ITEM
1. LEGAL PROCEEDINGS
None.
None
None.
None.
None.
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
|
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
PRESSURE
BIOSCIENCES, INC.
|
|
|
(Registrant)
|
|
|
|
Date:
June 20, 2006
|
By:
|
/s/
Richard T. Schumacher
|
|
|
Richard
T. Schumacher
|
|
|
President,
Chief Executive Officer and Treasurer
|
|
|
|
|
By:
|
/s/
Edward H. Myles
|
|
|
Edward
H. Myles
|
|
|
Vice
President of Finance & Chief Financial Officer
|
|
|
(Principal
Financial and Accounting Officer)
|