UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB
(Mark
One)
ý
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act
of 1934
For
the quarterly period ended June
30, 2006
or
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act
of 1934
For
the transition period from _____________ to _____________
Commission
file number 0-21615
PRESSURE
BIOSCIENCES, INC.
(Exact
Name of Small Business Issuer as Specified in its Charter)
Massachusetts
|
|
04-2652826
|
(State
or Other Jurisdiction of
|
|
(I.R.S.
Employer
|
Incorporation
or Organization)
|
|
Identification
No.)
|
|
|
|
321
Manley St.
|
|
|
West
Bridgewater, Massachusetts
|
|
02379-1040
|
(Address
of Principal Executive Offices)
|
|
(Zip
Code)
|
(508)
580-1818
(Issuer’s
telephone number, including area code
Check
whether the Issuer: (1) has filed all reports required to be filed by Section
13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90
days.
ý
Yes o
No
Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2).
o
Yes ý
No
The
number of shares outstanding of the Issuer’s common stock as of August 7, 2006
was 2,426,189.
Transitional
Small Business Disclosure Format (check one):
o
Yes ý
No
|
|
Page
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
4
|
|
|
|
|
|
5
|
|
|
|
|
6
|
|
|
|
|
7
|
|
|
|
|
14
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
26
|
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
|
|
June
30,
|
|
December
31,
|
|
ASSETS |
|
2006
|
|
2005
|
|
|
|
(unaudited)
|
|
(restated)
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
6,807,580
|
|
$
|
6,416,772
|
|
Restricted
cash
|
|
|
—
|
|
|
255,612
|
|
Accounts
receivable, less allowance of $115,908
|
|
|
2,473
|
|
|
58,798
|
|
Inventories,
net
|
|
|
73,389
|
|
|
85,207
|
|
Investments
in marketable securities
|
|
|
481
|
|
|
1,533
|
|
Escrow
deposit related to sale of assets to SeraCare
|
|
|
|
|
|
1,117,305
|
|
Prepaid
income taxes
|
|
|
86,075
|
|
|
|
|
Income
tax receivable
|
|
|
506,236
|
|
|
531,122
|
|
Prepaid
expenses, deposits, and other current assets
|
|
|
278,731
|
|
|
75,286
|
|
Total
current assets
|
|
|
7,754,965
|
|
|
8,541,635
|
|
PROPERTY
AND EQUPMENT, NET
|
|
|
205,765
|
|
|
282,780
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS:
|
|
|
|
|
|
|
|
Intangible
assets, net
|
|
|
401,238
|
|
|
425,554
|
|
Assets
transferred under contractual arrangements
|
|
|
1,420,996
|
|
|
1,420,996
|
|
Investments
in marketable securities
|
|
|
2,836,916
|
|
|
3,962,810
|
|
Total
other assets
|
|
|
4,659,150
|
|
|
5,809,360
|
|
TOTAL
ASSETS
|
|
$
|
12,619,880
|
|
$
|
14,633,775
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
104,625
|
|
$
|
56,395
|
|
Accrued
employee compensation
|
|
|
149,433
|
|
|
94,354
|
|
Other
accrued expenses
|
|
|
237,156
|
|
|
99,718
|
|
Income
taxes payable
|
|
|
84,221
|
|
|
63,730
|
|
Current
deferred tax liability
|
|
|
|
|
|
219,949
|
|
Accrued
SeraCare liabilities
|
|
|
9,100
|
|
|
264,713
|
|
Liabilities
from discontinued operations
|
|
|
2,040
|
|
|
2,040
|
|
Total
current liabilities
|
|
|
586,575
|
|
|
800,899
|
|
|
|
|
|
|
|
|
|
LONG
TERM LIABILITIES
|
|
|
|
|
|
|
|
Liabilities
from discontinued operations
|
|
|
4,976
|
|
|
6,120
|
|
Deferred
tax liability
|
|
|
982,032
|
|
|
1,419,662
|
|
Liabilities
transferred under contractual arrangements
|
|
|
1,042,493
|
|
|
1,042,493
|
|
Total
long term liabilities
|
|
|
2,029,501
|
|
|
2,468,275
|
|
TOTAL
LIABILITIES
|
|
|
2,616,076
|
|
|
3,269,174
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
|
|
|
Common
stock, $.01 par value; 20,000,000 shares authorized,
|
|
|
|
|
|
|
|
2,426,189
and 2,424,189 issued and outstanding in 2006 and 2005,
respectively
|
|
|
24,262
|
|
|
24,242
|
|
Additional
paid-in capital
|
|
|
6,479,812
|
|
|
6,027,020
|
|
Loan
receivable from Director / CEO
|
|
|
(1,000,000
|
)
|
|
(1,000,000
|
)
|
Accumulated
other comprehensive income
|
|
|
1,848,650
|
|
|
2,537,963
|
|
Retained
earnings
|
|
|
2,651,080
|
|
|
3,775,376
|
|
Total
stockholders' equity
|
|
|
10,003,804
|
|
|
11,364,601
|
|
TOTAL
LIABILITIES & STOCKHOLDERS' EQUITY
|
|
$
|
12,619,880
|
|
$
|
14,633,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
(UNAUDITED)
|
|
For
the Three Months Ended
|
|
For
the Six Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
REVENUE:
|
|
|
|
|
|
|
|
|
|
PCT
Products, services, other
|
|
$
|
28,783
|
|
$
|
7,612
|
|
$
|
82,197
|
|
$
|
10,242
|
|
Total
revenue
|
|
|
28,783
|
|
|
7,612
|
|
|
82,197
|
|
|
10,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of PCT products & services
|
|
|
47,104
|
|
|
21,166
|
|
|
98,650
|
|
|
27,687
|
|
Research
and development
|
|
|
401,500
|
|
|
114,591
|
|
|
660,319
|
|
|
217,618
|
|
Selling
and marketing
|
|
|
128,005
|
|
|
38,376
|
|
|
195,384
|
|
|
53,636
|
|
General
and administrative
|
|
|
595,481
|
|
|
723,102
|
|
|
1,285,107
|
|
|
1,031,990
|
|
Total
operating costs and expenses
|
|
|
1,172,090
|
|
|
897,235
|
|
|
2,239,460
|
|
|
1,330,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss from continuing operations
|
|
|
(1,143,307
|
)
|
|
(889,623
|
)
|
|
(2,157,263
|
)
|
|
(1,320,689
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized
gain on securities held for sale
|
|
|
—
|
|
|
|
|
|
517,938
|
|
|
|
|
Other
operating (charges), net
|
|
|
|
|
|
(152,285
|
)
|
|
|
|
|
(387,637
|
)
|
Interest
income
|
|
|
109,287
|
|
|
36,956
|
|
|
217,792
|
|
|
115,888
|
|
Total
other income (expense)
|
|
|
109,287
|
|
|
(115,329
|
)
|
|
735,730
|
|
|
(271,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before income taxes
|
|
|
(1,034,020
|
)
|
|
(1,004,952
|
)
|
|
(1,421,533
|
)
|
|
(1,592,438
|
)
|
Income
tax benefit from continuing operations
|
|
|
219,759
|
|
|
255,390
|
|
|
297,237
|
|
|
455,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(814,261
|
)
|
|
(749,562
|
)
|
|
(1,124,296
|
)
|
|
(1,137,302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations (net of income tax benefit of
$0
|
|
|
|
|
|
656
|
|
|
|
|
|
5,335
|
|
and
$2,411 for the three and six months ended in 2005,
respectively)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
|
|
|
|
656
|
|
|
|
|
|
5,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(814,261
|
)
|
$
|
(748,906
|
)
|
$
|
(1,124,296
|
)
|
$
|
(1,131,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share from continuing operations - basic and
diluted
|
|
$
|
(0.34
|
)
|
$
|
(0.31
|
)
|
$
|
(0.46
|
)
|
$
|
(0.32
|
)
|
Income
per share from discontined operations - basic and
diluted
|
|
$
|
0.00
|
|
$
|
0.00
|
|
$
|
0.00
|
|
$
|
0.00
|
|
Net
loss per share - basic and diluted
|
|
$
|
(0.34
|
)
|
$
|
(0.31
|
)
|
$
|
(0.46
|
)
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares used to calculate net loss per share -
basic and
diluted
|
|
|
2,426,167
|
|
|
2,424,189
|
|
|
2,425,183
|
|
|
3,530,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
(UNAUDITED)
|
|
For
the Three Months Ended
|
|
For
the Six Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
Other
Comprehensive Income (loss):
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(814,261
|
)
|
$
|
(748,906
|
)
|
$
|
(1,124,296
|
)
|
$
|
(1,131,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
of unrealized gain to realized gain on securities sold during the
period
|
|
|
—
|
|
|
|
|
|
(400,722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
(loss) gain on marketable securities
|
|
|
(1,048,929
|
)
|
|
2,410,750
|
|
|
(727,791
|
)
|
|
5,460,590
|
|
Income
tax benefit (provision) related to items of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
comprehensive (loss) income
|
|
|
422,202
|
|
|
(1,012,515
|
)
|
|
439,200
|
|
|
(1,963,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other comprehensive (loss) income, net of taxes
|
|
|
(626,727
|
)
|
|
1,398,235
|
|
|
(689,313
|
)
|
|
3,496,842
|
|
Comprehensive
(loss) income
|
|
$
|
(1,440,988
|
)
|
$
|
649,329
|
|
$
|
(1,813,609
|
)
|
$
|
2,364,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
(UNAUDITED)
|
|
For
the Six Months Ended
|
|
|
|
June
30,
|
|
|
|
2006
|
|
2005
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,124,296
|
)
|
$
|
(1,131,967
|
)
|
Less
income from discontinued operations
|
|
|
|
|
|
5,335
|
|
Loss
from continuing operations
|
|
|
(1,124,296
|
)
|
|
(1,137,302
|
)
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile loss from continuing operations to net cash
|
|
|
|
|
|
|
|
used
in operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
68,335
|
|
|
39,274
|
|
Non-cash
stock-based compensation expense
|
|
|
447,410
|
|
|
|
|
Loss
on sale of propery and equipment
|
|
|
42,781
|
|
|
|
|
Realized
gain on sale of marketable securities
|
|
|
(517,938
|
)
|
|
|
|
Interest
(receivable) on loan outstanding from Director / CEO
|
|
|
|
|
|
(40,121
|
)
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
56,325
|
|
|
205,757
|
|
Inventories
|
|
|
11,818
|
|
|
(141,146
|
)
|
Investments
in marketable securities
|
|
|
|
|
|
1,791
|
|
Income
tax receivable
|
|
|
24,886
|
|
|
(452,725
|
)
|
Prepaid
income taxes
|
|
|
(86,075
|
)
|
|
|
|
Prepaid
expenses, deposits, and other current assets
|
|
|
(203,445
|
)
|
|
151,757
|
|
Assets
and liabilities transferred under contractual obligations,
(net)
|
|
|
|
|
|
360,363
|
|
Accounts
payable
|
|
|
48,230
|
|
|
135,943
|
|
Accrued
employee compensation
|
|
|
55,079
|
|
|
436,182
|
|
Other
accrued expenses
|
|
|
137,437
|
|
|
(179,501
|
)
|
Income
taxes payable
|
|
|
20,491
|
|
|
|
|
Deferred
tax liability
|
|
|
(219,949
|
)
|
|
|
|
Net
cash used in operating activities
|
|
|
(1,238,911
|
)
|
|
(619,728
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Payments
for additions to property and equipment
|
|
|
(10,304
|
)
|
|
(38,147
|
)
|
Proceeds
from sale of marketable securities
|
|
|
518,463
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
508,159
|
|
|
(38,147
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Use
of funds in repurchase of common stock
|
|
|
|
|
|
(16,303,862
|
)
|
Proceeds
from the issuance of common stock
|
|
|
5,400
|
|
|
— |
|
Restricted
cash payable to Seracare
|
|
|
|
|
|
(15,764
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
5,400
|
|
|
(16,319,626
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM DISCONTINUED OPERATIONS:
|
|
|
|
|
|
|
|
Operating
cash flows, net of taxes
|
|
|
(1,145
|
)
|
|
(47,019
|
)
|
Investing
cash flows
|
|
|
1,117,305
|
|
|
|
|
Net
cash provided by (used in) discontinued operations
|
|
|
1,116,160
|
|
|
(47,019
|
)
|
|
|
|
|
|
|
|
|
INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS:
|
|
|
390,808
|
|
|
(17,024,520
|
)
|
Cash
and cash equivalents, beginning of period
|
|
|
6,416,772
|
|
|
21,201,790
|
|
Cash
and cash equivalents, end of period
|
|
$
|
6,807,580
|
|
$
|
4,177,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
INFORMATION:
|
|
|
|
|
|
|
|
Income
Taxes Paid
|
|
$
|
86,075
|
|
$
|
—
|
|
Interest
Paid
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
AS
OF JUNE 30, 2006
1) |
Organization
and Business
Activities
|
Pressure
BioSciences, Inc. (“PBI”) is an early-stage company focused on the development
and commercialization of a novel, platform technology called Pressure Cycling
Technology (“PCT”). PCT uses cycles of hydrostatic pressure between ambient and
ultra-high levels (up to 35,000 psi and greater) to control bio-molecular
interactions. PBI currently holds 13 US and 5 foreign patents covering multiple
applications of PCT in the life sciences field, including in such areas as
genomic and proteomic sample preparation, pathogen inactivation, the control
of
enzymes, immunodiagnostics, and protein purification.
2) |
Interim
Financial Reporting
|
The
accompanying unaudited consolidated financial statements of Pressure
BioSciences, Inc., have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of only normal recurring adjustments) considered necessary for
a
fair presentation have been included. Operating results for the three months
and
six months ended June 30, 2006 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2006. For further
information, refer to the audited consolidated financial statements and
footnotes thereto included in the Company’s Annual Report on Form 10-KSB/A (the
“Form 10-KSB/A”) for the fiscal year ended December 31, 2005.
3) |
Summary
of Significant Accounting
Policies
|
Principles
of Consolidation
The
consolidated financial statements include the accounts of Pressure BioSciences,
Inc., and its wholly-owned subsidiaries, PBI Biotech Research Laboratories,
Inc., PBI Source Scientific, Inc., and PBI BioSeq, Inc.
Use
of Estimates
To
prepare the unaudited consolidated financial statements in conformity with
generally accepted accounting principles, we are required to make significant
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the consolidated financial statements and the reported amounts of revenues
and
expenses during the reporting periods. In addition, significant estimates were
made in projecting future cash flows to quantify impairment of assets, in
estimates regarding the collectability of accounts receivable, the realizability
of a loan receivable from our President and Chief Executive Officer, deferred
taxes, the net realizable value of our inventories, the estimates employed
in
our calculation of fair value of stock options awarded to directors, officers
and employees, as well as an estimate for remaining liabilities associated
with
discontinued operations. On an on-going basis, we evaluate our estimates. We
base our 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.
Cash
and Cash Equivalents and Restricted Cash
We
invest
our available cash in short-term, investment grade, interest bearing
obligations, including money market funds, municipal notes, and bank and
corporate debt instruments. Securities purchased with initial maturities of
three months or less are valued at cost plus accrued interest, which
approximates fair market value, and are classified as cash
equivalents.
Our
restricted cash consists of payments from customers of our former business
units
who remit payments to us erroneously. When this cash is received in our lockbox
system we isolate it so that we can return it to SeraCare Life Sciences, Inc.
(“SeraCare”) in a timely manner. The balances reflected are those indicative of
timing of transfers to SeraCare. At the time the cash is classified as
restricted, we record a corresponding liability so the balances have no effect
on our net assets.
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF JUNE 30, 2006
Computation
of Earnings (Loss) per Share
Basic
earnings (loss) per share is computed by dividing income (loss) available to
common shareholders by the weighted average number of common shares outstanding.
Diluted earnings 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 dilutive
potential 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. Stock options that are anti-dilutive are excluded from this
calculation.
Potentially
dilutive securities having a net effect of 111,227 and 146,849 shares were
excluded from the calculation for the three and six months ended June 30, 2006.
Potentially dilutive securities having a net effect of 399,722 and 112,519
shares were excluded from the calculation for the three and six months ended
June 30, 2005.
Accounting
for Stock-Based Compensation
On
January 1, 2006, we adopted SFAS No. 123 (revised 2004), “Share-Based
Payment,” or SFAS 123R, and its related implementation guidance as promulgated
by both the Financial Accounting Standards Board (the “FASB”), and the
Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No.
107, or SAB 107, associated with the accounting for stock-based compensation
arrangements of our employees and directors. These pronouncements require that
equity-based compensation cost be measured at the grant date (based upon an
estimate of the fair value of the compensation granted) and recorded to expense
over the requisite service period, which generally is the vesting period. We
adopted SFAS 123R using the modified prospective method in the first quarter
of
2006. Under this method, stock-based compensation expense recognized in the
first half of 2006 includes: (a) compensation expense for all equity-based
payments granted prior to, but not yet vested as of January 1, 2006, based
on
the grant date fair value estimated in accordance with the original provisions
of FASB Statement No. 123, “Accounting for Stock-Based Compensation” (“SFAS
123”), and (b) compensation expense for all equity-based payments granted
between January 1, 2006 and June 30, 2006, based on the grant date fair value
estimated using the Black-Scholes option pricing model. Results for periods
prior to January 1, 2006 do not include, and have not been restated to reflect
amounts associated with the requirements of SFAS 123R.
We
estimate the fair value of equity-based compensation utilizing the Black-Scholes
option pricing model. This model requires the input of several factors such
as
the expected option term, expected volatility of our stock price over the
expected term, expected risk-free interest rate over the expected option term,
expected dividend yield rate over the expected option term, and an estimate
of
expected forfeiture rates, and is subject to various assumptions. We believe
this valuation methodology is appropriate for estimating the fair value of
stock
options granted to employees and directors which are subject to SFAS 123R
requirements. These amounts are estimates and thus may not be reflective of
actual future results, nor amounts ultimately realized by recipients of these
grants. These amounts, and the amounts applicable to future quarters, are also
subject to future quarterly adjustments based upon a variety of factors. The
following table summarizes the assumptions we utilized for grants of options
to
the two sub-groups of our stock option recipients during the three and six
months ended June 30, 2006:
Assumptions
|
|
Outside
Board Members
|
|
CEO
and other Officers & Employees
|
|
Expected
Life
|
|
|
5.0
|
|
|
6.0
|
|
Expected
Volatility
|
|
|
74.7
|
%
|
|
88.2
|
%
|
Risk-Free
Interest Rate
|
|
|
4.9
|
%
|
|
4.9
|
%
|
Expected
Dividend Yield
|
|
|
0.0
|
%
|
|
0.0
|
%
|
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF JUNE 30, 2006
We
developed the above referenced assumptions based on the following rationale.
We
utilized the simplified method provided by SAB No. 107 to develop our estimate
of expected term of the stock options granted. Under this method, options
granted to outside board members are estimated to have an expected term of
5
years and options granted to our CEO and all other officers and employees are
estimated to have an expected term of 6 years. All options granted have a 10
year contractual life. The options granted to outside directors vest immediately
and the options granted to the CEO and all other officers and employees vest
annually, on an equal basis over three years. SAB 107 provides a simplified
approach to developing the estimate of expected term based on the average of
the
midpoint of the vesting period and the contractual life. The expected volatility
is assumed to approximate the historical volatility that was observed during
the
corresponding expected term for each sub-group of option recipients. The
risk-free interest rate is a weighted average approximation based on the U.S.
Treasury yields in effect at the time of the grants. We used a dividend yield
of
zero for the calculation because we have never paid cash dividends and we have
no intention to begin paying dividends in the foreseeable future. While we
believe these estimates are reasonable, the compensation expense recorded would
increase if the assumed expected term was increased or a higher expected
volatility was used.
As
a
result of adopting SFAS 123R on January 1, 2006 we recognized stock-based
compensation expense of $243,955 and $447,410 for the three and six months
ended
June 30, 2006, respectively. The following table summarizes the effect of this
stock-based compensation expense within our Consolidated Statement of
Operations:
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30, 2006
|
|
June
30, 2006
|
|
Cost
of PCT products & services
|
|
$
|
2,620
|
|
$
|
4,714
|
|
Research
and development
|
|
|
43,991
|
|
|
65,616
|
|
Selling
and marketing
|
|
|
11,761
|
|
|
20,499
|
|
General
and administrative
|
|
|
185,583
|
|
|
356,581
|
|
Total
stock-based Compensation expense
|
|
$
|
243,955
|
|
$
|
447,410
|
|
|
|
|
|
|
|
|
|
The
provisions of SFAS 123R require that we make an estimate of our forfeiture
rate
and adjust the expense that we recognize to reflect the estimated number of
options that will go unexercised. Due to our early stage of development as
a
newly focused company and our limited workforce of eleven employees as of June
30, 2006, including executive officers, we are challenged to develop an
appropriate estimate of forfeitures. Based on these circumstances we have opted
for a conservative position in that we are estimating forfeitures to be 0%
at
this time. We will continue to assess this position as our company develops
and
our workforce expands. When we feel that we have sufficient data on which to
base an assumption we will adjust the expense recognized, if
necessary.
As
of
June 30, 2006, the total estimated fair value of unvested stock options to
be
amortized over their remaining vesting period was $618,088.
Prior
to
January 1, 2006, we accounted for our stock-based compensation under the
recognition and measurement provisions of APB No. 25, and related
Interpretations, as permitted by SFAS 123, as amended by SFAS No. 148
“Accounting
for Stock-Based Compensation - Transition and Disclosure”.
No
stock-based compensation cost was recognized in the Consolidated Statements
of
Operations for the three or six-month period ended June 30, 2005, as all options
granted under our option plans had an exercise price equal to the fair market
value of the underlying common stock on the date of grant.
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF JUNE 30, 2006
The
following table illustrates the effect on the net loss and the net loss per
share for the three and six months ended June 30, 2005 as if we had applied
the
fair value recognition provisions of SFAS 123 to options granted under our
stock
option plans in effect at that time. For purposes of this pro forma disclosure,
the value of the options is estimated using the Black-Scholes option pricing
model and amortized to expense over the options’ vesting periods:
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30, 2005
|
|
June
30, 2005
|
|
Net
income / (loss) - as reported
|
|
$
|
(748,906
|
)
|
$
|
(1,131,967
|
)
|
Add
back: Stock-based compensation
|
|
|
|
|
|
|
|
in
net income / (loss), as reported
|
|
|
—
|
|
|
|
|
Deduct:
Stock-based employee compensation
|
|
|
|
|
|
|
|
expense
determined under fair value based method
|
|
|
|
|
|
|
|
for
all awards, net of related tax effects
|
|
|
(287,257
|
)
|
|
(287,508
|
)
|
Net
/ Income / (Loss) - pro forma
|
|
$
|
(1,036,163
|
)
|
$
|
(1,419,475
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share - as reported
|
|
$
|
(0.31
|
)
|
$
|
(0.32
|
)
|
Basic
and diluted net loss per share - pro forma
|
|
$
|
(0.43
|
)
|
$
|
(0.40
|
)
|
|
|
|
|
|
|
|
|
Correction
of an Accounting 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. We have 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, we received $1,094,162 from Wells Fargo Corporate Trust Escrow
Services, representing the remaining principal held in escrow from the 2004
sale
of the assets and certain liabilities of our BBI Core Businesses to SeraCare
Life Sciences Inc. (“SeraCare”), plus interest from January 1 through February
28, 2006. 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, we 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 we filed our federal income tax return. Upon reexamining
accounting for income taxes in its entirety, we further determined that the
deferred tax liability in connection with the unrealized gain on Panacos
Pharmaceuticals Inc., should be reduced by approximately $60,000, and that
the
income tax provision from continuing operations should be increased by $23,000.
We also determined that the accounting for deferred tax assets needed to be
adjusted; however, there would be no impact from this adjustment as deferred
tax
assets are fully reserved for.
We
elected to remedy these errors by restating our Annual Report on Form 10-KSB
for
the year ended December 31, 2005 and our Quarterly Report on Form 10-QSB for
the
quarter ended September 30, 2005. The December 31, 2005 balance sheet presented
in this Quarterly Report on Form 10-QSB for the period ended June 30, 2006,
reflects the appropriate adjustments to the income tax accounts and to retained
earnings.
These
adjustments did not change our reported pre-tax results from continuing
operations, but income from continuing operations after income taxes for the
year ended December 31, 2005 has been reduced from approximately $873,000 to
approximately $850,000.
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF JUNE 30, 2006
4) |
Investment
in Marketable
Securities
|
As
of
June 30, 2006, we held 361,996 shares (plus an additional 151,938 shares being
held in escrow until September 2006) of common stock of Panacos Pharmaceuticals
Inc. (“Panacos”), a publicly traded company listed on the NASDAQ Global Market.
We account for this investment in accordance with SFAS 115 “Accounting
for Certain Investments in Debt and Equity Securities”
as
securities available for sale. On June 30, 2006, our balance sheet reflected
the
fair value of our investment in Panacos to be approximately $2.8 million, based
on the closing price of Panacos shares of $5.52 per share on that day. The
carrying value of our investment in Panacos common stock held will change from
period to period based on the closing price of the common stock of Panacos
as of
the balance sheet date. This change in market value will be recorded by us
on a
quarterly basis as an unrealized gain or loss in Comprehensive Income or
Loss.
5) |
Discontinued
Operations
|
On
September 14, 2004, we completed the sale of substantially all of the
assets and selected liabilities of our BBI Diagnostics and BBI Biotech divisions
to SeraCare. Pursuant to the Asset Purchase Agreement, the businesses were
sold
for $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 which expired in March 2006. In December 2004, and again
in February 2005, we settled disagreements with SeraCare regarding the value
of
the inventory and accounts receivable in the closing balance sheets by releasing
approximately $1.4 million from the escrow account. On March 15, 2006, we
received approximately $1.1 million in remaining escrow funds.
6) |
Assets
and Liabilities Transferred Under Contractual
Arrangements
|
In
June
2004, we completed the sale of substantially all of the assets as well as
selected liabilities of PBI Source Scientific, Inc. (PBI’s laboratory
instrumentation division) to Source Scientific, LLC, an entity owned 35% by
Mr.
Richard W. Henson, 35% by Mr. Bruce A. Sargeant, and 30% by us. Despite our
intent to exit the laboratory instrumentation business, we may be viewed as
having a continuing involvement in the business of Source Scientific, LLC.
Because of this and other factors, even though the transaction is treated as
a
divestiture for legal purposes, we have not recognized the transaction as a
divestiture for accounting purposes in accordance with SEC SAB Topic 5E,
“Accounting
for Divestiture of a Subsidiary or Other Business Operation”.
In accordance with SAB Topic 5E, we have recorded the assets and liabilities
associated with the Source Scientific, LLC operation on our consolidated balance
sheet as of June 30, 2006 under the captions “Assets transferred under
contractual arrangements” and “Liabilities transferred under contractual
arrangements”.
During
the six months ended June 30, 2006, Source Scientific, LLC recognized net income
of approximately $100,000. In accordance with SAB Topic 5E we excluded this
net
income from our Consolidated Statement of Operations and made no adjustment
to
the accounts captioned “Assets transferred under contractual arrangements” and
“Liabilities transferred under contractual arrangements”. SAB Topic 5E requires
that we recognize the losses of Source Scientific, LLC to the extent such losses
exceed profits in the same fiscal year. In accordance with SAB Topic 5E, we
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 GAAP).
7) |
Related
Party Transaction
|
As
of
June 30, 2006, we evaluated the recoverability of the $1,000,000 loan receivable
from our President, CEO, and a director, Mr. Richard T. Schumacher, which
is reflected on the accompanying balance sheet in stockholders' equity as a
loan
receivable. Our evaluation of the recoverability of the loan receivable included
an analysis of the value of the 479,657 shares of our common stock which are
held as collateral. This test included a review of the current trading price
of
our common stock. After performing the impairment test, we determined that
the
loan receivable was not impaired. We will continue to monitor and test the
collateral for impairment due in large part to the relatively low trading volume
of our common stock and recent volatility in stock price, ranging from a low
of
$3.11 per share to a high of $4.79 per share from January 1, 2006 to June 30,
2006.
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF JUNE 30, 2006
Inventories
represented are primarily finished Barocycler TM
units
available for sale and those units at various stages of manufacture. As of
June
30, 2006, finished goods included Barocycler™ NEP3229 units and PULSE™
Tubes.
As
of
June 30, 2006, inventories were comprised as follows:
|
|
June
30,
|
|
|
|
2006
|
|
|
|
|
|
Raw
materials
|
|
$
|
18,658
|
|
Work-in-process
|
|
|
21,258
|
|
Finished
goods
|
|
|
33,473
|
|
Total
|
|
$
|
73,389
|
|
9) |
Commitments
and Contingencies
|
Royalty
Commitments
In
1998,
we acquired all the remaining outstanding common stock of BioSeq, Inc., a
development-stage company involved with PCT. In accordance with the provisions
of a technology transfer agreement assumed in the transaction, we are obligated
to pay a 5% royalty on net sales until March 2016. For purposes of the
royalty calculation, net sales include the trade revenues related to units
sold
or leased as well as PULSE™ Tube revenue. The royalty obligation that we accrued
for the six months ended June 30, 2006 was approximately $4,000.
Research
and Development Collaboration
On
February 1, 2006, we entered into an agreement with the University of New
Hampshire (“UNH”) pursuant to which UNH agreed to perform certain research and
development services for us through December 31, 2006. Subject to the terms
of
the agreement, we will pay UNH an aggregate of $157,850 during the term of
the
agreement.
Operating
Leases
On
March
1, 2006, we entered into a sub-lease agreement with Proteome Systems, Inc.,
pursuant to which we have agreed to lease approximately 650 sq. feet of
laboratory space plus 100 sq. feet of office space from Proteome Systems in
Woburn, Massachusetts. The lease period will expire on December 31, 2006. We
will pay $2,350 per month for the use of these facilities.
Purchase
Commitments
In
April
2006, we executed a purchase order with Source Scientific, LLC under which
we
agreed to purchase 25 Barocycler NEP3229 units. In connection with this purchase
order, we submitted a deposit to Source Scientific, LLC for $200,000. In
accordance with the terms of the agreement, we expect that the units will be
completed during the fourth quarter of this year. We will be billed for the
complete cost of each unit as it is completed. Finished goods will stay at
Source Scientific, LLC for shipment directly to our customers.
PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF JUNE 30, 2006
Stock
Options
On
June
16, 2005, our stockholders approved our 2005 Equity Incentive Plan (the “Plan”)
pursuant to which an aggregate of 1,000,000 shares of common stock were reserved
for the issuance upon exercise of stock options or other equity awards made
under the Plan. Under the Plan, our board of directors has authority to grant
options or other equity awards to employees, officers, directors, consultants,
and advisors. As of June 30, 2006, there were 656,000 stock options granted
and
outstanding under the 2005 Equity Incentive Plan and 344,000 shares available
for future grants.
We
also
have 244,000 outstanding under our 1999 Non-Qualified Plan and 9,500 options
outstanding under our 1994 Incentive Stock Option Plan. As of June 30, 2006,
there were 4,800 shares available for future grant under the 1999 Non-Qualified
Plan. The 1994 Incentive Stock Option Plan has expired; therefore, there are
no
shares available for future grants under this plan.
Under
our
1999 Employee Stock Purchase Plan, eligible employees are entitled to purchase
shares of our stock at 85% of the market value as determined at the beginning
and end of the offering period. A total of 250,000 shares had been reserved
for
this plan. As of June 30, 2006, there were 197,326 shares available for future
issuance under this plan. As of July 29, 2004, this plan was suspended; however,
the board of directors has the ability to reactivate the Plan at its
discretion.
During
the first six months of 2006, our board of directors granted stock options
to
our employees, officers, and to our board of directors. The following tables
present summarized data relative to our stock option plans:
The
following tables summarize information concerning options outstanding and
exercisable as of June 30, 2006:
|
|
Stock
Options
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Average
price
|
|
|
|
Shares
|
|
per
share
|
|
Balance
outstanding, 12/31/2005
|
|
|
585,000
|
|
$
|
2.96
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
346,000
|
|
|
3.98
|
|
Exercised
|
|
|
(2,000
|
)
|
|
2.70
|
|
Expired
|
|
|
(19,500
|
)
|
|
4.24
|
|
Forfeited
|
|
|
—
|
|
|
|
|
Balance
outstanding, 6/30/2006
|
|
|
909,500
|
|
$
|
3.32
|
|
|
|
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
Range
of Exercise Prices
|
|
Weighted
Average Remaining Life
|
|
Number
of
Options
|
|
Weighted
Average
Exercise
Price
|
|
Number
of
Options
|
|
Weighted
Average
Exercise
Price
|
|
$2.50
-
$2.70
|
|
|
6.1
|
|
|
159,000
|
|
$
|
2.64
|
|
|
159,000
|
|
$
|
2.64
|
|
2.71
-
3.08
|
|
|
8.1
|
|
|
343,000
|
|
|
2.96
|
|
|
209,000
|
|
|
2.98
|
|
3.09
-
3.97
|
|
|
9.5
|
|
|
280,500
|
|
|
3.79
|
|
|
64,500
|
|
|
3.92
|
|
3.98
-
4.25
|
|
|
9.3
|
|
|
127,000
|
|
|
4.12
|
|
|
67,000
|
|
|
4.13
|
|
$2.50
-
$4.25
|
|
|
8.4
|
|
|
909,500
|
|
$
|
3.32
|
|
|
499,500
|
|
$
|
3.15
|
|
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Quarterly Report on Form 10-QSB contains forward-looking statements within
the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. In some cases, forward-looking statements
are identified by terms such as “may”, “will”, “should”, “could”, “would”,
“expects”, “plans”, “anticipates”, “believes”, “estimates”, “projects”,
“predicts”, “potential”, and similar expressions intended to identify
forward-looking statements. Such statements include, without limitation,
statements regarding:
|
•
|
our
plans and expectations with respect to our pressure cycling technology
operations;
|
|
|
|
|
•
|
our
anticipated costs and expenses with respect to our
business;
|
|
|
|
|
•
|
market
acceptance and the potential for commercial success of our PCT
products;
|
|
|
|
|
•
|
the
sufficiency of our working capital and our belief that we have sufficient
liquidity to finance operations into 2008;
|
|
|
|
|
•
|
our
ability to develop future collaborations with partners who generate
and
disseminate meaningful and beneficial scientific
data;
|
|
|
|
|
•
|
the
expected results of our current and future collaboration
agreements;
|
|
|
|
|
•
|
our
ability to sell additional Barocycler instruments to
existing and future collaboration partners;
|
|
|
|
|
•
|
general
economic conditions; and
|
|
|
|
|
•
|
the
anticipated future financial performance and business operations
of our
Company.
|
These
forward-looking statements are only predictions and involve known and unknown
risks, uncertainties, and other factors that may cause our actual results,
levels of activity, performance, or achievements to be materially different
from
any future results, levels of activity, performance, or achievements expressed
or implied by such forward-looking statements. Also, these forward-looking
statements represent our estimates and assumptions only as of the date of this
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 or to conform to actual
results. Factors that could cause or contribute to differences in our
future financial results include those discussed in the risk factors set forth
in Item 6 of our Annual Report on Form 10-KSB, as amended, for the year ended
December 31, 2005, as well as those discussed elsewhere in this report. We
qualify all of our forward-looking statements by these cautionary
statements.
You
should read this section in combination with the section entitled Management’s
Discussion and Analysis of Financial Condition and Results of Operations for
the
year ended December 31, 2005, included in our Annual Report on Form 10-KSB,
as amended, for the year ended December 31, 2005 and in our Quarterly
Report on Form 10-QSB for the three and six months ended June 30,
2006.
Overview
Pressure
BioSciences, Inc. (“PBI”) is an early-stage company focused on the development
and commercialization of a novel, platform technology called Pressure Cycling
Technology (“PCT”). PCT uses cycles of hydrostatic pressure between ambient and
ultra-high levels (up to 35,000 psi and greater) to control bio-molecular
interactions. PBI currently holds 13 US and 5 foreign patents covering multiple
applications of PCT in the life sciences field, including in such areas as
genomic and proteomic sample preparation, pathogen inactivation, the control
of
enzymes, immunodiagnostics, and protein purification.
During
the first six months of 2006 we have made important progress in the execution
of
our business plan. The key priorities for this year include: the continued
development and public dissemination of third party scientific data to support
market acceptance of our products, continued development of our infrastructure
in support of our anticipated future growth, continued addition of qualified
personnel to serve on our senior management team, and continued diligence
towards the management of our financial resources. Selected developments
that illustrate our progress this year are listed below:
|
•
|
On
February 1, 2006 we entered into an agreement with the University
of New
Hampshire, pursuant to which UNH agreed to perform certain research
and
development services for us through December 31, 2006. Subject to
the
terms of the agreement, we will pay UNH an aggregate of $157,850
during
the term of the agreement.
|
|
|
|
|
•
|
On
March 1, 2006 we entered into a sub-lease agreement with Proteome
Systems,
Inc., pursuant to which we have agreed to lease approximately 650
sq. feet
of laboratory space plus 100 sq. feet of office space from Proteome
Systems located in Woburn, Massachusetts until December 31, 2006.
We will
pay $2,350 per month for the use of these facilities.
|
|
|
|
|
•
|
On
March 15, 2006, we received $1,094,162 from Wells Fargo Corporate
Trust
Escrow Services, representing the remaining principal held in escrow
from
the 2004 sale of the assets and certain liabilities of our BBI Core
Businesses to SeraCare Life Sciences Inc. (“SeraCare”), plus interest from
January 1 through February 28, 2006.
|
|
|
|
|
•
|
During
the first quarter of 2006 we sold a total of 57,900 shares of Panacos
Pharmaceuticals stock for a realized, pre-tax gain of
$517,938.
|
|
|
|
|
•
|
In
April 2006, we entered into an agreement with Source Scientific,
LLC to
purchase an additional 25 Barocycler NEP3229 units.
|
|
|
|
|
•
|
On
April 3, 2006, we announced that we made important additions to our
Senior
Management Team including the promotion of Dr. Nathan Lawrence to
the
newly created position of Vice President of Marketing & Business
Development, the hiring of Dr. Alexander V. Lazarev as our Director
of
Research and Development, and the hiring of Mr. Edward H. Myles as
our
Vice President of Finance & CFO.
|
|
|
|
|
•
|
On
April 24, 2006 we announced the hiring of Dr. Edmund Ting as our
Senior
Vice President of Engineering.
|
|
|
|
|
•
|
In
June 2006, we installed and invoiced the Federal Bureau of Investigation
(FBI) for a Barocycler NEP3229 that they committed to purchase during
the
first quarter of 2006. The FBI had been working with our scientists
to
evaluate PCT’s ability to extract DNA from bone fragments, blood, hair,
and skin.
|
|
|
|
|
•
|
In
July 2006, we announced that DermTech International has leased a
Barocycler NEP3229 for a three year period. DermTech decided to use
the
PCT SPS as the primary, front-end extraction method for recovering
ribonucleic acid (RNA) from skin cells harvested via their proprietary
Epidermal Genetic Information Retrieval (EGIR)
platform.
|
Our
pressure cycling technology uses an instrument that is capable of cycling
pressure between ambient and ultra-high levels at controlled temperatures to
rapidly and repeatedly control the interactions of biomolecules. PCT utilizes
our Barocycler instrument and disposable PULSE Tubes (together, the PCT Sample
Preparation System, or the PCT SPS) to release nucleic acids, proteins, and
small molecules from plant/animal cells and tissues, as well as other organisms
that are not easily disrupted by standard chemical and physical methods. 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 life sciences areas, including:
|
|
|
|
•
|
sample
preparation for genomic, proteomic, and small molecule
studies
|
|
|
|
|
•
|
control
of enzymatic actions
|
|
|
|
|
•
|
protein
purification;
|
|
|
|
|
•
|
pathogen
inactivation;
|
|
|
|
|
•
|
immunodiagnostics;
|
|
|
|
|
•
|
DNA
sequencing; and
|
|
|
|
|
•
|
food
safety.
|
Near-Term
Strategy
Our
near-term strategy is to market PCT for use in sample preparation in the life
sciences field, with particular focus in the area of the extraction of nucleic
acids, proteins, and small molecules from cells and tissues. To this end, we
have developed scientific collaborations with a number of leading laboratories
and academic institutions in the United States, which we expect will remain
ongoing throughout 2006 and beyond. We enter into these collaborations with
parties that we view to have a high likelihood of purchasing our Barocycler
instrument and disposable PULSE Tubes. We also pursue collaboration partners
whose research is synergistic with our plans to expand the use of PCT into
new
areas of sample preparation. In both cases, we expect that our collaboration
partners will generate data that will be publicly disseminated in scientific
publications and presentations.
Our
collaboration program was initiated in June 2005 with the intention of placing
twelve Barocycler NEP3229 units in selected strategic customer sites for trial
periods of three months or longer. We believe that this program has provided
potential customers with the opportunity to develop and collect independent
and
objective data. Since the initiation of the collaboration program, our
instruments have been evaluated by investigators in approximately twenty
independent laboratories. Some of our collaborations have resulted in the
withdrawal of the instrument; others have resulted in extensions of time,
expansion of research scope, and the publication of favorable third party data.
Many programs are still ongoing, and a few evaluations have lead to the sale
or
lease of Barocycler instruments. In all cases we have gained valuable
knowledge about our technology and various aspects of the markets that we are
trying to penetrate. We believe that this knowledge will be beneficial to
us as we continue to expand our collaboration program and our sales and
marketing efforts.
During
the first half of 2006, our sales and marketing efforts were focused on
fostering our relationships and providing technical and scientific support
to
new and existing collaboration partners. During this period we also participated
in industry trade shows and meetings to generate new leads, expand awareness
of
our company and products within the scientific community, continue to learn
about competitive technologies, and learn more about the additional potential
uses of PCT. We expect these efforts to continue throughout 2006, as our sales
and marketing plan calls for participation in several more trade and industry
shows.
During
the first half of 2006, four of our collaborators presented data that they
generated with PCT at national or regional scientific meetings. The data
generated were in the areas of genomic and proteomic research. One presentation
in particular focused on the extraction of protein from adipose tissue, an
area
of laboratory medicine that is important in diabetes research, but that has
presented a particularly difficult sample preparation task for scientists over
the years. The collaborators indicated in their presentation that they extracted
significantly more protein using PCT than they had ever extracted using any
other current extraction method. Another presentation focused on the use of
PCT
to extract nucleic acids and proteins from plants and soil.
During
the first half of 2006, we focused our engineering R&D efforts on two
specific areas: improvements in the design of several key component parts of
our
Barocycler instrument, and improvements in the design of the disposable PULSE
Tubes. The goal of these efforts was to continue to improve the performance
and
capabilities of the NEP3229 bench-top unit, and to further improve the
extraction capability of the PULSE Tube. These efforts are important to our
near-term strategy, as the continued improvement of our product line is critical
to our commercial success.
During
the first half of 2006, we focused our applications R&D efforts on a number
of exciting and potentially large commercial areas, including but not limited
to: the differential lysis of organelles and other bio-molecules; the extraction
of nucleic acids and proteins from formalin-fixed paraffin-embedded (FFPE)
tissues; the extraction of proteins from adipose tissue; the modification of
PULSE Tubes to allow for the extraction of bio-molecules from a variety of
plant
and animal samples in sizes that are far below currently acceptable levels;
the
extraction of nucleic acids and proteins from potential anti-bioterror agents;
the extraction of important bio-molecules from microbial samples; and the
extraction of bio-molecules from cancer tissues.
Mid
and Long-Term Strategy
Our
mid
and long-term strategy includes the continued expansion of PCT in the area
of
sample preparation, with particular focus in developing a miniaturized, portable
Barocycler unit for field use, as well as developing a robust, high speed,
48/96
well instrument for high throughput applications. Our mid and long-term strategy
also includes research and development efforts in other potentially large and
exciting markets outside of sample preparation, such as:
·
|
the
inactivation of pathogens in human blood, therapeutics, and
vaccines;
|
·
|
the
purification of proteins;
|
·
|
the
control of enzymatic actions; and
|
·
|
the
enhancement of in
vitro
diagnostics, particularly
immunodiagnostics.
|
The
timing and the manner in which we pursue our mid and long-term strategy depends
on a number of factors. Specifically, it depends on the level of success that
we
realize in pursuit of our near-term strategy in sample preparation. Our pursuit
of these mid and long-term strategic markets also depends on our view regarding
the cost and the value of these markets to us, and the level of scale up and
funding required entering these markets.
RESULTS
OF OPERATIONS
THREE
MONTHS ENDED JUNE 30, 2006 AND 2005
Revenue
We
recognized revenue of $28,783 for the three months ended June 30, 2006, as
compared to $7,612 for the three months ended June 30, 2005. Our revenue for
the
second quarter of 2006 included the sale of a Barocycler NEP3229 and several
hundred PULSE Tubes.
Cost
of PCT Products and Services
The
cost of PCT products and services was $47,104 for the three months ended June
30, 2006 compared to $21,166 for the comparable period in 2005. The increase
in
2006 as compared to the same period in 2005 is primarily due to increased
product sales. Additionally, the cost of products and services includes the
increased cost of field support and deployment costs related to the placement,
and maintenance, of collaboration site units and purchased units.
Included
in the cost of PCT Products and Services for the three months ended June 30,
2006 is a $2,620 non-cash, stock-based compensation charge recognized in
accordance with SFAS 123R.
We
expect
that the cost of PCT products and services will decrease as a percent of sales
as we sell more units and thereby spread the fixed costs of product placement
and support over a greater revenue base.
Research
and Development
Research
and development expenditures increased to $401,500 in the second quarter of
2006
as compared to $114,591 in the second quarter of 2005. Primary reasons for
the
increase include the growth of our dedicated research and development staff
from
two full-time employees in the second quarter of 2005 to five full-time
employees during the second quarter of 2006. This increase in research and
development headcount is in support of our strategy to continue to evaluate
and
offer new applications of PCT within the life sciences sample preparation field.
Additionally, with the hiring of Dr. Edmund Ting as our Senior Vice President
of
Engineering in April 2006, we expanded our research and development capabilities
to include engineering expertise. Included in the second quarter of 2006 is
an
accrual for relocation costs, in accordance with Dr. Ting’s employment
agreement.
Included
in the research and development expense recognized in the second quarter of
2006
was a $43,991 non-cash, stock-based compensation charge recognized in accordance
with SFAS 123R. We expect non-cash, stock-based compensation expense charged
to
research and development to increase in future quarters of 2006 as we continue
to hire additional scientific personnel and make modest option grants to these
important new employees.
We
plan
to continue increasing our investment in research and development in both
existing and new applications of sample preparation, including the areas of
forensics, anti-bioterrorism, and differential cell lysis. We are also investing
research and development resources toward the continued improvement of the
operating performance of our current bench top Barocycler, including the
re-engineering of several key component parts, as well as the design and
development of additional Barocycler instruments, from small, portable units
to
larger, high throughput, fully automated machines. We feel that these scientific
and engineering investments will allow us to better penetrate and serve our
target markets while eventually expanding our operating margins on Barocycler
instruments and PULSE Tubes.
Selling
and Marketing
Selling
and marketing expenses increased to $128,005 for the three months ended June
30,
2006 from $38,376 for the comparable period in 2005. This increase was driven
primarily by an increase in trade shows attended and sponsored, and a general
increase in selling and marketing activities that we engaged in during the
second quarter of 2006.
During
the second quarter of 2006, we recognized an $11,761 non-cash, stock-based
compensation charge in accordance with the provisions of SFAS 123R.
We
expect
to continue our increased focus on selling and marketing activities for the
remainder of 2006. Consistent with our increased selling and marketing focus,
on
April 4, 2006 we announced the promotion of Dr. Nathan P. Lawrence to the newly
created position of Vice President of Marketing and Business Development.
Beginning in the second quarter of 2006, all of Dr. Lawrence’s costs have been
accounted for in this function as his activities are now heavily focused on
fostering new relationships and driving the overall marketing effort of our
PCT
business.
General
and Administrative
General
and administrative costs totaled $595,481 for the three months ended June 30,
2006, as compared to $723,102 for the comparable period in 2005. This decrease
was the result of a $400,000 bonus paid to Mr. Richard T. Schumacher, our
President and CEO, during the second quarter of 2005. The bonus was approved
by
the compensation committee of the board of directors to reimburse Mr. Schumacher
for his lost wages and costs incurred in connection with his termination of
employment in February 2003 and to reward Mr. Schumacher for his valuable
contributions in restructuring and redirecting the Company. Excluding this
bonus, general and administrative costs increased by $272,379 during the second
quarter of 2006 as compared to the same period in 2005. A significant portion
of
this increase relates to the recognition of $185,583 non-cash, stock-based
compensation charge in accordance with SFAS 123R during the second quarter
2006.
Also contributing to the increase is the hiring of Edward H. Myles as our Vice
President of Finance & Chief Financial Officer on April 3, 2006, and the
accrual of his relocation costs as stipulated in his employment agreement.
Additionally, we incurred incremental legal, accounting, consulting, and service
provider fees associated with the restatement of our 2005 financial statements.
Of
the
$185,583 non-cash, stock-based compensation charge recognized in accordance
with
SFAS 123R, $153,633 related to a charge for options granted to the independent
members of our board of directors in April 2006. In accordance with SFAS 123R,
options that are fully vested upon grant, such as options granted to the
independent members of our board of directors, are to be expensed for the entire
fair value in the period of grant.
Operating
Loss from Continuing Operations
The
operating loss of the PCT business, from continuing operations was $1,143,307
for the three months ended June 30, 2006 as compared to an operating loss from
continuing operations of $889,623 for the comparable period in 2005. The
increase in operating loss from continuing operations was primarily the result
of increases in activities within all aspects of our business.
The
operating loss from continuing operations for the three months ended June 30,
2006 included $243,955 of non-cash, stock-based compensation charges recognized
in accordance with SFAS 123R. The same period for 2005 did not include any
such
charges as we adopted the modified prospective approach to implementing SFAS
123R on January 1, 2006, and therefore we are not required to restate prior
periods, which did not include any stock-based, compensation charges in the
financial statements.
We
plan
to continue our increasing level of activity in all areas of our business,
particularly sales and marketing and research and development, for the remainder
of 2006. Consequently we expect our operating loss from continuing operations
for 2006 to exceed that of 2005.
Other
Operating (Charges), net
The
non-PCT related activities of PBI Source Scientific, Inc. reflect the
operating results of Source Scientific, LLC. Source Scientific, LLC generated
an
operating profit of approximately $1,500 during the three months ended June
30,
2006; however, we did not reflect any of this profit in our consolidated
financial statements. In accordance with the provisions of SEC SAB Topic No.
5E
we only recognize a loss generated from Source Scientific LLC to the extent
it
exceeds net profit in the same fiscal year. Based on this rule, the approximate
$100,000 of net profit generated by Source Scientific, LLC during the first
quarter of 2006 and the $1,500 generated during the second quarter was not
recognized in our interim financial statements. For the comparative quarter
ended June 30, 2005, we recorded an operating charge of $152,285.
Interest
Income
Interest
income totaled $109,287 for the three months ended June 30, 2006 as compared
to
interest income of $36,953 in the prior year period. The increase in interest
income is due to a higher average cash balance and higher interest rates earned
on cash and cash equivalents.
Income
Taxes
In
the
quarter ended June 30, 2006, we recorded a tax benefit from continuing
operations of $219,759. During the same period in 2005, we recorded a tax
benefit of $255,390. Our benefit rate was less favorable than in the comparable
period of the prior year primarily because a large portion of the non-cash,
stock-based compensation expense recognized in 2006, in accordance with SFAS
123R, is not deductible for income tax purposes.
Income
from Discontinued Operations
For
the
three months ended June 30, 2006, the net income from discontinued operations
was $0, as compared to net income of $656 for the same period in
2005.
Net
Loss
For
the
quarter ended June 30, 2006, we realized a net loss $814,261 compared to a
net
loss of $748,906 for the quarter ended June 30, 2005. The increase in our net
loss reported in the second quarter of 2006 as compared to the second quarter
of
2005 is primarily the result of the increased investment in the areas of
research and development and sales and marketing, partially offset by the
$400,000 bonus paid to Mr. Schumacher during the second quarter of 2005. Also
contributing to the increased net loss is the $243,955 in non-cash, stock-based
compensation charge recorded in 2006; no non-cash, stock-based compensation
charge was recorded in 2005. The increased investment in our operating
activities is consistent with our business objectives of expanding the
scientific advancement and the commercialization of Pressure Cycling
Technology.
SIX
MONTHS ENDED JUNE 30, 2006 AND 2005
Revenue
During
the six months ended June 30, 2006 we recognized total revenue of $82,197,
as
compared to $10,242 for the same period in 2005. Our revenue for the first half
of 2006 included the sale of two Barocycler instruments, several thousand PULSE
Tubes, and various component parts for the Barocycler NEP33229. In addition
to
the revenue recognized we also executed a three year lease agreement for a
Barocycler instrument with DermTech International on the last day of the second
quarter of 2006. We will begin recognizing monthly lease revenue in the third
quarter of this year.
Cost
of PCT Products and Services
The
cost
of PCT products and services was $98,650 for the six months ended June 30,
2006
compared to $27,687 for the comparable period in 2005. The increase in 2006
was
primarily the result of selling more products during 2006 than 2005.
Additionally, the cost of products and services includes the increased cost
of
field support and deployment costs related to the placement, and maintenance,
of
collaboration site units.
Included
in the cost of PCT Products and Services is a $4,714 non-cash, stock-based
compensation charge recognized in accordance with SFAS 123R.
We
expect
that cost of PCT products and services will decrease as a percent of sales
as we
sell more units and thereby spread the fixed costs of products and services
over
a greater revenue base.
Research
and Development
Research
and development expenditures increased to $660,319 in the first half of 2006
as
compared to $217,618 in the first half of 2005. Primary reasons for the increase
include the increase in dedicated research and development personnel from two
full-time employees in the first half of 2005 to five full-time employees during
the first half of 2006. Additionally, with the hiring of Dr. Edmund Ting as
our
Senior Vice President of Engineering we expanded our research and development
capabilities to include engineering expertise. Furthermore, in accordance with
Dr. Ting’s employment agreement, we accrued relocation costs during the second
quarter of 2006. The overall increase in our applications and engineering
related research and development investment is in support of our overall
strategy to continue to evaluate and offer new applications and products for
PCT
within the life sciences sample preparation field.
Included
in the research and development expense recognized in the first half of 2006
was
$65,616 non-cash, stock-based compensation charges in accordance with SFAS
123R.
We expect non-cash, stock-based compensation expense charged to research and
development to increase in future quarters of 2006 as we continue to hire
additional scientific personnel and make modest option grants to these important
new employees.
We
plan
to continue increasing our investment in research and development in both
existing and new applications in sample preparation, including the areas of
forensics, anti-bioterrorism, and differential cell lysis. We are also investing
research and development resources toward the continued improvement of the
operating performance of our current bench-top Barocycler instrument,
including the re-engineering of several component parts, as well as the design
and development of additional Barocycler instruments, from small, portable
units
to larger, high throughput, fully automated instruments. We feel that these
scientific and engineering investments will allow us to better penetrate and
serve our target markets while eventually expanding our operating margins on
Barocycler instruments and PULSE Tubes.
Selling
and Marketing
Selling
and marketing expenses increased to $195,384 for the six months ended June
30,
2006 from $53,636 for the comparable period in 2005. This increase was driven
primarily by the increase in trade shows attended and sponsored, and a general
increase in the amount of selling and marketing activity that we were engaged
in
during the first half of 2006.
During
the first six months of 2006 we recognized $20,499 of non-cash, stock-based
compensation costs in accordance with SFAS 123R.
We
expect
to continue this increased focus on selling and marketing activities for the
remainder of 2006. Consistent with this increased focus, we announced the
promotion of Dr. Nathan P. Lawrence to the newly created position of Vice
President of Marketing and Business Development, on April 4, 2006. Beginning
in
the second quarter of 2006, all of Dr. Lawrence’s costs have been accounted for
in this function as his activities are heavily focused on fostering new
relationships and driving the overall marketing effort of our PCT business.
General
and Administrative
General
and administrative costs totaled $1,285,107 for the six months ended June 30,
2006, as compared to $1,031,990 for the comparable period in 2005. During the
first half of 2006 we incurred incremental general and administrative costs
due
partially to the fact that for the first quarter we did not have a full-time
Chief Financial Officer. These incremental costs included consulting and
temporary help in addition to the higher than expected legal, accounting, and
tax consulting expense associated with the restatement of our 2005 financial
statements during the second quarter of 2006.
Included
in our general and administrative costs was a non-cash, stock-based compensation
charge of $356,581 recognized in accordance with SFAS 123R. Of this amount,
$313,071 related to charges for options granted to the independent members
of
our board of directors in 2006. In accordance with SFAS 123R, options that
are
fully vested upon grant, such as options granted to the independent members
of
our board of directors, are to be expensed for the entire fair value in the
period of grant.
During
the second quarter of 2006 Mr. Edward H. Myles was appointed our Vice President
of Finance & CFO, additionally; we hired one full-time employee at the
administrative level during the second quarter. Aside from these additions
to
our general and administrative staff, we do not expect significant additional
changes to our corporate infrastructure for the remainder of 2006.
Operating
Loss from Continuing Operations
The
operating loss of the PCT business, our continuing operations, was $2,157,263
for the six months ended June 30, 2006 as compared to an operating loss from
continuing operations of $1,320,689 for the comparable period in 2005. The
increase in operating loss from continuing operations was the result of
increases in activities within all aspects of our business, including a
significant increase in staff and activities within our research and development
function, as well as non-cash stock-based compensation charges related to option
grants to the independent members of our board of directors and employees.
The
operating loss from continuing operations for the six months ended June 30,
2006
included $447,410 of non-cash, stock-based compensation charges recognized
in
accordance with SFAS 123R. The same period for 2005 did not include any such
charges as we adopted the modified prospective approach to implementing SFAS
123R on January 1, 2006, and therefore we are not required to restate prior
periods, which did not include any stock-based compensation charges in the
financial statements.
We
plan
to continue increasing the level of activity in our sales and marketing and
research and development functions for the remainder of 2006. Consequently
we
expect our operating loss from continuing operations for 2006 to exceed that
of
2005.
Gain
on Sale of Securities
In
the
six months ended June 30, 2006, we recorded a gain on the sale of 57,900 shares
of our Panacos Pharmaceuticals shares in accordance with SFAS 115“Accounting
for Certain Investments in Debt and Equity Securities”
as
securities available for sale. The shares sold in the six month period generated
a pre-tax gain of $517,938. There was no gain on the sale of securities during
the first half of 2005.
Other
Operating (Charges), net
The
non-PCT related activities of PBI Source Scientific, Inc. reflect the
operating results of Source Scientific, LLC. Source Scientific, LLC generated
an
operating profit of approximately $100,000 during the six months ended June
30,
2006; however, we did not reflect any of this profit in our consolidated
financial statements. In accordance with the provisions of SEC SAB Topic No.
5E
we only recognize a loss generated from Source Scientific LLC to the extent
it
exceeds net profit in the same fiscal year. Based on this rule, the approximate
$100,000 of net profit generated by Source Scientific, LLC was not recognized
in
our interim financial statements. For the comparative six months ended June
30,
2005, we recorded an operating charge of $387,637.
Interest
Income
Interest
income totaled $217,792 for the six months ended June 30, 2006 as compared
to
interest income of $115,888 in the prior year period. The increase in interest
income in 2006 as compared to 2005 is primarily due to higher average cash
balances and higher interest rates earned on cash and cash equivalents.
Income
Taxes
In
the
six months ended June 30, 2006, we recorded a tax benefit from continuing
operations of $297,237. During the same period in 2005, we recorded a tax
benefit of $455,136. Our benefit rate was less favorable than in the comparable
period of the prior year primarily because a large portion of the non-cash,
stock-based compensation expense recognized in 2006, in accordance with SFAS
123R, is not deductible for income tax purposes.
Income
from Discontinued Operations
For
the
six months ended June 30, 2006, the net income from discontinued operations
was
$0, as compared to net income of $5,335 for the same period in
2005.
Net
Loss
The
net
loss for the six months ended June 30, 2006 was $1,124,296 compared to a net
loss of $1,131,967 for the six months ended June 30, 2005. This decrease in
our
net loss is primarily the result of the realized gain of $517,938 from the
sale
of 57,900 shares of Panacos Pharmaceuticals and an increase in interest income
recognized during the first half of 2006. These favorable items were almost
entirely offset by increased spending in all functional areas of our business;
particularly sales and marketing and research and development. This increased
investment in our operating activities is consistent with our business
objectives of expanding the scientific advancement and the commercialization
of
PCT.
LIQUIDITY
AND FINANCIAL CONDITION
As
of June 30, 2006, our working capital position was $7,168,390, the primary
components of which were cash and cash equivalents, income taxes receivable,
prepaid expenses and deposits, and inventories, partially offset by accounts
payable, accrued employee compensation, other accrued expenses, and accrued
income taxes. As of December 31, 2005, our working capital balance was
$7,740,736, the primary components of which were cash and cash equivalents,
escrow deposits and income taxes receivable. This decrease in working capital
of
$572,346 was primarily a result of the use of cash to fund our operations for
the first six months of 2006, partially offset by the proceeds generated from
the sale of Panacos shares and interest income earned during the period. We
expect our working capital position to decline as we fund our operations from
our cash and cash equivalents. We believe that we have sufficient working
capital to fund our operations at their current level, and with planned
increases in operations, into 2008. The extent to which we increase our
operations is dependent upon our view of the investment required to successfully
commercialize PCT, balanced with our desire to pursue additional external
capital. At this time we do not feel that we need to rely on external funding
to
pursue our near-term strategy.
Net
cash
used in continuing operations for the six months ended June 30, 2006 was
$1,238,911 as compared to net cash used in continuing operations of $619,728
for
the six months ended June 30, 2005. The cash used in operations for the first
half of fiscal 2006 was to support on-going operations. The primary reasons
for
the increase in cash utilization include the general increase in our ongoing
business activities which contributed to a larger operating loss for the period,
the payment of a $200,000 deposit to Source Scientific LLC for the manufacture
of 25 Barocyclers, and the utilization of the current deferred tax liability
associated with the installment sale treatment of the SeraCare sale.
Net
cash
provided by investing activities for the six months ended June 30, 2006 was
$508,159 as compared to cash used of $38,147 for the same period in the prior
year. The cash generated in the first six months of 2006 was entirely from
the
sale of 57,900 shares of Panacos common stock, partially offset by minimal
purchases of fixed assets. We will continue to monitor the market price of
Panacos common stock with the intent of liquidating our position at what we
consider to be favorable terms. We expect that our investment in fixed assets
will increase in future quarters as we make modest additions to our staff and
operating facilities.
Net
cash
generated from financing activities for the six months ended June 30, 2006
of
$5,400, relates to the exercise of stock options by an outside director. During
the first six months of 2005 we used cash in financing activities of
$16,319,626. In February 2005, we completed our issuer tender offer in which
we
purchased from stockholders an aggregate of 5,203,001 shares of our common
stock.
Net
cash
generated by discontinued operations for the six months ended June 30, 2006
was
$1,116,160 as compared to net cash used in discontinued operations of $47,019
for same period of 2005. This cash generated in the first quarter of 2006
relates to the receipt of the $1,094,162 from Wells Fargo Corporate Trust Escrow
Services, representing the remaining principal held in escrow from the 2004
sale
of the assets and certain liabilities of our BBI Core Businesses to SeraCare,
and interest from January 1 through February 28, 2006. We also received all
accrued interest for the prior year.
RELATED
PARTY TRANSACTION
As
of
June 30, 2006, we evaluated the recoverability of the $1,000,000 loan receivable
from Mr. Schumacher, which is reflected on the balance sheet in
stockholders' equity as a loan receivable. Our evaluation of the recoverability
of the loan receivable included an analysis of the value of the 479,657 shares
of our common stock that are held as collateral. This test included a review
of
the current trading price of our common stock. After performing the impairment
test, we determined that the loan receivable was not impaired. We will continue
to monitor and test the collateral for impairment due in large part to the
relatively low trading volume of our common stock and recent volatility in
stock
price, ranging from a low of $3.11 per share to a high of $4.79 per share from
January 1, 2006 to June 30, 2006.
COMMITMENTS
AND CONTINGENCIES
Royalty
Commitments
In
1998,
we 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, we are obligated
to pay a 5% royalty on net sales until March 2016. For purposes of the
royalty calculation, net sales include the trade revenues related to units
sold
or leased as well as PULSE Tube revenues. The royalty obligation that we accrued
for the first six months of 2006 was approximately $4,000.
Research
and Development Collaboration
On
February 1, 2006, we entered into an agreement with the University of New
Hampshire, pursuant to which UNH agreed to perform certain research and
development services for us through December 31, 2006. Subject to the terms
of
the agreement, we will pay UNH an aggregate of $157,850 for the services they
provide.
Operating
Leases
On
March
1, 2006, we entered into a sub-lease agreement with Proteome Systems, Inc.,
pursuant to which we have agreed to lease approximately 650 sq. feet of
laboratory space plus 100 sq. feet of office space from Proteome Systems in
Woburn, Massachusetts. The lease period will expire on December 31, 2006. We
will pay $2,350 per month for the use of these facilities.
Purchase
Commitments
In
April
2006, we executed a purchase order with Source Scientific, LLC under which
we
agreed to purchase 25 Barocycler NEP3229 units. In connection with this purchase
order, we submitted a deposit to Source Scientific, LLC for $200,000. In
accordance with the terms of the agreement, we expect that the units will be
completed by the fourth quarter of this year. We will be billed for the complete
cost of each unit as it is completed. Finished goods will stay at Source
Scientific, LLC for shipment directly to our customers.
CRITICAL
ACCOUNTING POLICIES
The
critical accounting policies we utilized in the preparation of the accompanying
interim financial statements are set forth in Part II, Item 6 of our Annual
Report on Form 10-KSB/A for the year ended December 31, 2005, under the heading
"Management's Discussion and Analysis of Financial Condition or Plan of
Operation”. Additionally, we have adopted the following:
Correction
of an Accounting 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. We have 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, we 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 our 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, we 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 we filed our
federal income tax return. Upon re-examining our accounting for income taxes
in
entirety we further determined that the deferred tax liability in connection
with the unrealized gain on Panacos should be reduced by approximately $60,000,
and that the income tax provision from continuing operations should be increased
by approximately $23,000. We also determined that the accounting for deferred
tax assets needed to be adjusted; however, there was no impact from this
adjustment as deferred tax assets are fully reserved for.
We
elected to remedy these errors by restating our Annual Report on Form 10-KSB,
for the year ended December 31, 2005 and our Quarterly Report on Form 10-QSB
for
the quarter ended September 30, 2005. The December 31, 2005 balance sheet
presented in this Quarterly Report on Form 10-QSB for the quarter ended June
30,
2006 reflects the appropriate adjustments to the income tax accounts and to
retained earnings.
These
adjustments did not change our reported pre-tax results from continuing
operations, but income from continuing operations after income taxes for the
year ended December 31, 2005 has been reduced from approximately $873,000 to
approximately $850,000.
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.
As
of
June 30, 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.
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.
The
Company held a Special Meeting in Lieu of Annual Meeting of Stockholders on
June
15, 2006 (the “Meeting”). At the Meeting, the stockholders elected two Class II
directors to hold office until the 2009 Annual Meeting of Stockholders and
until
their successors are duly elected and qualified. The voting results with
respect to the election of directors were as follows:
Director
|
|
Affirmative
Votes
|
|
Votes
Withheld/Abstained
|
|
|
|
|
|
|
|
R.
Wayne Fritzche
|
|
|
1,712,939
|
|
|
42,440
|
|
Calvin
A. Saravis
|
|
|
1,711,789
|
|
|
43,590
|
|
The
terms
of each of Mr. Richard T. Schumacher, Mr. J. Donald Payne and Mr. P. Thomas
Vogel all continued following the Meeting.
Exhibits |
|
Reference
|
|
|
|
|
10.1 |
Purchase
Order with Source Scientific, LLC dated April 3, 2006.
|
|
A-10.1
|
|
|
|
|
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
|
We
previously filed this exhibit with the Commission on April 5, 2006 with the
referenced exhibit number as an exhibit to our Current Report on Form 8-K (SEC
File No. 0-21615) dated April 5, 2006, and the previously filed exhibit is
incorporated herein by reference.
SIGNATURES
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
BIOSCIENCE, INC. |
|
|
|
Date: August
11, 2006 |
By: |
/s/ Richard
T. Schumacher |
|
|
|
Richard
T. Schumacher
President,
Chief
Executive Officer & Treasurer
(Principal Executive
Officer)
|
|
|
|
|
By: |
/s/ Edward
H.
Myles |
|
|
|
Edward
H. Myles
Vice
President of Finance & Chief Financial Officer
(Principal Financial and Accounting
Officer)
|