Document_and_Entity_Informatio
Document and Entity Information | 9 Months Ended | |
Sep. 30, 2013 | Oct. 30, 2013 | |
Document And Entity Information | ' | ' |
Entity Registrant Name | 'PRESSURE BIOSCIENCES INC | ' |
Entity Central Index Key | '0000830656 | ' |
Document Type | '10-Q | ' |
Document Period End Date | 30-Sep-13 | ' |
Amendment Flag | 'false | ' |
Current Fiscal Year End Date | '--12-31 | ' |
Is Entity a Well-known Seasoned Issuer? | 'No | ' |
Is Entity a Voluntary Filer? | 'No | ' |
Is Entity's Reporting Status Current? | 'Yes | ' |
Entity Filer Category | 'Smaller Reporting Company | ' |
Entity Common Stock, Shares Outstanding | ' | 11,949,267 |
Document Fiscal Period Focus | 'Q3 | ' |
Document Fiscal Year Focus | '2013 | ' |
CONSOLIDATED_CONDENSED_BALANCE
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
ASSETS | ' | ' |
Cash and cash equivalents | $66,680 | $1,461 |
Accounts receivable | 200,914 | 216,265 |
Inventories, net of $50,000 reserve at March 31, 2013 and December 31, 2012 | 851,468 | 923,362 |
Prepaid income taxes | 7,381 | 7,381 |
Prepaid expenses and other current assets | 61,017 | 83,435 |
Total current assets | 1,187,460 | 1,231,904 |
PROPERTY AND EQUIPMENT, NET | 58,855 | 30,282 |
Deposits | ' | 6,472 |
Intangible assets, net | 48,656 | 85,130 |
TOTAL ASSETS | 1,294,971 | 1,353,788 |
LIABILITIES AND STOCKHOLDERS' DEFICIT | ' | ' |
Accounts payable | 1,201,703 | 1,199,846 |
Accrued employee compensation | 165,515 | 119,338 |
Accrued professional fees and other | 570,595 | 267,936 |
Deferred revenue | 18,099 | 46,466 |
Promissory note | 75,000 | 75,000 |
Dividend liability | ' | 60,000 |
Related party debt | 27,739 | 98,675 |
Convertible debt | 358,514 | 863,004 |
Conversion option liability | 281,127 | ' |
Warrant derivative liability | 170,137 | 160,812 |
Total current liabilities | 2,868,429 | 2,891,077 |
LONG TERM LIABILITIES | ' | ' |
Convertible debt - long term | 100,000 | ' |
Deferred revenue | ' | 2,487 |
TOTAL LIABILITIES | 2,968,429 | 2,893,564 |
STOCKHOLDERS' DEFICIT | ' | ' |
Series D convertible preferred stock, $.01 par value; 850 shares authorized; 300 shares issued and outstanding on September 30, 2013 and on December 31, 2012 | 3 | 3 |
Series G convertible preferred stock, $.01 par value; 240,000 shares authorized; 145,320 shares issued and outstanding on September 30, 2013 and on December 31, 2012 | 1,453 | 1,453 |
Series H convertible preferred stock, $.01 par value; 10,000 shares authorized; 10,000 shares and 0 shares issued and outstanding on September 30, 2013 and on December 31, 2012, respectively | 100 | ' |
Series J convertible preferred stock, $.01 par value; 6,250 shares authorized; 5,087.5 shares and 0 shares issued and outstanding on September 30, 2013 and on December 31, 2012 | 51 | ' |
Common stock, $.01 par value; 50,000,000 shares authorized; 11,949,267 and 12,149,267 shares issued and outstanding on September 30, 2013 and on December 31, 2012 | 119,493 | 121,493 |
Warrants to acquire preferred stock and common stock | 3,951,056 | 3,015,996 |
Additional paid-in capital | 18,158,076 | 15,940,818 |
Accumulated deficit | -23,903,690 | -20,619,539 |
Total stockholders' deficit | -1,673,458 | -1,539,776 |
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $1,294,971 | $1,353,788 |
CONSOLIDATED_CONDENSED_BALANCE1
CONSOLIDATED CONDENSED BALANCE SHEETS (Parenthetical) (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
Assets | ' | ' |
Reserve for inventories, net | $50,000 | $50,000 |
Series D convertible preferred stock, Par value | $0.01 | $0.01 |
Series D convertible preferred stock, Shares authorized | 850 | 850 |
Series D convertible preferred stock, Shares Issued | 300 | 300 |
Series D convertible preferred stock, Shares Outstanding | 300 | 300 |
Series G convertible preferred stock, Par value | $0.01 | $0.01 |
Series G convertible preferred stock, Shares authorized | 240,000 | 240,000 |
Series G convertible preferred stock, Shares Issued | 145,320 | 145,320 |
Series G convertible preferred stock, Shares Outstanding | 145,320 | 145,320 |
Series J convertible preferred stock, Par value | $0.01 | $0.01 |
Series J convertible preferred stock, Shares authorized | 6,250 | 6,250 |
Series J convertible preferred stock, Shares Issued | 5,087.50 | 0 |
Series J convertible preferred stock, Shares Outstanding | 5,087.50 | 0 |
Series H convertible preferred stock, Par value | $0.01 | $0.01 |
Series H convertible preferred stock, Shares authorized | 10,000 | 10,000 |
Series H convertible preferred stock, Shares Issued | 10,000 | 0 |
Series H convertible preferred stock, Shares Outstanding | 10,000 | 0 |
Common stock, par value | $0.01 | $0.01 |
Common stock, shares authorized | 50,000,000 | 50,000,000 |
Common stock, shares issued | 11,949,267 | 12,149,267 |
Common stock, shares outstanding | 11,949,267 | 12,149,267 |
CONSOLIDATED_CONDENSED_STATEME
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | |
Revenue: | ' | ' | ' | ' |
PCT products, services, other | $327,958 | $297,867 | $746,050 | $687,023 |
Grant revenue | 92,804 | 93,749 | 403,186 | 335,162 |
Total revenue | 420,762 | 391,616 | 1,149,236 | 1,022,185 |
Costs and expenses: | ' | ' | ' | ' |
Cost of PCT products and services | 175,995 | 108,689 | 364,368 | 296,086 |
Research and development | 280,276 | 247,717 | 787,142 | 775,635 |
Selling and marketing | 190,882 | 164,313 | 573,174 | 570,578 |
General and administrative | 617,642 | 557,417 | 1,851,634 | 1,713,778 |
Total operating costs and expenses | 1,264,795 | 1,078,136 | 3,576,318 | 3,356,077 |
Operating loss | -844,033 | -686,520 | -2,427,082 | -2,333,892 |
Other (expense) income: | ' | ' | ' | ' |
Interest (expense) income,net | -158,162 | -10,540 | -230,176 | -71,067 |
Other (expense) | -2,132 | ' | -210,838 | ' |
Change in fair value of warrant derivative liability | 331,113 | -98,978 | 349,472 | 36,322 |
Total other (expense) income | 170,819 | -109,518 | -91,542 | -34,745 |
Net loss | -673,214 | -796,038 | -2,518,624 | -2,368,637 |
Accrued dividends on convertible preferred stock | -42,938 | -129,789 | -765,530 | -895,734 |
Net loss applicable to common shareholders | ($716,152) | ($925,827) | ($3,284,154) | ($3,264,371) |
Net loss per share attributable to common stockholders - basic and diluted | ($0.06) | ($0.09) | ($0.28) | ($0.34) |
Weighted average common stock shares outstanding used in the basic and diluted net loss per share calculation | 11,664,484 | 10,872,877 | 11,776,740 | 9,598,066 |
CONSOLIDATED_CONDENSED_STATEME1
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (USD $) | 9 Months Ended | |
Sep. 30, 2013 | Sep. 30, 2012 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ' | ' |
Net loss | ($2,518,624) | ($2,368,637) |
Adjustments to reconcile net loss to net cash used in operating activities | ' | ' |
Depreciation and amortization | 62,955 | 82,388 |
Accretion of interest and amortization of debt issue costs | 391,625 | 46,159 |
Stock-based compensation expense | 120,248 | 116,816 |
Amortization of third party fees paid in restricted common stock | 396,525 | 137,522 |
Change in fair value of warrant derivative liability | -349,472 | -36,322 |
Changes in operating assets and liabilities: | ' | ' |
Accounts receivable | 15,351 | -25,708 |
Inventories | 71,894 | 163,360 |
Accounts payable | 1,857 | 399,071 |
Accrued employee compensation | 46,177 | -49,057 |
Deferred revenue | -30,854 | ' |
Other accrued expenses and liabilities | 258,806 | 126,403 |
Prepaid expenses and other current assets | -27,611 | -211,443 |
Net cash used in operating activities | -1,561,123 | -1,619,448 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ' | ' |
Purchases of property and equipment | -55,052 | ' |
Net cash used in investing activities | -55,052 | ' |
CASH FLOWS FROM FINANCING ACTIVITIES: | ' | ' |
Payment of cash dividends | -45,736 | ' |
Net proceeds from convertible debt and short term loans | 896,503 | 405,000 |
Payments on convertible debt | -5,968 | -93,000 |
Payment of dividends | -60,000 | -67,500 |
Net proceeds from the issuance of common stock | ' | 377,459 |
Net proceeds from the issuance of convertible preferred stock | 896,595 | 825,003 |
Net cash provided by financing activities | 1,681,394 | 1,446,962 |
Change in cash and cash equivalents | 65,219 | -172,486 |
Cash and cash equivalents, beginning of period | 1,461 | 222,775 |
Cash and cash equivalents, end of period | 66,680 | 50,289 |
SUPPLEMENTAL INFORMATION: | ' | ' |
Income taxes paid in cash | ' | 1,900 |
Issuance of common stock dividends on preferred stock | ' | 249,907 |
Convertible debt exchanged for Series J convertible preferred stock | 1,018,000 | ' |
Issuance of common stock for services | 320,000 | 324,908 |
Convertible debt exchanged for common stock | ' | 387,547 |
Non-cash payment of related party debt | 25,200 | ' |
Deemed dividend on Series J convertible preferred stock | $651,182 | $190,891 |
1_Business_Overview_Liquidity_
1. Business Overview, Liquidity and Management Plans | 9 Months Ended |
Sep. 30, 2013 | |
Notes to Financial Statements | ' |
1. Business Overview, Liquidity and Management Plans | ' |
Pressure BioSciences, Inc. (“We or the Company”) are focused on solving the challenging problems inherent in biological sample preparation, a crucial laboratory step performed by scientists worldwide working in biological life sciences research. Sample preparation is a term that refers to a wide range of activities that precede most forms of scientific analysis. Sample preparation is often complex, time-consuming and, in our belief, one of the most error-prone steps of scientific research. It is a widely-used laboratory undertaking – the requirements of which drive what we believe is a large and growing worldwide market. We have developed and patented a novel, enabling technology platform that offers major improvements in the control and outcomes of the sample preparation process. It is based on harnessing the unique properties of high hydrostatic pressure. This process, called pressure cycling technology, or PCT, uses alternating cycles of hydrostatic pressure between ambient and ultra-high levels i.e., 35,000 pounds per square inch (“psi”) or greater to safely, conveniently and reproducibly control the actions of molecules in biological samples, such as cells and tissues from human, animal, plant and microbial sources. | |
Our pressure cycling technology uses internally developed instrumentation that is capable of cycling pressure between ambient and ultra-high levels at controlled temperatures and specific time intervals, to rapidly and repeatedly control the interactions of bio-molecules, such as deoxyribonucleic acid (“DNA”), ribonucleic acid (“RNA”), proteins, lipids and small molecules. Our laboratory instrument, the Barocycler®, and our internally developed consumables product line, which include our Pressure Used to Lyse Samples for Extraction (“PULSE”) tubes, and other processing tubes, and application specific kits such as consumable products and reagents, together make up our PCT Sample Preparation System (“PCT SPS”). | |
We have experienced negative cash flows from operations with respect to our pressure cycling technology business since our inception. As of September 30, 2013, we did not have adequate working capital resources to satisfy our current liabilities and as a result, there is substantial doubt regarding our ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments related to the recovery of assets or classifications of liabilities that might be necessary should we be unable to continue as a going concern. Based on our current projections, including equity and debt financing completed subsequent to September 30, 2013, we believe our current cash resources will enable us to extend our cash resources to fund normal operations until the end of November 2013. Please see Note 6 of the condensed consolidated financial statements, Subsequent Events. | |
Management has developed a plan to continue operations. This plan includes further reductions in expenses and obtaining equity or debt financing including our most recently completed financing on February 6, 2013, March 28, 2013 and May 20, 2013, in which we sold units consisting of shares of convertible preferred stock and warrants to purchase shares of common stock for net cash proceeds of approximately $921,000 in three tranches of $590,000, $156,000 and $175,000, respectively; and the conversion of $1,113,700 in principal and accrued interest from convertible promissory notes and other fees. The Company incurred $24,405 in legal costs in conjunction with this financing. We also signed agreements to borrow $275,000, $100,000 and $500,000 from three lenders on April 11, 2013, May 24, 2013 and June 6, 2013, respectively. Through August 1, 2013, we have received $192,500, $100,000, and $250,000 under these agreements. There is no guaranty that the Company will receive the amounts remaining under these agreements. We also received $160,000 in a six month note from an existing shareholder on August 8, 2013. Terms of the note include 18% annual interest, a right to convert the note into the next equity transaction, at the conversion rate of the equity offering, and a three year warrant to acquire 160,000 shares of common stock at $0.40 per share. Although we have successfully completed financings and reduced expenses in the past, we cannot assure you that our plans to address these matters in the future will be successful. | |
We need substantial additional capital to fund normal operations in periods beyond the end of November 2013. In the event that we are unable to obtain financing on acceptable terms, or at all, we will likely be required to cease our operations, pursue a plan to sell our operating assets, or otherwise modify our business strategy, which could materially harm our future business prospects. |
2_Interim_Financial_Reporting
2. Interim Financial Reporting | 9 Months Ended |
Sep. 30, 2013 | |
Notes to Financial Statements | ' |
2. Interim Financial Reporting | ' |
The accompanying unaudited condensed consolidated financial statements of Pressure BioSciences, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”) for interim financial information. 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 material adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months and nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. For further information, refer to the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K (the “Form 10-K”) for the fiscal year ended December 31, 2012 as filed with the Securities and Exchange Commission on May 13, 2013. |
3_Summary_of_Significant_Accou
3. Summary of Significant Accounting Policies | 9 Months Ended | ||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||
Notes to Financial Statements | ' | ||||||||||||||||
3. Summary of Significant Accounting Policies | ' | ||||||||||||||||
Principles of Consolidation | |||||||||||||||||
The condensed consolidated financial statements include the accounts of Pressure BioSciences, Inc., and its wholly-owned subsidiary PBI BioSeq, Inc. All intercompany accounts and transactions have been eliminated in consolidation. | |||||||||||||||||
Use of Estimates | |||||||||||||||||
To prepare our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, we are required to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In addition, significant estimates were made in projecting future cash flows to quantify deferred tax assets, the costs associated with fulfilling our warranty obligations for the instruments that we sell, and the estimates employed in our calculation of fair value of stock options awarded and warrant derivative liability. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from the estimates and assumptions used. | |||||||||||||||||
Revenue Recognition | |||||||||||||||||
We recognize revenue in accordance with FASB ASC 605, Revenue Recognition. Revenue is recognized when realized or earned when all the following criteria have been met: persuasive evidence of an arrangement exists; delivery has occurred and risk of loss has passed to the customer; the seller’s price to the buyer is fixed or determinable; and collectability is reasonably assured. | |||||||||||||||||
Our current instruments, the Barocycler NEP3229 and NEP2320, require a basic level of instrumentation expertise to set-up for initial operation. To support a favorable first experience for our domestic customers, we send a highly trained technical representative to the customer site to install every Barocycler that we sell or lease directly (not sold or leased through a sales agent or distributor). The installation process includes uncrating and setting up the instrument, followed by introductory user training. Product revenue related to current Barocycler instrumentation is recognized upon the completion of the installation and introductory training process of the Barocycler NEP3229 and NEP2320 instrumentation at the customer location, for all non-agent and non-distributor domestic installations. Product revenue related to sales of PCT instrumentation to our foreign distributors and overseas customers, to our domestic agents and distributors, and to our new Barocycler HUB440 instrument clients is recognized upon shipment through a common carrier unless installation is specifically requested by the customer. We provide for the expected costs of warranty upon the recognition of revenue for the sales of our instrumentation. Our sales arrangements do not provide our customers with a right of return. Product revenue related to the HUB440 and our consumable products such as PULSE Tubes, MicroTubes, and application specific kits is recorded upon shipment through a common carrier. Shipping costs are included in sales and marketing expense. Any shipping costs billed to customers are recognized as revenue. | |||||||||||||||||
In accordance with FASB ASC 840, Leases, we account for our lease agreements under the operating method. We record revenue over the life of the lease term and we record depreciation expense on a straight-line basis over the thirty-six month estimated useful life of the Barocycler instrument. The depreciation expense associated with assets under lease agreement is included in the “Cost of PCT products and services” line item in our consolidated statements of operations. Many of our lease and rental agreements allow the lessee to purchase the instrument at any point during the term of the agreement with partial or full credit for payments previously made. We pay all maintenance costs associated with the instrument during the term of the leases. | |||||||||||||||||
Revenue from government grants is recorded when expenses are incurred under the grant in accordance with the terms of the grant award. | |||||||||||||||||
Our transactions sometimes involve multiple elements (i.e., products and services). Revenue under multiple element arrangements is recognized in accordance with FASB ASC 605-25 Multiple-Element Arrangements (“ASC 605”). When vendor specific objective evidence or third party evidence of selling price for deliverables in an arrangement cannot be determined, the Company develops a best estimate of the selling price to separate deliverables and allocates arrangement consideration using the relative selling price method. Additionally, this guidance eliminates the residual method of allocation. If an arrangement includes undelivered elements that are not essential to the functionality of the delivered elements, we defer the fair value of the undelivered elements based on the estimated selling price of the total arrangement. Fair value is determined based upon the price charged when the element is sold separately. If there is not sufficient evidence of the fair value of the undelivered elements, no revenue is allocated to the delivered elements and the total consideration received is deferred until delivery of those elements for which objective and reliable evidence of the fair value is not available. We provide certain customers with extended service contracts with revenue recognized ratably over the life of the contract. | |||||||||||||||||
Cash and Cash Equivalents | |||||||||||||||||
Our policy is to invest available cash in short-term, investment-grade, interest-bearing obligations, including money market funds, and bank and corporate debt instruments. Securities purchased with initial maturities of three months or less are valued at cost plus accrued interest, which approximates fair market value, and are classified as cash equivalents. | |||||||||||||||||
Research and Development | |||||||||||||||||
Research and development costs, which are comprised of costs incurred in performing research and development activities including wages and associated employee benefits, facilities, consumable products and overhead costs that are expensed as incurred. In support of our research and development activities we utilize our Barocycler instruments that are capitalized as fixed assets and depreciated over their expected useful life. | |||||||||||||||||
Inventories | |||||||||||||||||
Inventories are valued at the lower of cost (average cost) or market (sales price). The cost of Barocycler instruments consists of the cost charged by the contract manufacturer. The cost of manufactured goods includes material, freight-in, direct labor, and applicable overhead. The composition of inventory as of September 30, 2013 and December 31, 2012 is as follows: | |||||||||||||||||
September 30, | December 31, | ||||||||||||||||
2013 | 2012 | ||||||||||||||||
Raw materials | $ | 204,337 | $ | 183,655 | |||||||||||||
Finished goods | 697,131 | 789,707 | |||||||||||||||
Inventory reserve | (50,000 | ) | (50,000 | ) | |||||||||||||
Total | $ | 851,468 | $ | 923,362 | |||||||||||||
Property and Equipment | |||||||||||||||||
Property and equipment are stated at cost, less accumulated depreciation. For financial reporting purposes, depreciation is recognized using the straight-line method, allocating the cost of the assets over their estimated useful lives of three years for certain laboratory equipment, from three to five years for management information systems and office equipment, and three years for all PCT finished units classified as fixed assets. | |||||||||||||||||
Intangible Assets | |||||||||||||||||
We have classified as intangible assets, costs associated with the fair value of acquired intellectual property. Intangible assets including patents are amortized on a straight-line basis over sixteen years. The Company’s intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. When impairment is indicated, any excess of carrying value over fair value is recorded as a loss. As of the date of this report’s filing, no event has come to our attention that would cause us to record an impairment of intangible assets. | |||||||||||||||||
Long-Lived Assets and Deferred Costs | |||||||||||||||||
The Company’s long-lived assets and other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Through the date of this report’s filing, the Company had not experienced impairment losses on its long-lived assets. | |||||||||||||||||
Concentrations | |||||||||||||||||
Credit Risk | |||||||||||||||||
Our financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents, and trade receivables. We have cash investment policies which, among other things, limit investments to investment-grade securities. We perform ongoing credit evaluations of our customers, and the risk with respect to trade receivables is further mitigated by the fact that many of our customers are government institutions, large pharmaceutical and biotechnology companies, and academic laboratories. | |||||||||||||||||
The following table illustrates the level of concentration as a percentage of total revenues during the three months and nine months ended September 30, 2013 and 2012: | |||||||||||||||||
For the Three Months Ended | |||||||||||||||||
September 30, | |||||||||||||||||
2013 | 2012 | ||||||||||||||||
Top Five Customers | 53 | % | 76 | % | |||||||||||||
Federal Agencies | 27 | % | 38 | % | |||||||||||||
For the Nine Months Ended | |||||||||||||||||
September 30, | |||||||||||||||||
2013 | 2012 | ||||||||||||||||
Top Five Customers | 51 | % | 54 | % | |||||||||||||
Federal Agencies | 41 | % | 46 | % | |||||||||||||
The following table illustrates the level of concentration as a percentage of net accounts receivable balance as of September 30, 2013 and December 31, 2012: | |||||||||||||||||
September 30, | December 31, | ||||||||||||||||
2013 | 2012 | ||||||||||||||||
Top Five Customers | 76 | % | 76 | % | |||||||||||||
Federal Agencies | 24 | % | 30 | % | |||||||||||||
Product Supply | |||||||||||||||||
Source Scientific, LLC has been our sole contract manufacturer for our PCT NEP3229 and NEP2320 instrumentation. Until we develop a network of manufacturers and subcontractors, obtaining alternative sources of supply or manufacturing services could involve significant delays and other costs and challenges, and may not be available to us on reasonable terms, if at all. The failure of a supplier or contract manufacturer to provide sufficient quantities, acceptable quality and timely products at an acceptable price, or an interruption of supplies from such a supplier could harm our business and prospects. | |||||||||||||||||
Computation of Loss per Share | |||||||||||||||||
Basic loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding. Diluted loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding plus additional common shares that would have been outstanding if dilutive potential common shares had been issued. For purposes of this calculation, convertible preferred stock, common stock dividends, and warrants and options to acquire common stock, are all considered common stock equivalents in periods in which they have a dilutive effect and are excluded from this calculation in periods in which these are anti-dilutive to our net loss. | |||||||||||||||||
The following table illustrates our computation of loss per share for the three months and nine months ended September 30, 2013 and 2012: | |||||||||||||||||
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||||
Numerator: | |||||||||||||||||
Net loss | $ | (673,214 | ) | $ | (796,038 | ) | $ | (2,518,624 | ) | $ | (2,368,637 | ) | |||||
Accrued dividend for Preferred Stock | (42,938 | ) | (36,092 | ) | (114,348 | ) | (454,936 | ) | |||||||||
Deemed dividend on Series J Convertible Preferred Stock | - | - | (651,182 | ) | - | ||||||||||||
Preferred dividend paid in common stock | - | (88,350 | ) | - | (249,907 | ) | |||||||||||
Deemed dividend on warrant modifications | - | (5,347 | ) | - | (190,891 | ) | |||||||||||
Net loss applicable to common shareholders | $ | (716,152 | ) | $ | (925,827 | ) | $ | (3,284,154 | ) | $ | (3,264,371 | ) | |||||
Denominator for basic and diluted loss per share: | |||||||||||||||||
Weighted average common stock shares outstanding | 11,664,484 | 10,872,877 | 11,776,740 | 9,598,066 | |||||||||||||
Loss per common share - basic and diluted | $ | (0.06 | ) | $ | (0.09 | ) | $ | (0.28 | ) | $ | (0.34 | ) | |||||
The following table presents securities that could potentially dilute basic loss per share in the future. For all periods presented, the potentially dilutive securities were not included in the computation of diluted loss per share because these securities would have been anti-dilutive to our net loss. The Series D Convertible Preferred Stock, Series E Convertible Preferred Stock, Series G Convertible Preferred Stock, Series H Convertible Preferred Stock and Series J Convertible Preferred Stock are presented below as if they were converted into common shares according to the conversion terms in Note 5 of the condensed consolidated financial statements. | |||||||||||||||||
For the Nine Months Ended | |||||||||||||||||
September 30, | |||||||||||||||||
2013 | 2012 | ||||||||||||||||
Stock options | 1,793,750 | 1,680,250 | |||||||||||||||
Convertible debt | 1,025,000 | - | |||||||||||||||
Common stock warrants | 12,034,599 | 6,080,501 | |||||||||||||||
Preferred stock warrants | - | - | |||||||||||||||
Convertible preferred stock: | |||||||||||||||||
Series D Convertible Preferred | 750,000 | 750,000 | |||||||||||||||
Series E Convertible Preferred | - | 245,098 | |||||||||||||||
Series G Convertible Preferred | 1,453,200 | 1,200,950 | |||||||||||||||
Series H Convertible Preferred | 1,000,000 | - | |||||||||||||||
Series J Convertible Preferred | 5,087,500 | - | |||||||||||||||
23,144,049 | 9,956,799 | ||||||||||||||||
Accounting for Income Taxes | |||||||||||||||||
We account for income taxes under the asset and liability method, which requires recognition of deferred tax assets, subject to valuation allowances, and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established if it is more likely than not that all or a portion of the net deferred tax assets will not be realized. If substantial changes in the Company’s ownership should occur, as defined in Section 382 of the Internal Revenue Code, there could be sufficient limitations on the amount of net loss carry forwards that could be used to offset future taxable income. | |||||||||||||||||
Warrant Derivative Liability | |||||||||||||||||
The warrants issued in connection with the registered direct offering of Series D Convertible Preferred Stock (the “Series D Warrants”) are measured at fair value and liability-classified because the Series D Warrants contain “down-round protection” and therefore, do not meet the scope exception under ASC 815, Derivatives and Hedging, (“ASC 815”). Since “down-round protection” is not an input into the calculation of the fair value of the warrants, the warrants cannot be considered indexed to the Company’s own stock which is a requirement for the scope exception as outlined under ASC 815. The estimated fair value of the warrants was determined using the binomial model, resulting in an allocation of the gross proceeds of $283,725 to the warrants issued in the Series D registered direct offering. The fair value will be affected by changes in inputs to that model including our stock price, expected stock price volatility, the contractual term, and the risk-free interest rate. We will continue to classify the fair value of the warrants as a liability until the warrants are exercised, expire or are amended in a way that would no longer require these warrants to be classified as a liability, whichever comes first. The down-round protection for the Series D Warrants survives for the life of the Series D Warrants which ends in May 2017. | |||||||||||||||||
Conversion Option Liability | |||||||||||||||||
The Company signed three convertible notes and has determined that conversion options are embedded in the notes and it is required to bifurcate the conversion option from the host contract under ASC 815 and account for the derivatives at fair value. The estimated fair value of the conversion options was determined using the binomial model. The fair value of the conversion options will be classified as a liability until the debt is converted by the note holders or paid back by the Company. The fair value will be affected by changes in inputs to that model including our stock price, expected stock price volatility, the contractual term, and the risk-free interest rate. We will continue to classify the fair value of the conversion options as a liability until the conversion options are exercised, expire or are amended in a way that would no longer require these conversion options to be classified as a liability, whichever comes first. The Company has adopted a sequencing policy that reclassifies contracts (from equity to liabilities) with the most recent inception date first. Thus any available shares are allocated first to contracts with the most recent inception dates. | |||||||||||||||||
Accounting for Stock-Based Compensation Expense | |||||||||||||||||
We maintain equity compensation plans under which incentive stock options and non-qualified stock options are granted to employees, independent members of our Board of Directors and outside consultants. We recognize stock-based compensation expense over the requisite service period using the Black-Scholes formula to estimate the fair value of the stock options on the date of grant. | |||||||||||||||||
Determining Fair Value of Stock Option Grants | |||||||||||||||||
Valuation and Amortization Method - The fair value of each option award is estimated on the date of grant using the Black-Scholes pricing model based on certain assumptions. The estimated fair value of employee stock options is amortized to expense using the straight-line method over the vesting period, which is over four years for options granted in 2012 and 12 months for options issued 2013. | |||||||||||||||||
Expected Term - The Company uses the simplified calculation of expected life, as the Company does not currently have sufficient historical exercise data on which to base an estimate of expected term. Using this method, the expected term is determined using the average of the vesting period and the contractual life of the stock options granted. | |||||||||||||||||
Expected Volatility - Expected volatility is based on the Company’s historical stock volatility data over the expected term of the award. | |||||||||||||||||
Risk-Free Interest Rate - The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term. | |||||||||||||||||
Forfeitures - The Company records stock-based compensation expense only for those awards that are expected to vest. The Company estimated a forfeiture rate of 2% for awards granted based on historical experience and future expectations of options vesting. The Company used this historical rate as our assumption in calculating future stock-based compensation expense. | |||||||||||||||||
We recognized stock-based compensation expense of $92,231 and $96,726 for the three months ended September 30, 2013 and 2012, respectively. The following table summarizes the effect of this stock-based compensation expense within each of the line items of our costs and expenses within our condensed consolidated statements of operations: | |||||||||||||||||
For the Three Months Ended | |||||||||||||||||
September 30, | |||||||||||||||||
2013 | 2012 | ||||||||||||||||
Research and development | $ | 44,658 | $ | 21,633 | |||||||||||||
Selling and marketing | 17,024 | 17,877 | |||||||||||||||
General and administrative | 30,549 | 57,216 | |||||||||||||||
Total stock-based compensation expense | $ | 92,231 | $ | 96,726 | |||||||||||||
We recognized stock-based compensation expense of $120,248 and $116,816 for the nine months ended September 30, 2013 and 2012, respectively. The following table summarizes the effect of this stock-based compensation expense within each of the line items of our costs and expenses within our condensed consolidated statements of operations: | |||||||||||||||||
For the Nine Months Ended | |||||||||||||||||
September 30, | |||||||||||||||||
2013 | 2012 | ||||||||||||||||
Research and development | $ | 50,161 | $ | 27,759 | |||||||||||||
Selling and marketing | 21,216 | 24,659 | |||||||||||||||
General and administrative | 48,871 | 64,398 | |||||||||||||||
Total stock-based compensation expense | $ | 120,248 | $ | 116,816 | |||||||||||||
Fair Value of Financial Instruments | |||||||||||||||||
Due to their short maturities, the carrying amounts for cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate their fair value. Long-term liabilities are primarily related to liabilities transferred under contractual arrangements and are measured at fair value. | |||||||||||||||||
Fair Value Measurements | |||||||||||||||||
The Company follows the guidance of FASB ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) as it related to all financial assets and financial liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. | |||||||||||||||||
The Company generally defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company uses a three-tier fair value hierarchy, which classifies the inputs used in measuring fair values. These tiers include: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring the Company to develop its own assumptions. | |||||||||||||||||
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company has determined that it does not have any financial assets measured at fair value and that its financial liabilities are currently all classified within Level 3 in the fair value hierarchy. The development of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management. | |||||||||||||||||
The following tables set forth the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of September 30, 2013. | |||||||||||||||||
Fair value measurements at September 30, 2013 using: | |||||||||||||||||
September 30, | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||||
2013 | |||||||||||||||||
Warrant derivative liability | $ | 170,137 | - | - | $ | 170,137 | |||||||||||
January 1, | Change in Fair Value | September 30, | |||||||||||||||
2013 | 2013 | ||||||||||||||||
Warrant derivative liability | $ | 160,812 | $ | 9,325 | $ | 170,137 | |||||||||||
The assumptions for the binomial pricing model are represented in the table below for the warrants issued in the Series D private placement reflected on a per share common stock equivalent basis. | |||||||||||||||||
Assumptions | Warrants revalued at December 31, | Warrants revalued at September 30, | |||||||||||||||
2012 | 2013 | ||||||||||||||||
Expected life (in months) | 46 | 37 | |||||||||||||||
Expected volatility | 146.4 | % | 145.7 | % | |||||||||||||
Risk-free interest rate | 0.44 | % | 0.63 | % | |||||||||||||
Exercise price | $ | 0.4 | $ | 0.4 | |||||||||||||
Fair value per warrant | $ | 0.15 | $ | 0.16 | |||||||||||||
The following tables set forth the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of September 30, 2013. | |||||||||||||||||
Fair value measurements at September 30, 2013 using: | |||||||||||||||||
September 30, | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs | ||||||||||||||
2013 | (Level 3) | ||||||||||||||||
April 11, 2013 note, conversion option | $ | 115,916 | - | - | $ | 115,916 | |||||||||||
May 24, 2013 note, conversion option | 86,252 | - | - | 86,252 | |||||||||||||
June 6, 2013 note, conversion option | 29,216 | - | - | 29,216 | |||||||||||||
June 26, 2013 note, conversion option | 49,743 | - | - | 49,743 | |||||||||||||
Embedded conversion options | $ | 281,127 | - | - | $ | 281,127 | |||||||||||
Issuance date fair value | Change in fair value | September 30, | |||||||||||||||
2013 | |||||||||||||||||
April 11, 2013 note, conversion option | $ | 274,840 | $ | (158,924 | ) | $ | 115,916 | ||||||||||
May 24, 2013 note, conversion option | 122,223 | (35,971 | ) | 86,252 | |||||||||||||
June 6, 2013 note, conversion option | 158,715 | (129,499 | ) | 29,216 | |||||||||||||
June 26, 2013 note, conversion option | 84,146 | (34,403 | ) | 49,743 | |||||||||||||
Embedded conversion options | $ | 639,924 | $ | (358,797 | ) | $ | 281,127 | ||||||||||
The assumptions for the binomial pricing model are represented in the table below for the conversion options reflected on a per share common stock equivalent basis. | |||||||||||||||||
Assumptions | April 11, | Conversion options revalued at | |||||||||||||||
2013 | September 30, | ||||||||||||||||
2013 | |||||||||||||||||
Expected life (in months) | 12 | 6 | |||||||||||||||
Expected volatility | 206.2 | % | 118.7 | % | |||||||||||||
Risk-free interest rate | 0.1 | % | 0.04 | % | |||||||||||||
Exercise price | $ | 0.14 | $ | 0.13 | |||||||||||||
Fair value per conversion option | $ | 0.29 | $ | 0.11 | |||||||||||||
Assumptions | May 24, | Conversion options revalued at | |||||||||||||||
2013 | September 30, | ||||||||||||||||
2013 | |||||||||||||||||
Expected life (in months) | 24 | 19 | |||||||||||||||
Expected volatility | 170 | % | 178.3 | % | |||||||||||||
Risk-free interest rate | 0.27 | % | 0.22 | % | |||||||||||||
Exercise price | $ | 0.25 | $ | 0.2 | |||||||||||||
Fair value per conversion option | $ | 0.31 | $ | 0.17 | |||||||||||||
Assumptions | June 6, | Conversion options revalued at | |||||||||||||||
2013 | September 30, | ||||||||||||||||
2013 | |||||||||||||||||
Expected life (in months) | 12 | 8 | |||||||||||||||
Expected volatility | 209.7 | % | 122.3 | % | |||||||||||||
Risk-free interest rate | 0.13 | % | 0.07 | % | |||||||||||||
Exercise price | $ | 0.4 | $ | 0.4 | |||||||||||||
Fair value per conversion option | $ | 0.25 | $ | 0.05 | |||||||||||||
Assumptions | June 26, | Conversion options revalued at | |||||||||||||||
2013 | September 30, | ||||||||||||||||
2013 | |||||||||||||||||
Expected life (in months) | 12 | 9 | |||||||||||||||
Expected volatility | 189.2 | % | 122.3 | % | |||||||||||||
Risk-free interest rate | 0.13 | % | 0.07 | % | |||||||||||||
Exercise price | $ | 0.17 | $ | 0.13 | |||||||||||||
Fair value per conversion option | $ | 0.26 | $ | 0.12 | |||||||||||||
Advertising | |||||||||||||||||
Advertising costs are expensed as incurred. We did not incur significant advertising expenses during the three or nine months ended September 30, 2013 or in the same period of the prior year. | |||||||||||||||||
4_Commitments_and_Contingencie
4. Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2013 | |
Notes to Financial Statements | ' |
4. Commitments and Contingencies | ' |
Operating Leases | |
Our corporate offices are currently located at 14 Norfolk Avenue, South Easton, Massachusetts 02375. In November 2007, we signed a lease agreement commencing in February 2008 pursuant to which we lease approximately 5,500 square feet of office space. We extended the lease term until December 31, 2013 with a monthly payment of $4,800. | |
Effective January 1, 2010, we entered into a three-year lease agreement with the University of Massachusetts in Boston, pursuant to which we are leasing laboratory and office space on campus at the university for research and development activities. This lease was amended to expire on December 31, 2014. We pay $5,500 per month for the use of these facilities. | |
Rental costs are expensed as incurred. During the nine months ended September 30, 2013 and 2012 we incurred $92,740 and $88,200, respectively, in rent expense for the use of our corporate office and research and development facilities. | |
Royalty Commitments | |
In 1996, we acquired our initial equity interest in BioSeq, Inc., which at the time was developing our original pressure cycling technology. BioSeq, Inc. acquired its pressure cycling technology from BioMolecular Assays, Inc. (“BMA”) under a technology transfer and patent assignment agreement. In 1998, we purchased all of the remaining outstanding capital stock of BioSeq, Inc., and at such time, the technology transfer and patent assignment agreement was amended to require us to pay BMA a 5% royalty on our sales of products or services that incorporate or utilize the original pressure cycling technology that BioSeq, Inc. acquired from BMA. We are also required to pay BMA 5% of the proceeds from any sale, transfer or license of all or any portion of the original pressure cycling technology. These payment obligations terminate in 2016. During the nine months ended September 30, 2013 and 2012, we incurred $12,946 and $14,226, respectively, in royalty expense associated with our obligation to BMA. | |
In connection with our acquisition of BioSeq, Inc., we licensed certain limited rights to the original pressure cycling technology back to BMA. This license is non-exclusive and limits the use of the original pressure cycling technology by BMA solely for molecular applications in scientific research and development and in scientific plant research and development. BMA is required to pay us a royalty equal to 20% of any license or other fees and royalties, but not including research support and similar payments, it receives in connection with any sale, assignment, license or other transfer of any rights granted to BMA under the license. BMA must pay us these royalties until the expiration of the patents held by BioSeq, Inc. in 1998, which we anticipate will be in 2016. We have not received any royalty payments from BMA under this license. | |
Battelle Memorial Institute | |
In December 2008, we entered into an exclusive patent license agreement with the Battelle Memorial Institute ("Battelle"). The licensed technology is described in the patent application filed by Battelle on July 31, 2008 (US serial number 12/183,219). This application includes subject matter related to a method and a system for improving the analysis of protein samples, including through an automated system utilizing pressure and a pre-selected agent to obtain a digested sample in a significantly shorter period of time than current methods, while maintaining the integrity of the sample throughout the preparatory process. Pursuant to the terms of the agreement we paid Battelle a non-refundable initial fee of $35,000. In addition to royalty payments on net sales on “licensed products”, we are obligated to make minimum royalty payments for each year that we retain the rights outlined in the patent license agreement and we are required to have our first commercial sale of the licensed products within one year following the issuance of the patent covered by the licensed technology. Our only obligation for 2012 was a minimum annual royalty payment of $10,000. Our minimum annual royalty payment for 2013 is $12,500. | |
Target Discovery Inc. | |
In March 2010, we signed a strategic product licensing, manufacturing, co-marketing, and collaborative research and development agreement with Target Discovery Inc. (“TDI”). TDI’s Chief Executive Officer subsequently became and continues to be a board member of Pressure BioSciences, Inc. Under the terms of the agreement, we have been licensed by TDI to manufacture and sell a highly innovative line of chemicals used in the preparation of tissues for scientific analysis ("TDI reagents"). The TDI reagents were designed for use in combination with our pressure cycling technology. The companies believe that the combination of PCT and the TDI reagents can fill an existing need in life science research for an automated method for rapid extraction and recovery of intact, functional proteins associated with cell membranes in tissue samples. In April 2012 we announced an expanded license agreement and collaboration with TDI with a first target goal to meet unmet needs in treatment guidance for ovarian cancer. We did not incur a royalty liability on sales through September 30, 2013. | |
Severance and Change of Control Agreements | |
Each of Mr. Schumacher, Dr. Ting, Dr. Lazarev, and Dr. Lawrence, executive officers of the Company, is entitled to receive a severance payment if terminated by us without cause. The severance benefits would include a payment in an amount equal to one year of such executive officer’s annualized base salary compensation plus accrued paid time off. Additionally, the officer will be entitled to receive medical and dental insurance coverage for one year following the date of termination. | |
Each of these executive officers, other than Mr. Schumacher, is entitled to receive a change of control payment in an amount equal to one year of such executive officer’s annualized base salary compensation, accrued paid time off, and medical and dental coverage, in the event of a change of control of the Company. In the case of Mr. Schumacher, this payment would be equal to two years of annualized base salary compensation, accrued paid time off, and two years of medical and dental coverage. The severance payment is meant to induce the executive to become an employee of the Company and to remain in the employ of the Company, in general, and particularly in the occurrence of a change in control. | |
Promissory Note | |
On November 4, 2011, the Company entered into an agreement with a former placement agent, pursuant to which the Company and the placement agent released each other of their respective obligations under a prior investment banking agreement. In connection with this agreement, the Company issued the placement agent a promissory note with an original principal amount of $150,000 and a maturity date of May 4, 2012. The promissory note was interest free until May 4, 2012. On November 15, 2012, $75,000 of principal and $16,125 of accrued and unpaid interest were converted into 18,225 shares of the Company’s Series G Convertible Preferred Stock. The $75,000 principal balance remaining as of September 30, 2013 earns interest at a rate of 18% per year. | |
Convertible Debt | |
Loans in the aggregate amount of $155,000 were received from two individuals in the quarter ended March 31, 2013. We accrued interest at a rate of 6% on the loans. These loans, along with $863,000 of other prior outstanding loans and unpaid interest, were converted to the Company’s Series J Convertible Preferred Shares in February 2013. | |
On April 11, 2013, we signed a promissory note in the amount of $275,000. The lender paid $125,000, net of $12,500 of original issue discount, upon closing of the note. The lender paid an additional $50,000, net of $5,000 original issue discount, on June 26, 2013. The balance of the Consideration shall be paid in the amounts and the dates as the lender chooses. The note and unpaid interest on the note are due and payable one year from the effective date of each payment. The lender has the right to convert all or part of the unpaid principal and interest into common stock at a conversion price of 60% of the lowest trade price in the 25 trading days prior to conversion after six months from the effective date of each closing. The Company has the right to repay the notes at any time within six months of the effective date of each closing. If the Company repays the note within 90 days of the effective date interest is 0%. If the note is not repaid within the 90 days a one time interest charge of 12% will be applied. The Company has reserved at least 6,000,000 shares of common stock for conversion under this note. The Company evaluated the terms of this note in accordance with ASC 815-40, Derivatives and Hedging Contracts in Entity’s Own Stock. The Company determined that the conversion feature met the definition of a liability and therefore, bifurcated the conversion feature and account for it as a derivative liability. The derivative liability is measured at the end of each reporting period and the difference in fair value is recorded as other expense or income in the statement of operations. The fair value of the conversion feature was $165,859 at September 30, 2013 and reflected in the conversion option liability line in the condensed consolidated balance sheet. On October 10, 2013, this note was amended to change the lenders right to convert and the borrower’s right to repay to December 10, 2013. | |
The proceeds from the convertible debt issued on April 11, 2013, were allocated between the host debt instrument and the convertible option based on the residual method. The estimated fair value of the convertible option was determined using a binomial formula, resulting in an allocation of $274,840 to the convertible option and accounted for as a liability in the Company’s condensed consolidated balance sheet. In accordance with the provisions of ASC 815-40, the entire gross proceeds of $137,500 is offset by a debt discount of $137,500 which will be amortized to interest expense over the twelve month life of the debt. The additional $149,840 adjustment between the convertible option liability and the debt discount is charged to other expense. | |
The proceeds from the convertible debt issued on June 26, 2013, were allocated between the host debt instrument and the convertible option based on the residual method. The estimated fair value of the convertible option was determined using a binomial formula, resulting in an allocation of $84,146 to the convertible option and accounted for as a liability in the Company’s condensed consolidated balance sheet. In accordance with the provisions of ASC 815-40, the entire gross proceeds of $55,000 is offset by a debt discount of $55,000 which will be amortized to interest expense over the twelve month life of the debt. The additional $34,146 adjustment between the convertible option liability and the debt discount is charged to other expense. | |
So long as the note is outstanding, the Company shall notify the lender of the issuance of any security with a term more favorable to the holder, and the lender may at its option, include the terms as a part of the transaction documents. | |
On May 24, 2013, we entered into a Convertible Redeemable Note. The lender paid $97,500, net of $2,500 in legal fees, on the closing date. The note does not bear interest. The $100,000 principal is due on May 24, 2015. At any time six months after the closing date, the lender at its option may convert part, or all, of the note then outstanding into shares of the Company’s common stock at a conversion price of 70% of the average weighted average price of the common stock for the 10 trading days preceding the conversion date. The Company shall have the right to redeem the note at 120% of the unpaid principal if paid within 90 days of the issuance day, 130% of the unpaid principal if repaid between 91 and 180 days following the issuance day and 150% at any time thereafter. The Company has reserved 1,000,000 shares of common stock for conversion under this note. The Company determined that the conversion feature met the definition of a liability and therefore, bifurcated the conversion feature and accounted for it as a derivative liability. The derivative liability is measured at the end of each reporting period and the difference in fair value is recorded as other expense or income in the statement of operations. The fair value of the conversion feature was $86,252 at September 30, 2013 and reflected in the conversion option liability line in the condensed consolidated balance sheet. | |
The proceeds from the convertible debt issued on May 24, 2013, were allocated between the host debt instrument and the convertible option based on the residual method. The estimated fair value of the convertible option was determined using a binomial formula, resulting in an allocation of $122,223 to the convertible option and accounted for as a liability in the Company’s condensed consolidated balance sheet. In accordance with the provisions of ASC 815-40, the entire gross proceeds of $100,000 is offset by a debt discount of $100,000 which will be amortized to interest expense over the twenty-four month life of the debt. The additional $24,723 adjustment between the convertible option liability and the debt discount is charged to other expense. | |
On June 6, 2013, we signed a convertible debenture in the amount of $500,000. The lender paid an initial payment of $213,000 net of a “finder’s fee” discount of $25,000 and $12,000 in legal fees, on the closing date. The lender has the right, anytime after six months from the issue date to convert any or part of the outstanding and unpaid principal into shares of the Company’s common stock at a price of $0.40 per share subject to adjustments for stock splits, stock dividends or rights offerings. The Company shall have the right to prepay the debenture for a payment of 120% of the outstanding principal plus accrued and unpaid interest. The Company is required to reserve at least 2.5 times the number of shares actually issuable upon full conversion of this debenture. The Company determined that the conversion feature met the definition of a liability in accordance with ASC 815-40 and therefore bifurcated the conversion feature and account for it as a derivative liability. The derivative liability is measured at the end of each reporting period and the difference in fair value is recorded as other expense or income in the statement of operations. The fair value of the conversion feature was $29,216 at September 30, 2013 and reflected in the conversion option liability line in the condensed consolidated balance sheet. | |
The proceeds from the convertible debt issued on June 6, 2013, were allocated between the host debt instrument and the convertible option based on the residual method. The estimated fair value of the convertible option was determined using a binomial formula, resulting in an allocation of $158,715 to the convertible option and accounted for as a liability in the Company’s condensed consolidated balance sheet. In accordance with the provisions of ASC 815-40, the gross proceeds of $250,000 is offset by a debt discount of $195,715 which will be amortized to interest expense over the twelve month life of the debt. | |
On August 8, 2013, we received $160,000 in a six-month note from an existing shareholder. Terms of the note include 18% annual interest, a right to convert the note into the next equity transaction of the Company, at the conversion rate of the equity offering, and a three-year warrant to acquire 160,000 shares of common stock at $0.40 per share. The fair value of the warrant was determined to be $28,722, which will be accounted for as a debt discount and amortized to interest expense over the six-month life of the note. | |
Other Notes | |
On August 23, 2013, we signed a Merchant Agreement with Strategic Funding Source, Inc. (SFS). Under the agreement we received $75,000 in exchange for rights to all customer receipts until SFS is paid $99,000, to be collected at the rate of $849 per business day. The payments are secured by essentially all assets of the Company. On August 29, 2013 the agreement was modified to give the Company the right to pre-pay the note at any time prior to January 21, 2014; if pre-paid, the Company will receive a discount based on the date of pre-payment after the funding date. Discounts range from $16,500, if pre-paid within 30 days of funding to $1,500, if pre-paid within 150 days of funding. | |
5_Stockholders_Deficit
5. Stockholders' Deficit | 9 Months Ended | ||||||||||||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||||||||||||
Notes to Financial Statements | ' | ||||||||||||||||||||||||||
5. Stockholders' Deficit | ' | ||||||||||||||||||||||||||
Preferred Stock | |||||||||||||||||||||||||||
We are authorized to issue 1,000,000 shares of preferred stock with a par value of $0.01. Of the 1,000,000 shares of preferred stock: | |||||||||||||||||||||||||||
1) | 20,000 shares have been designated as Series A Junior Participating Preferred Stock (“Junior A”) | ||||||||||||||||||||||||||
2) | 313,960 shares have been designated as Series A Convertible Preferred Stock (“Series A”) | ||||||||||||||||||||||||||
3) | 279,256 shares have been designated as Series B Convertible Preferred Stock (“Series B”) | ||||||||||||||||||||||||||
4) | 88,098 shares have been designated as Series C Convertible Preferred Stock (“Series C”) | ||||||||||||||||||||||||||
5) | 850 shares have been designated as Series D Convertible Preferred Stock (“Series D”) | ||||||||||||||||||||||||||
6) | 500 shares have been designated as Series E Convertible Preferred Stock (“Series E”) | ||||||||||||||||||||||||||
7) | 240,000 shares have been designated as Series G Convertible Preferred Stock (“Series G”) | ||||||||||||||||||||||||||
8) | 10,000 shares have been designated as Series H Convertible Preferred Stock (“Series H”) | ||||||||||||||||||||||||||
9) | 6,250 shares have been designated as Series J Convertible Preferred Stock (“Series J”) | ||||||||||||||||||||||||||
As of September 30, 2013, there were no shares of Junior A, and Series A, B, C and E issued and outstanding. | |||||||||||||||||||||||||||
Series D Convertible Preferred Stock | |||||||||||||||||||||||||||
On November 11, 2011, we completed a registered direct offering, pursuant to which we sold an aggregate of 843 units for a purchase price of $1,000.00 per unit, resulting in gross proceeds to us of $843,000 (the “Series D Placement”). Each unit (“Series D Unit”) consisted of (i) one share of Series D Convertible Preferred Stock, $0.01 par value per share (the “Series D Convertible Preferred Stock”) convertible into 1,538.46 shares of our common stock, (subject to adjustment for stock splits, stock dividends, recapitalization, etc.) and (ii) one five-year warrant to purchase approximately 614 shares of our common stock at a per share exercise price of $0.81, subject to adjustment as provided in the Warrants (“Series D Warrant”). The Series D Warrants will be exercisable beginning on May 11, 2012 and until the close of business on the fifth anniversary of the initial exercise date. | |||||||||||||||||||||||||||
We engaged an investment banker to assist with the Series D Placement. In connection with the Series D Placement, we paid the investment banker a fee of approximately $67,000. | |||||||||||||||||||||||||||
The proceeds from the sale of each Series D Unit were allocated between the Series D Convertible Preferred Stock and the Series D Warrants based on the residual method. The estimated fair value of the Series D Warrants was determined using a binomial formula, resulting in an allocation of the gross proceeds of $283,725 to the total warrants issued. The allocation of the gross proceeds to the Series D Convertible Preferred Stock was $559,275. In accordance with the provisions of ASC 470-20, an additional adjustment between Additional Paid in Capital and Accumulated Deficit of $530,140 was recorded to reflect an implicit non-cash dividend related to the allocation of proceeds between the stock and warrants issued. The $530,140 represents the value of the adjustment to additional paid in capital related to the beneficial conversion feature of the Series D Convertible Preferred Stock. The value adjustment was calculated by subtracting the fair market value of the underlying common stock on November 10, 2011 issuable upon conversion of the Series D Convertible Preferred Stock from the fair market value of the Series D Convertible Preferred Stock as determined when the Company performed a fair market value allocation of the proceeds to the Series D Convertible Preferred Stock and warrants. The warrants are recorded as a liability. | |||||||||||||||||||||||||||
The Series D Convertible Preferred Stock ranks senior to the Company’s common stock, the Series G Convertible Preferred Stock, the Series H Convertible Preferred Stock, and Series J Convertible Preferred Stock with respect to payments made upon liquidation, winding up or dissolution. Upon any liquidation, dissolution or winding up of the Company, after payment of the Company’s debts and liabilities, and before any payment is made to the holders of any junior securities, the holders of Series D Convertible Preferred Stock are first entitled to be paid $1,000 per share subject to adjustment for accrued but unpaid dividends. | |||||||||||||||||||||||||||
We may not pay any dividends on shares of common stock unless we also pay dividends on the Series D Convertible Preferred Stock in the same form and amount, on an as-if-converted basis, as dividends actually paid on shares of our common stock. Except for such dividends, no other dividends may be paid on the Series D Convertible Preferred Stock. | |||||||||||||||||||||||||||
Each share of Series D Convertible Preferred Stock is convertible into 2,500 shares of common stock (based upon a reset conversion price of $0.40 per share) at any time at the option of the holder, subject to adjustment for stock splits, stock dividends, combinations, and similar recapitalization transactions (the “Series D Conversion Ratio”). Subject to certain exceptions, if the Company issues any shares of common stock or common stock equivalents at a per share price that is lower than the conversion price of the Series D Convertible Preferred Stock, the conversion price will be reduced to the per share price at which such shares of common stock or common stock equivalents are issued. Each share of Series D Convertible Preferred Stock will automatically be converted into shares of common stock at the Series D Conversion Ratio then in effect if, after six months from the closing of the Series D Placement, the common stock trades on the NASDAQ Capital Market (or other primary trading market or exchange on which the common stock is then traded) at a price equal to at least 300% of the then effective Series D Convertible Preferred Stock conversion price for 20 out of 30 consecutive trading days with each trading day having a volume of at least $50,000. Unless waived under certain circumstances by the holder of the Series D Convertible Preferred Stock, such holder’s Series D Convertible Preferred Stock may not be converted if upon such conversion the holder’s beneficial ownership would exceed certain thresholds. | |||||||||||||||||||||||||||
In addition, in the event we consummate a merger or consolidation with or into another person or other reorganization event in which our shares of common stock are converted or exchanged for securities, cash or other property, or we sell, lease, license or otherwise dispose of all or substantially all of our assets or we or another person acquire 50% or more of our outstanding shares of common stock, then following such event, the holders of the Series D Convertible Preferred Stock will be entitled to receive upon conversion of the Series D Convertible Preferred Stock the same kind and amount of securities, cash or property which the holders of the Series D Convertible Preferred Stock would have received had they converted the Series D Convertible Preferred Stock immediately prior to such fundamental transaction. | |||||||||||||||||||||||||||
The holders of Series D Convertible Preferred Stock are not entitled to vote on any matters presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), except that the holders of Series D Convertible Preferred Stock may vote separately as a class on any matters that would (i) amend our Restated Articles of Organization, as amended, in a manner that adversely affects the rights of the Series D Convertible Preferred Stock, (ii) alter or change adversely the powers, preferences or rights of the Series D Convertible Preferred Stock or alter or amend the certificate of designation, (iii) authorize or create any class of shares ranking as to dividends, redemption or distribution of assets upon liquidation senior to, or otherwise pari passu with, the Series D Convertible Preferred Stock, or (iv) increase the number of authorized shares of Series D Convertible Preferred Stock. | |||||||||||||||||||||||||||
If, within 12 months of the initial issuance of the Series D Convertible Preferred Stock, we issue any common stock, common stock equivalents, indebtedness or any combination thereof (a “Subsequent Financing”), the holders of Series D Convertible Preferred Stock have the right to participate on a pro-rata basis in up to 50% of such Subsequent Financing. | |||||||||||||||||||||||||||
Series D Warrants | |||||||||||||||||||||||||||
The Series D Warrants originally had an exercise price equal to $0.81 per share of common stock. The number of Series D Warrants increased by 530,406 to a total of 1,047,875 and each Series D Warrant currently has an exercise price equal to $0.40 per share of common stock. These adjustments were made in connection with our April 2012 registered direct offering in accordance with the Series D Warrant. The Series D Warrants are exercisable beginning on the six-month anniversary of the date of issuance and expire five years from the initial exercise date. The Series D Warrants permit the holder to conduct a “cashless exercise” at any time a registration statement, or the prospectus contained therein, is not available for the issuance of the shares of common stock issuable upon exercise of the Series D Warrant, and under certain circumstances at the expiration of the Series D Warrants. The exercise price and/or number of shares of common stock issuable upon exercise of the Series D Warrants are subject to adjustment for certain stock dividends, stock splits or similar capital reorganizations, as set forth in the Warrants. The exercise price and/or number of shares of common stock issuable upon exercise of the Series D Warrants are also subject to adjustment in the event that we issue any shares of common stock or common stock equivalents at a per share price that is lower than the exercise price for the Series D Warrants then in effect. Upon any such issuance, subject to certain exceptions, the exercise price will be reduced to the per share price at which such shares of common stock or common stock equivalents are issued and number of Series D Warrant shares issuable thereunder shall be increased such that the aggregate exercise price payable thereunder, after taking into account the decrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment. Unless waived under certain circumstance by the holder of a Series D Warrant, such holder may not exercise the Series D Warrant if upon such exercise the holder’s beneficial ownership of the Company’s common stock would exceed certain thresholds. In the event we consummate a merger or consolidation with or into another person or other reorganization event in which our shares of common stock are converted or exchanged for securities, cash or other property, or we sell, lease, license or otherwise dispose of all or substantially all of our assets or we or another person acquire 50% or more of our outstanding shares of common stock, then following such event, the holders of the Series D Warrants will be entitled to receive upon exercise of the Series D Warrants the same kind and amount of securities, cash or property which the holders would have received had they exercised the Series D Warrants immediately prior to such fundamental transaction. | |||||||||||||||||||||||||||
Series E Convertible Preferred Stock | |||||||||||||||||||||||||||
On April 9, 2012, we completed a registered direct offering with Ironridge Global IV Ltd. (“Ironridge”), pursuant to which we sold an aggregate of 500 shares of our Series E Convertible Preferred Stock to Ironridge for a purchase price of $1,000 per share or an aggregate purchase price of $500,000 (“Series E Preferred Stock”). Each share of Series E Preferred Stock was convertible into approximately 980 shares of our common stock. The Series E Preferred Stock was entitled to a yearly dividend at a rate of 10.5% per year, subject to a credit risk and make-whole adjustment, and was payable in cash or shares of common stock at our election. Under certain conditions and subject to certain limitations, we could have required Ironridge to convert their Series E Convertible Preferred Stock into common stock. In connection with this registered direct offering, our investment banker received a fee of $40,000. The make-whole dividends were payable any time after the closing on April 9, 2012 at the option of the holder; therefore, we recognized the full value of $262,500 as a current liability and charged this amount immediately to accumulated deficit. Ironridge converted all 500 shares of Series E Preferred Stock into 490,196 common shares in 2012. | |||||||||||||||||||||||||||
The Series E Preferred Stock ranked senior to the Company’s common stock for so long as at least 250 shares of Series E Preferred Stock remained outstanding and pari passu thereafter and junior to the Series D Preferred Stock with respect to payments made upon liquidation, winding up or dissolution. Upon any liquidation, dissolution or winding up of the Company, after payment of the Company’s debts and liabilities, and before any payment was made to the holders of any junior securities, the holders of Series E Convertible Preferred Stock were first entitled to be paid $1,000 per share subject to adjustment for accrued but unpaid dividends. | |||||||||||||||||||||||||||
We were not allowed to pay any dividends on shares of common stock so long as any shares of Series E Preferred Stock were outstanding. | |||||||||||||||||||||||||||
Each share of Series E Preferred Stock was convertible into 980.39 shares of common stock (based upon an initial conversion price of $1.02 per share) at any time at the option of the holder, subject to adjustment for stock splits, stock dividends, combinations, and similar recapitalization transactions (the “Series E Conversion Ratio”). At our option, each share of Series E Preferred Stock could have been converted into shares of common stock at the Series E Conversion Ratio then in effect if, the common stock trades on the OTC Capital Market (or other primary trading market or exchange on which the common stock was then traded) at a price equal to at least $2.00 for 20 out of 25 consecutive trading days. Unless waived under certain circumstances by the holder of the Series E Preferred Stock, such holder’s Series E Preferred Stock may not have been converted if upon such conversion the holder’s beneficial ownership would exceed certain thresholds. | |||||||||||||||||||||||||||
Subject to the rights of the holders of Series D Preferred Stock, for so long as at least 250 shares of Series E Preferred Stock remained outstanding, upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary (each a “Liquidation Event”), after payment or provision for payment of debts and other liabilities of the Company, the holders of Series E Preferred Stock would have been entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount with respect to each share of Series E Preferred Stock equal to $1,000, plus any accrued but unpaid dividends thereon (the “Series E Liquidation Value”), before any distribution or payment would have been made to the holders of common stock. Subject to the rights of the holders of Series D Preferred Stock, at any time that fewer than 250 shares of Series E Preferred Stock remained outstanding, upon the occurrence of any Liquidation Event, after payment or provision for payment of debts and other liabilities of the Company, pari passu with any distribution or payment made to the holders of common stock by reason of their ownership thereof, the holders of Series E Preferred Stock would have been entitled to be paid out of the assets of the Company available for distribution to its stockholders the Series E Liquidation Value. For so long as at least 250 shares of Series E Preferred Stock remained outstanding, if, upon the occurrence of any Liquidation Event, the amounts payable with respect to the shares of Series E Preferred Stock are not paid in full, the holders of shares of Series E Preferred Stock would have shared equally and ratably with each other in any distribution of assets of the Company in proportion to the Series E Liquidation Value, if any, to which each such holder was entitled, before any distribution or payment shall have been made to holders of common stock. At any time that fewer than 250 shares of Series E Preferred Stock remained outstanding, if, upon the occurrence of any Liquidation Event, the amounts payable with respect to the shares of Series E Preferred Stock were not paid in full, the holders of shares of Series E Preferred Stock would have received the Series E Liquidation Value per share of Series E Preferred Stock on a proportionate and pari passu basis with the holders of common stock. | |||||||||||||||||||||||||||
The holders of Series E Preferred Stock were not entitled to vote on any matters presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), except that the holders of Series E Preferred Stock may have voted separately as a class on any matters that would (i) amend our Restated Articles of Organization, as amended, in a manner that adversely affects the rights of the Series E Preferred Stock, (ii) alter or change adversely the powers, preferences or rights of the Series E Preferred Stock or alter or amend the certificate of designation, (iii) authorize or create any class of shares ranking as to dividends, redemption or distribution of assets upon liquidation senior to, or otherwise pari passu with, the Series E Preferred Stock, or (iv) increase the number of authorized shares of Series E Preferred Stock. No shares of Series E Convertible Preferred Stock remain outstanding as September 30, 2013. | |||||||||||||||||||||||||||
Series G Convertible Preferred Stock | |||||||||||||||||||||||||||
On July 6 and November 15, 2012, we completed a private placement, pursuant to which we sold an aggregate of 145,320 units for a purchase price of $5.00 per unit (the “Series G Purchase Price”), resulting in gross proceeds to us of $726,600 (the “Series G Private Placement”). Each unit (“Series G Unit”) consists of (i) one share of Series G Convertible Preferred Stock, $0.01 par value per share (the “Series G Preferred Stock”) convertible into 10 shares of our common stock, (subject to adjustment for stock splits, stock dividends, recapitalization, etc.) and (ii) a three-year warrant to purchase 5 shares of our common stock at a per share exercise price of $0.50 (the “Series G Warrant”). The Series G Warrants will be exercisable until the close of business on the third anniversary of the applicable closing date of the Series G Private Placement. Of the $726,600 invested in the Series G Private Placement, $31,100 was received in cash and $695,500 was from the conversion of outstanding indebtedness and accrued board of directors’ fees. | |||||||||||||||||||||||||||
Each share of Series G Preferred Stock will receive a cumulative dividend at the annual rate of (i) four percent (4%) on those shares of Series G Preferred Stock purchased from the Company by an individual purchaser with an aggregate investment of less than $100,000, (ii) six percent (6%) on those shares of Series G Preferred Stock purchased from the Company by an individual purchaser with an aggregate investment of at least $100,000 but less than $250,000, and (iii) twelve percent (12%) on those shares of Series G Preferred Stock purchased from the Company by an individual purchaser with an aggregate investment of at least $250,000. Dividends accruing on the Series G Preferred Stock shall accrue from day to day until, and shall be paid within fifteen (15) days of, the first anniversary of, the original issue date of the Series G Preferred Stock; provided, however, if any shares of the Company’s Series E Preferred Stock are outstanding at such time, payment of the accrued dividends on the Series G Preferred Stock shall be deferred until no such shares of Series E Convertible Preferred Stock remain outstanding. The Company may pay accrued dividends on the Series G Preferred Stock in cash or in shares of its common stock equal to the volume weighted average price of the common stock as reported by the OTC QB Market (or other primary trading market or exchange on which the common stock is then traded) for the ten (10) trading days immediately preceding the Series G’s first anniversary. | |||||||||||||||||||||||||||
At the election of the Company and upon required advanced notice, each share of Series G Preferred Stock will automatically be converted into shares of common stock at the Conversion Ratio then in effect: (i) if, after 6 months from the original issuance date of the Series G Preferred Stock, the common stock trades on the OTC QB Market (or other primary trading market or exchange on which the common stock is then traded) at a price equal to at least $0.75, for 7 out of 10 consecutive trading days with average daily trading volume of at least 10,000 shares, (ii) on or after the first anniversary of the original issuance date of the Series G Preferred Stock or (iii) upon completion of a firm-commitment underwritten registered public offering by the Company at a per share price equal to at least $0.75, with aggregate gross proceeds to the Company of not less than $2.5 million. Unless waived under certain circumstances by the holder of the Series G Preferred Stock, such holder’s Series G Preferred Stock may not be converted if upon such conversion the holder’s beneficial ownership would exceed certain thresholds. | |||||||||||||||||||||||||||
The holders of Series G Preferred Stock are not entitled to vote on any matters presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), except as required by law. | |||||||||||||||||||||||||||
Series G Warrants | |||||||||||||||||||||||||||
The Series G Warrants issued in the Series G Private Placement have an exercise price equal to $0.50 per share, with a term expiring on July 6, 2015. The Series G Warrants also permit the holder to conduct a “cashless exercise” at any time the holder of the Series G Warrant is an affiliate of the Company. The exercise price and/or number of shares issuable upon exercise of the Series G Warrants will be subject to adjustment for stock dividends, stock splits or similar capital reorganizations, as set forth in the Series G Warrants. | |||||||||||||||||||||||||||
Subject to the terms and conditions of the Series G Warrants, at any time commencing six months from the closing date the Company has the right to call for cancellation of the Series G Warrants if the volume weighted average price of its common stock on the OTC QB Market (or other primary trading market or exchange on which our common stock is then traded) equals or exceeds three times the per share exercise price of the Warrants for either (i) 10 consecutive trading days or (ii) 15 out of 25 consecutive trading days. | |||||||||||||||||||||||||||
In connection with our sale of Series G Units, we agreed that for each share of Series G Preferred Stock purchased by an investor, the exercise price of one warrant to purchase one share of common stock, previously issued to the investor in prior offerings by the Company to purchase common stock of the Company held of record by such investor, shall be reduced to $0.60 per share and will remain at such reduced exercise price until the expiration date of the warrants. | |||||||||||||||||||||||||||
In connection with the sale of Series G Units, we treated the reduction in exercise price as a warrant amendment and calculated the fair value of 1,495,022 warrants with the reduced exercise price of $0.60, as described above, using the Black-Scholes model with the below assumptions. The Company has determined that the fair value of the amended warrants increased as compared with the fair value of the original warrants immediately prior to amendment. | |||||||||||||||||||||||||||
In connection with the warrant modification, we calculated the fair value of the warrants, as described above, using a Black-Scholes model with the below assumptions: | |||||||||||||||||||||||||||
Series A | Aug/Sep 2011 | Feb-12 | |||||||||||||||||||||||||
Assumptions | Series A | (Affiliates) | Series B | Series C | Notes | PIPE | |||||||||||||||||||||
Contractual life, in years | 4.1 | 3.1 | 3.1 | 5.1 | 2.1 | 4.6 | |||||||||||||||||||||
Expected volatility | 132.00% | 114.10% | 114.10% | 121.90% | 126.60% | 126.60% | |||||||||||||||||||||
Risk-free interest rate | 0.40% | 0.40% | 0.40% | 0.40% | 0.40% | 0.40% | |||||||||||||||||||||
Exercise price | $0.60 | $0.60 | $0.60 | $0.60 | $0.60 | $0.60 | |||||||||||||||||||||
Fair value per warrant | $0.03 | $0.03 | $0.03 | $0.03 | $0.03 | $0.03 | |||||||||||||||||||||
We recorded an increased incremental value of $5,347 for the warrant amendment and treated the excess of fair value of the warrants as a deemed dividend. | |||||||||||||||||||||||||||
Series H Convertible Preferred Stock | |||||||||||||||||||||||||||
On December 28, 2012 the Company amended its Articles of Organization to authorize 10,000 shares of Series H Convertible Preferred Stock. On January 4, 2013, the Company reported that it had entered into a securities purchase and exchange agreement with an investor, pursuant to which the Company agreed to exchange an aggregate of 10,000 shares of a newly created series of preferred stock, designated Series H Convertible Preferred Stock, par value $0.01 per share (the “Series H Preferred Stock”) for 1,000,000 shares of the Company’s common stock, par value $0.01 per share of common stock held by the investor in a non-cash transaction. The investor originally purchased the common stock from the Company for $0.8025 per share. The exchange ratio was 100 shares of common stock per share of Series H Preferred Stock at a stated conversion price of $0.8025 per share. The terms of the Series H Convertible Preferred Stock are set forth in the Company’s Current Report on Form 8-K filed with the SEC on January 4, 2013. | |||||||||||||||||||||||||||
Series J Convertible Preferred Stock | |||||||||||||||||||||||||||
On February 6, March 28 and May 20, 2013, the Company entered into a Securities Purchase with various individuals pursuant to which the Company sold an aggregate of 5,087.5 units for a purchase price of $400.00 per unit (the “Purchase Price”), or an aggregate Purchase Price of $2,034,700. Each unit purchased in the initial tranche consists of (i) one share of a newly created series of preferred stock, designated Series J Convertible Preferred Stock, par value $0.01 per share (the “Series J Convertible Preferred Stock”), convertible into 1,000 shares of the Company’s common stock, par value $0.01 per share and (ii) a warrant to purchase 1,000 shares of common stock at an exercise price equal to $0.40 per share. The warrants expire three years from the issuance date. Of the $2,034,700 invested in the Private Placement, $921,000 was received in cash and $1,113,700 was from the conversion of outstanding indebtedness, interest and accrued board of directors’ fees. The Company incurred $24,405 of legal fees in conjunction with this private placement. The purchasers in the initial tranche of the private placement consisted of certain existing and new investors in the Company as well as all of the members of the Company’s Board of Directors. | |||||||||||||||||||||||||||
From the date of issuance of any shares of Series J Convertible Preferred Stock and until the earlier of the first anniversary of such date, the voluntary conversion of any shares of Series J Convertible Preferred Stock, or the date of any mandatory conversion of the Series J Convertible Preferred Stock, dividends will accrue on each share of Series J Convertible Preferred Stock at an annual rate of (i) four percent (4%) of the Purchase Price on those shares of Series J Convertible Preferred Stock purchased from the Company pursuant to the Securities Purchase Agreement by an individual purchaser who purchased from the Company shares of Series J Convertible Preferred Stock with an aggregate Purchase Price of less than $250,000, and (ii) six percent (6%) of the Purchase Price on those shares of Series J Convertible Preferred Stock purchased from the Company pursuant to the Securities Purchase Agreement by an individual purchaser who purchased shares of Series J Convertible Preferred Stock with an aggregate purchase price of at least $250,000. Dividends accruing on the Series J Convertible Preferred Stock shall accrue from day to day until the earlier of the first anniversary of the date of issuance of such shares of Series J Convertible Stock, the voluntary conversion of any shares of Series J Convertible Preferred Stock, or the date of any mandatory conversion of the Series J Convertible Preferred Stock, and shall be paid, as applicable, within fifteen (15) days of the first anniversary of the original issue date of the Series J Convertible Preferred Stock, within five (5) days of the voluntary conversion of shares of the Series J Convertible Preferred Stock, or within five (5) days of the mandatory conversion of shares of the Series J Convertible Preferred Stock. The Company may pay accrued dividends on the Series J Convertible Preferred Stock in cash or, in the sole discretion of the Board of Directors of the Company, in shares of its common stock in accordance with a specified formula. | |||||||||||||||||||||||||||
Each share of Series J Convertible Preferred Stock is convertible into 1,000 shares of common stock at the option of the holder on or after the six-month anniversary of the issuance of such share, subject to adjustment for stock splits, stock dividends, recapitalizations and similar transactions (the “Conversion Ratio”). Unless waived under certain circumstances by the holder of Series J Convertible Preferred Stock, such holder’s shares of Series J Convertible Preferred Stock may not be converted if upon such conversion the holder’s beneficial ownership would exceed certain thresholds. | |||||||||||||||||||||||||||
At the election of the Company and upon required advance notice, each share of Series J Convertible Preferred Stock will automatically be converted into shares of common stock at the Conversion Ratio then in effect: (i) on or after the six-month anniversary of the original issuance date of the Series J Convertible Preferred Stock, the common stock trades on the OTC QB Market (or other primary trading market or exchange on which the common stock is then traded) at a price per share equal to at least $0.80 for 7 out of 10 consecutive trading days with average daily trading volume of at least 50,000 shares, (ii) on the first anniversary of the original issuance date of the Series J Convertible Preferred Stock or (iii) within three days of the completion of a firm-commitment underwritten registered public offering by the Company at a per share price equal to at least $0.80, with aggregate gross proceeds to the Company of not less than $2.5 million. Unless waived under certain circumstances by the holder of the Series J Convertible Preferred Stock, such holder’s Series J Convertible Preferred Stock may not be converted if upon such conversion the holder’s beneficial ownership would exceed certain thresholds. | |||||||||||||||||||||||||||
The proceeds from the sale of each Series J Unit were allocated between the Series J Convertible Preferred Stock and the Series J Warrants based on the relative fair value method. The estimated fair value of the Series J Warrants was determined using a Black Scholes formula, resulting in an allocation of the gross proceeds of $885,310 to the total warrants issued. The allocation of the gross proceeds to the Series J Convertible Preferred Stock was $1,124,985, net of $24,405 in legal costs. In accordance with the provisions of ASC 470-20, an additional adjustment between Additional Paid in Capital and Accumulated Deficit of $651,182 was recorded to reflect an implicit non-cash dividend related to the allocation of proceeds between the stock and warrants issued. The $651,182 represents the value of the adjustment to additional paid in capital related to the beneficial conversion feature of the Series J Convertible Preferred Stock. The value adjustment was calculated by subtracting the fair market value of the underlying common stock on February 6, March 28 and May 20, 2013 issuable upon conversion of the Series J Convertible Preferred Stock from the fair market value of the Series J Convertible Preferred Stock as determined when the Company performed a fair market value allocation of the proceeds to the Series J Convertible Preferred Stock and warrants. | |||||||||||||||||||||||||||
In connection with the Series J warrants, we calculated the fair value of the warrants received as described above using the Black- Scholes formula with the below assumptions: | |||||||||||||||||||||||||||
Assumptions | Series J warrants February 6, | Series J warrants | Series J warrants | ||||||||||||||||||||||||
2013 | March 28, | May 20, | |||||||||||||||||||||||||
2013 | 2013 | ||||||||||||||||||||||||||
Contractual life (in months) | 36 | 36 | 36 | ||||||||||||||||||||||||
Expected volatility | 141.8 | 144.3 | 147 | ||||||||||||||||||||||||
Risk-free interest rate | 0.39 | % | 0.36 | % | 0.36 | % | |||||||||||||||||||||
Exercise price | $ | 0.4 | $ | 0.4 | $ | 0.4 | |||||||||||||||||||||
Fair value per warrant | $ | 0.36 | $ | 0.26 | $ | 0.3 | |||||||||||||||||||||
The holders of Series J Convertible Preferred Stock are not entitled to vote on any matters presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), except as required by law. | |||||||||||||||||||||||||||
Series J Warrants | |||||||||||||||||||||||||||
The Warrants issued in the Private Placement have an exercise price equal to $0.40 per share, with a term expiring three years from the issuance date. The Warrants also permit the holder to conduct a “cashless exercise” at any time the holder of the Warrant is an affiliate of the Company. The exercise price and/or number of shares issuable upon exercise of the Warrants will be subject to adjustment for stock dividends, stock splits or similar capital reorganizations, as set forth in the Warrant agreement. | |||||||||||||||||||||||||||
Subject to the terms and conditions of the Warrants, at any time commencing six months from the closing date of the sale of Units under the Securities Purchase Agreement the Company has the right to call the Warrants for cancellation if the volume weighted average price of its common stock on the OTC QB Market (or other primary trading market or exchange on which the common stock is then traded) equals or exceeds three times the per share exercise price of the Warrants for either (i) 10 consecutive trading days or (ii) 15 out of 25 consecutive trading days. | |||||||||||||||||||||||||||
Registration Rights Agreement | |||||||||||||||||||||||||||
In connection with the Private Placement, the Company has agreed that, if, at any time after February 1, 2014, the Company files a Registration Statement relating to an offering of equity securities of the Company (the “Registration Statement”), subject to certain exceptions, including a Registration Statement relating solely to an offering or sale of securities having an aggregate public offering price of less than $5,000,000, the Company shall include in the Registration Statement the resale of the shares of common stock underlying the Warrants. Shares of common stock issued upon conversion of Series J Convertible Preferred Stock or in payment of the dividend on the Series J Convertible Preferred Stock will not be registered and will not be subject to registration rights. This right is subject to customary conditions and procedures. | |||||||||||||||||||||||||||
Stock Options and Warrants | |||||||||||||||||||||||||||
Our stockholders approved our amended 2005 Equity Incentive Plan (the “Plan”) pursuant to which an aggregate of 1,800,000 shares of our common stock were reserved for issuance upon exercise of stock options or other equity awards made under the Plan. Under the Plan, we may award stock options, shares of common stock, and other equity interests in the Company to employees, officers, directors, consultants, and advisors, and to any other persons the Board of Directors deems appropriate. As of September 30, 2013, options to acquire 1,760,750 shares were outstanding under the Plan with 39,250 shares available for future grant under the Plan. | |||||||||||||||||||||||||||
As of September 30, 2013, options to acquire 33,000 shares are outstanding under the 1999 Non-qualified Stock Option Plan. No additional options may be granted under the 1999 Non-qualified Stock Option Plan. | |||||||||||||||||||||||||||
The following tables summarize information concerning options and warrants outstanding and exercisable: | |||||||||||||||||||||||||||
Stock Options | Warrants | ||||||||||||||||||||||||||
Weighted | Weighted | ||||||||||||||||||||||||||
Average price | Average price | Total | |||||||||||||||||||||||||
Shares | per share | Shares | per share | Shares | Exercisable | ||||||||||||||||||||||
Balance outstanding, January 1, 2012 | 1,508,500 | $ | 2.33 | 4,775,501 | $ | 1.35 | 6,284,001 | 6,112,335 | |||||||||||||||||||
Granted | 1,896,250 | 0.81 | 2,909,068 | 0.62 | 4,805,318 | ||||||||||||||||||||||
Exercised | - | - | - | - | - | ||||||||||||||||||||||
Expired | (130,000 | ) | 2.28 | (116,490 | ) | 2.8 | (246,490 | ) | |||||||||||||||||||
Forfeited | (1,669,000 | ) | - | (880,980 | ) | 2.13 | (2,549,980 | ) | |||||||||||||||||||
Balance outstanding, December 31, 2012 | 1,605,750 | $ | 0.8 | 6,687,099 | $ | 0.81 | 8,292,849 | 7,989,331 | |||||||||||||||||||
Granted | 363,500 | 0.4 | 5,347,500 | 0.4 | 5,711,000 | ||||||||||||||||||||||
Exercised | - | - | - | - | - | ||||||||||||||||||||||
Expired | - | - | - | - | - | ||||||||||||||||||||||
Forfeited | (175,500 | ) | 0.86 | - | - | (175,500 | ) | ||||||||||||||||||||
Balance outstanding, September 30, 2013 | 1,793,750 | $ | 0.72 | 12,034,599 | $ | 0.68 | 13,828,349 | 13,591,746 | |||||||||||||||||||
Options Outstanding | Options Exercisable | ||||||||||||||||||||||||||
Weighted Average | Weighted Average | ||||||||||||||||||||||||||
Range of Exercise Prices | Number of Options | Remaining Contractual Life (Years) | Exercise Price | Number of Options | Remaining Contractual Life (Years) | Exercise Price | |||||||||||||||||||||
$ | 0.40 - $0.59 | 577,250 | 9.3 | $ | 0.44 | 467,583 | 9.2 | $ | 0.45 | ||||||||||||||||||
0.60 - 0.99 | 477,500 | 6.2 | 0.6 | 410,564 | 5.9 | 0.6 | |||||||||||||||||||||
1.00 - 1.50 | 739,000 | 3.5 | 1 | 679,000 | 3.1 | 1 | |||||||||||||||||||||
$ | 0.40 - $1.50 | 1,793,750 | 6.1 | $ | 0.71 | 1,557,147 | 5.7 | $ | 0.73 | ||||||||||||||||||
As of September 30, 2013, the total estimated fair value of unvested stock options to be amortized over their remaining vesting period was $90,136. The non-cash, stock-based compensation expense associated with the vesting of these options is expected to be $20,320 for the remainder of 2013, $48,242 in 2014, $19,737 in 2015 and $1,837 in 2016. | |||||||||||||||||||||||||||
Sale of common stock | |||||||||||||||||||||||||||
On February 7, 2012, we completed a private placement with 7 accredited investors, pursuant to which we sold an aggregate of 971,867 shares of common stock, $0.01 par value, resulting in gross proceeds to us of $800,000 (the “Private Placement”). The price per unit was $0.8025 for units consisting of 789,350 shares of common stock and warrants to purchase 394,677 shares of common stock, and was $0.9125 for units consisting of the remaining 182,517 shares of common stock and warrants to purchase 91,260 shares of common stock. Of the $800,000 invested in the Private Placement, $412,453 was received in cash and $387,547 was from the conversion of outstanding principal and interest on convertible promissory notes issued by us in 2011. | |||||||||||||||||||||||||||
Each unit consists of one share of common stock and a warrant to purchase one-half share of common stock. The warrants are exercisable for a period of five years, commencing on August 7, 2012, at an exercise price of $0.74 per share for the purchasers of the 789,350 shares, and $0.85 per share for the purchasers of the 182,517 shares. The warrants permit the holder to conduct a “cashless exercise” at any time the holder is an affiliate. The exercise price and/or number of shares of common stock issuable upon exercise of the warrants will be subject to adjustment for certain stock dividends, stock splits or similar capital reorganizations. | |||||||||||||||||||||||||||
In connection with the Private Placement, we paid our investment banker a fee of $35,000 for providing advisory services. We accounted for this fee as a reduction in the gross proceeds received from the Private Placement. | |||||||||||||||||||||||||||
Common Stock Issuances | |||||||||||||||||||||||||||
On January 31, 2012, we issued 100,000 shares of restricted common stock to an investor relations firm in payment of services to be rendered over one year. We recorded $72,000 for this issuance of which was amortized over the year. On March 2, 2012, we issued 22,500 shares of restricted common stock to an investor relations firm for payment of services already rendered over the prior three months. We recorded $13,950 for this issuance as expense. On April 26, 2012, we issued 17,500 shares of restricted common stock to two investor relations firms for payment of services to be rendered over one month. We recorded $9,625 for this issuance as expense. On April 27, 2012, we issued 100,000 shares of restricted common stock to an investor relations firm for payment of services to be rendered over six months. We recorded $60,000 for this issuance as expense. On August 13, 2012, we issued 350,000 shares of restricted common stock to an investor relations firm for payment of services to be rendered over one year. We recorded $140,000 for this issuance of which $59,947 was recorded as expense in 2012 and $85,053 was recognized as an expense in the nine month period ending September 30, 2013. On October 17, 2012 we issued 60,000 shares of restricted common stock to three investor relations firms for services rendered and recognized $24,000 as expense. On October 18, 2012 we issued 50,000 shares of restricted common stock to an investor relations firm for services rendered and recognized $20,000 as expense. On October 19, 2012 we issued 100,000 shares of restricted common stock to an investor relations firm for services rendered and recognized $40,000 as expense. On October 19, 2012 we issued 100,000 shares of stock to the Company’s CEO to compensate him for penalties he incurred when the Company defaulted on a loan that he had made to the Company that was subsequently not repaid and recognized an expense of $40,000. On October 29, 2012 we issued 50,000 shares of restricted common stock to an investor relations firm and recognized $20,000 in expense. On November 1, 2012 we issued 175,000 shares of restricted common stock to two investor relations firms for services rendered and recognized expense of $70,000. | |||||||||||||||||||||||||||
On April 18, 2013, we issued 100,000 shares of restricted common stock to an investor relations firm for payment of services to be rendered over an eight-month period beginning February 1, 2013. We recognized $40,000 as an expense during the period ended September 30, 2013. On April 18, 2013 we issued 200,000 shares of restricted common stock to an investor relations firm for payment of services to be rendered over an eight-month period beginning March 18, 2013. We recognized $65,333 as an expense during the period ended September 30, 2013 and $14,667 that will be amortized over the remaining months of service. On August 8, 2013 we issued 200,000 shares of restricted common stock to an investor relations firm for payment of services to be rendered over a six-month period. We recognized $26,500 as an expense during the period ended September 30, 2013 and $53,500 will be amortized over the remaining months of service. On September 1, 2013 we issued 200,000 shares of restricted common stock to an investor relations firm for payment of services to be rendered over a three-month period. We recognized $25,611 as an expense during the period ended September 30, 2013 and $54,389 will be amortized over the remaining months of service. On September 10, 2013, 2013 we issued 100,000 shares of restricted common stock to an investor relations firm for payment of services to be rendered over a four-month period. We recognized $6,500 as an expense during the period ended September 30, 2013 and $33,500 that will be amortized over the remaining months of service. We valued the above stock issuances using the greater of the estimated fair value of the services received or the Company’s stock price on date of issuance. | |||||||||||||||||||||||||||
6_Subsequent_Events
6. Subsequent Events | 9 Months Ended |
Sep. 30, 2013 | |
Notes to Financial Statements | ' |
6. Subsequent Events | ' |
We performed a review of events subsequent to the balance sheet date through the date the financial statements were issued and determined, except as disclosed herein, that there were no other such events requiring recognition or disclosure in the financial statements. | |
On October 7, 2013, we received $250,000 in a six-month note from an existing shareholder. Terms of the note include 18% annual interest, a right to convert the note into the next equity transaction of the Company, at the conversion rate of the equity offering, and a three-year warrant to acquire 250,000 shares of common stock at $0.40 per share. | |
On October 10, 2013, the April 11, 2013 note for $275,000 was amended to change the lenders right to convert and the borrower’s right to repay to December 10, 2013. | |
3_Summary_of_Significant_Accou1
3. Summary of Significant Accounting Policies (Policies) | 9 Months Ended | ||||||||
Sep. 30, 2013 | |||||||||
Notes to Financial Statements | ' | ||||||||
Principles of Consolidation | ' | ||||||||
Principles of Consolidation | |||||||||
The condensed consolidated financial statements include the accounts of Pressure BioSciences, Inc., and its wholly-owned subsidiary PBI BioSeq, Inc. All intercompany accounts and transactions have been eliminated in consolidation. | |||||||||
Use of Estimates | ' | ||||||||
Use of Estimates | |||||||||
To prepare our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, we are required to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In addition, significant estimates were made in projecting future cash flows to quantify deferred tax assets, the costs associated with fulfilling our warranty obligations for the instruments that we sell, and the estimates employed in our calculation of fair value of stock options awarded and warrant derivative liability. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from the estimates and assumptions used. | |||||||||
Revenue Recognition | ' | ||||||||
Revenue Recognition | |||||||||
We recognize revenue in accordance with FASB ASC 605, Revenue Recognition. Revenue is recognized when realized or earned when all the following criteria have been met: persuasive evidence of an arrangement exists; delivery has occurred and risk of loss has passed to the customer; the seller’s price to the buyer is fixed or determinable; and collectability is reasonably assured. | |||||||||
Our current instruments, the Barocycler NEP3229 and NEP2320, require a basic level of instrumentation expertise to set-up for initial operation. To support a favorable first experience for our domestic customers, we send a highly trained technical representative to the customer site to install every Barocycler that we sell or lease directly (not sold or leased through a sales agent or distributor). The installation process includes uncrating and setting up the instrument, followed by introductory user training. Product revenue related to current Barocycler instrumentation is recognized upon the completion of the installation and introductory training process of the Barocycler NEP3229 and NEP2320 instrumentation at the customer location, for all non-agent and non-distributor domestic installations. Product revenue related to sales of PCT instrumentation to our foreign distributors and overseas customers, to our domestic agents and distributors, and to our new Barocycler HUB440 instrument clients is recognized upon shipment through a common carrier unless installation is specifically requested by the customer. We provide for the expected costs of warranty upon the recognition of revenue for the sales of our instrumentation. Our sales arrangements do not provide our customers with a right of return. Product revenue related to the HUB440 and our consumable products such as PULSE Tubes, MicroTubes, and application specific kits is recorded upon shipment through a common carrier. Shipping costs are included in sales and marketing expense. Any shipping costs billed to customers are recognized as revenue. | |||||||||
In accordance with FASB ASC 840, Leases, we account for our lease agreements under the operating method. We record revenue over the life of the lease term and we record depreciation expense on a straight-line basis over the thirty-six month estimated useful life of the Barocycler instrument. The depreciation expense associated with assets under lease agreement is included in the “Cost of PCT products and services” line item in our consolidated statements of operations. Many of our lease and rental agreements allow the lessee to purchase the instrument at any point during the term of the agreement with partial or full credit for payments previously made. We pay all maintenance costs associated with the instrument during the term of the leases. | |||||||||
Revenue from government grants is recorded when expenses are incurred under the grant in accordance with the terms of the grant award. | |||||||||
Our transactions sometimes involve multiple elements (i.e., products and services). Revenue under multiple element arrangements is recognized in accordance with FASB ASC 605-25 Multiple-Element Arrangements (“ASC 605”). When vendor specific objective evidence or third party evidence of selling price for deliverables in an arrangement cannot be determined, the Company develops a best estimate of the selling price to separate deliverables and allocates arrangement consideration using the relative selling price method. Additionally, this guidance eliminates the residual method of allocation. If an arrangement includes undelivered elements that are not essential to the functionality of the delivered elements, we defer the fair value of the undelivered elements based on the estimated selling price of the total arrangement. Fair value is determined based upon the price charged when the element is sold separately. If there is not sufficient evidence of the fair value of the undelivered elements, no revenue is allocated to the delivered elements and the total consideration received is deferred until delivery of those elements for which objective and reliable evidence of the fair value is not available. We provide certain customers with extended service contracts with revenue recognized ratably over the life of the contract. | |||||||||
Cash and Cash Equivalents | ' | ||||||||
Cash and Cash Equivalents | |||||||||
Our policy is to invest available cash in short-term, investment-grade, interest-bearing obligations, including money market funds, and bank and corporate debt instruments. Securities purchased with initial maturities of three months or less are valued at cost plus accrued interest, which approximates fair market value, and are classified as cash equivalents. | |||||||||
Research and Development | ' | ||||||||
Research and Development | |||||||||
Research and development costs, which are comprised of costs incurred in performing research and development activities including wages and associated employee benefits, facilities, consumable products and overhead costs that are expensed as incurred. In support of our research and development activities we utilize our Barocycler instruments that are capitalized as fixed assets and depreciated over their expected useful life. | |||||||||
Inventories | ' | ||||||||
Inventories | |||||||||
Inventories are valued at the lower of cost (average cost) or market (sales price). The cost of Barocycler instruments consists of the cost charged by the contract manufacturer. The cost of manufactured goods includes material, freight-in, direct labor, and applicable overhead. The composition of inventory as of September 30, 2013 and December 31, 2012 is as follows: | |||||||||
September 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Raw materials | $204,337 | $183,655 | |||||||
Finished goods | 697,131 | 789,707 | |||||||
Inventory reserve | -50,000 | -50,000 | |||||||
Total | $851,468 | $923,362 | |||||||
Property and Equipment | ' | ||||||||
Property and Equipment | |||||||||
Property and equipment are stated at cost, less accumulated depreciation. For financial reporting purposes, depreciation is recognized using the straight-line method, allocating the cost of the assets over their estimated useful lives of three years for certain laboratory equipment, from three to five years for management information systems and office equipment, and three years for all PCT finished units classified as fixed assets. | |||||||||
Intangible Assets | ' | ||||||||
Intangible Assets | |||||||||
We have classified as intangible assets, costs associated with the fair value of acquired intellectual property. Intangible assets including patents are amortized on a straight-line basis over sixteen years. The Company’s intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. When impairment is indicated, any excess of carrying value over fair value is recorded as a loss. As of the date of this report’s filing, no event has come to our attention that would cause us to record an impairment of intangible assets. | |||||||||
Long-Lived Assets and Deferred Costs | ' | ||||||||
Long-Lived Assets and Deferred Costs | |||||||||
The Company’s long-lived assets and other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Through the date of this report’s filing, the Company had not experienced impairment losses on its long-lived assets. | |||||||||
Concentrations | ' | ||||||||
Concentrations | |||||||||
Credit Risk | |||||||||
Our financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents, and trade receivables. We have cash investment policies which, among other things, limit investments to investment-grade securities. We perform ongoing credit evaluations of our customers, and the risk with respect to trade receivables is further mitigated by the fact that many of our customers are government institutions, large pharmaceutical and biotechnology companies, and academic laboratories. | |||||||||
The following table illustrates the level of concentration as a percentage of total revenues during the three months and nine months ended September 30, 2013 and 2012: | |||||||||
For the Three Months Ended | |||||||||
September 30, | |||||||||
2013 | 2012 | ||||||||
Top Five Customers | 53% | 76% | |||||||
Federal Agencies | 27% | 38% | |||||||
For the Nine Months Ended | |||||||||
September 30, | |||||||||
2013 | 2012 | ||||||||
Top Five Customers | 51% | 54% | |||||||
Federal Agencies | 41% | 46% | |||||||
The following table illustrates the level of concentration as a percentage of net accounts receivable balance as of September 30, 2013 and December 31, 2012: | |||||||||
September 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Top Five Customers | 76% | 76% | |||||||
Federal Agencies | 24% | 30% | |||||||
Product Supply | ' | ||||||||
Product Supply | |||||||||
Source Scientific, LLC has been our sole contract manufacturer for our PCT NEP3229 and NEP2320 instrumentation. Until we develop a network of manufacturers and subcontractors, obtaining alternative sources of supply or manufacturing services could involve significant delays and other costs and challenges, and may not be available to us on reasonable terms, if at all. The failure of a supplier or contract manufacturer to provide sufficient quantities, acceptable quality and timely products at an acceptable price, or an interruption of supplies from such a supplier could harm our business and prospects. | |||||||||
Computation of Loss per Share | ' | ||||||||
Computation of Loss per Share | |||||||||
Basic loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding. Diluted loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding plus additional common shares that would have been outstanding if dilutive potential common shares had been issued. For purposes of this calculation, convertible preferred stock, common stock dividends, and warrants and options to acquire common stock, are all considered common stock equivalents in periods in which they have a dilutive effect and are excluded from this calculation in periods in which these are anti-dilutive to our net loss. | |||||||||
The following table illustrates our computation of loss per share for the three months and nine months ended September 30, 2013 and 2012: | |||||||||
For the Three Months Ended | For the Nine Months Ended | ||||||||
September 30, | September 30, | ||||||||
2013 | 2012 | 2013 | 2012 | ||||||
Numerator: | |||||||||
Net loss | $(673,214) | $(796,038) | $(2,518,624) | $(2,368,637) | |||||
Accrued dividend for Preferred Stock | (42,938) | (36,092) | (114,348) | (454,936) | |||||
Deemed dividend on Series J Convertible Preferred Stock | - | - | -651,182 | - | |||||
Preferred dividend paid in common stock | - | -88,350 | - | -249,907 | |||||
Deemed dividend on warrant modifications | - | (5,347) | - | (190,891) | |||||
Net loss applicable to common shareholders | $(716,152) | $(925,827) | $(3,284,154) | $(3,264,371) | |||||
Denominator for basic and diluted loss per share: | |||||||||
Weighted average common stock shares outstanding | 11,664,484 | 10,872,877 | 11,776,740 | 9,598,066 | |||||
Loss per common share - basic and diluted | $(0.06) | $(0.09) | $(0.28) | $(0.34) | |||||
The following table presents securities that could potentially dilute basic loss per share in the future. For all periods presented, the potentially dilutive securities were not included in the computation of diluted loss per share because these securities would have been anti-dilutive to our net loss. The Series D Convertible Preferred Stock, Series E Convertible Preferred Stock, Series G Convertible Preferred Stock, Series H Convertible Preferred Stock and Series J Convertible Preferred Stock are presented below as if they were converted into common shares according to the conversion terms in Note 5. | |||||||||
For the Nine Months Ended | |||||||||
September 30, | |||||||||
2013 | 2012 | ||||||||
Stock options | 1,793,750 | 1,680,250 | |||||||
Convertible debt | 1,025,000 | - | |||||||
Common stock warrants | 12,034,599 | 6,080,501 | |||||||
Preferred stock warrants | - | - | |||||||
Convertible preferred stock: | |||||||||
Series D Convertible Preferred | 750,000 | 750,000 | |||||||
Series E Convertible Preferred | - | 245,098 | |||||||
Series G Convertible Preferred | 1,453,200 | 1,200,950 | |||||||
Series H Convertible Preferred | 1,000,000 | - | |||||||
Series J Convertible Preferred | 5,087,500 | - | |||||||
23,144,049 | 9,956,799 | ||||||||
Accounting for Income Taxes | ' | ||||||||
Accounting for Income Taxes | |||||||||
We account for income taxes under the asset and liability method, which requires recognition of deferred tax assets, subject to valuation allowances, and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established if it is more likely than not that all or a portion of the net deferred tax assets will not be realized. If substantial changes in the Company’s ownership should occur, as defined in Section 382 of the Internal Revenue Code, there could be sufficient limitations on the amount of net loss carry forwards that could be used to offset future taxable income. | |||||||||
Warrant Derivative Liability | ' | ||||||||
Warrant Derivative Liability | |||||||||
The warrants issued in connection with the registered direct offering of Series D Convertible Preferred Stock (the “Series D Warrants”) are measured at fair value and liability-classified because the Series D Warrants contain “down-round protection” and therefore, do not meet the scope exception under ASC 815, Derivatives and Hedging, (“ASC 815”). Since “down-round protection” is not an input into the calculation of the fair value of the warrants, the warrants cannot be considered indexed to the Company’s own stock which is a requirement for the scope exception as outlined under ASC 815. The estimated fair value of the warrants was determined using the binomial model, resulting in an allocation of the gross proceeds of $283,725 to the warrants issued in the Series D registered direct offering. The fair value will be affected by changes in inputs to that model including our stock price, expected stock price volatility, the contractual term, and the risk-free interest rate. We will continue to classify the fair value of the warrants as a liability until the warrants are exercised, expire or are amended in a way that would no longer require these warrants to be classified as a liability, whichever comes first. The down-round protection for the Series D Warrants survives for the life of the Series D Warrants which ends in May 2017. | |||||||||
Conversion Option Liability | ' | ||||||||
Conversion Option Liability | |||||||||
The Company signed three convertible notes and has determined that conversion options are embedded in the notes and it is required to bifurcate the conversion option from the host contract under ASC 815 and account for the derivatives at fair value. The estimated fair value of the conversion options was determined using the binomial model. The fair value of the conversion options will be classified as a liability until the debt is converted by the note holders or paid back by the Company. The fair value will be affected by changes in inputs to that model including our stock price, expected stock price volatility, the contractual term, and the risk-free interest rate. We will continue to classify the fair value of the conversion options as a liability until the conversion options are exercised, expire or are amended in a way that would no longer require these conversion options to be classified as a liability, whichever comes first. The Company has adopted a sequencing policy that reclassifies contracts (from equity to liabilities) with the most recent inception date first. Thus any available shares are allocated first to contracts with the most recent inception dates. | |||||||||
Accounting for Stock-Based Compensation | ' | ||||||||
Accounting for Stock-Based Compensation Expense | |||||||||
We maintain equity compensation plans under which incentive stock options and non-qualified stock options are granted to employees, independent members of our Board of Directors and outside consultants. We recognize stock-based compensation expense over the requisite service period using the Black-Scholes formula to estimate the fair value of the stock options on the date of grant. | |||||||||
Determining Fair Value of Stock Option Grants | |||||||||
Valuation and Amortization Method - The fair value of each option award is estimated on the date of grant using the Black-Scholes pricing model based on certain assumptions. The estimated fair value of employee stock options is amortized to expense using the straight-line method over the vesting period, which is over four years for options granted in 2012 and 12 months for options issued 2013. | |||||||||
Expected Term - The Company uses the simplified calculation of expected life, as the Company does not currently have sufficient historical exercise data on which to base an estimate of expected term. Using this method, the expected term is determined using the average of the vesting period and the contractual life of the stock options granted. | |||||||||
Expected Volatility - Expected volatility is based on the Company’s historical stock volatility data over the expected term of the award. | |||||||||
Risk-Free Interest Rate - The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term. | |||||||||
Forfeitures - The Company records stock-based compensation expense only for those awards that are expected to vest. The Company estimated a forfeiture rate of 2% for awards granted based on historical experience and future expectations of options vesting. The Company used this historical rate as our assumption in calculating future stock-based compensation expense. | |||||||||
We recognized stock-based compensation expense of $92,231 and $96,726 for the three months ended September 30, 2013 and 2012, respectively. The following table summarizes the effect of this stock-based compensation expense within each of the line items of our costs and expenses within our Condensed Consolidated Statements of Operations: | |||||||||
For the Three Months Ended | |||||||||
September 30, | |||||||||
2013 | 2012 | ||||||||
Research and development | $44,658 | $21,633 | |||||||
Selling and marketing | 17,024 | 17,877 | |||||||
General and administrative | 30,549 | 57,216 | |||||||
Total stock-based compensation expense | $92,231 | $96,726 | |||||||
We recognized stock-based compensation expense of $120,248 and $116,816 for the nine months ended September 30, 2013 and 2012, respectively. The following table summarizes the effect of this stock-based compensation expense within each of the line items of our costs and expenses within our Condensed Consolidated Statements of Operations: | |||||||||
For the Nine Months Ended | |||||||||
September 30, | |||||||||
2013 | 2012 | ||||||||
Research and development | $50,161 | $27,759 | |||||||
Selling and marketing | 21,216 | 24,659 | |||||||
General and administrative | 48,871 | 64,398 | |||||||
Total stock-based compensation expense | $120,248 | $116,816 | |||||||
Fair Value of Financial Instruments | ' | ||||||||
Fair Value of Financial Instruments | |||||||||
Due to their short maturities, the carrying amounts for cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate their fair value. Long-term liabilities are primarily related to liabilities transferred under contractual arrangements and are measured at fair value. | |||||||||
Fair Value Measurements | ' | ||||||||
Fair Value Measurements | |||||||||
The Company follows the guidance of FASB ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) as it related to all financial assets and financial liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. | |||||||||
The Company generally defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company uses a three-tier fair value hierarchy, which classifies the inputs used in measuring fair values. These tiers include: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring the Company to develop its own assumptions. | |||||||||
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company has determined that it does not have any financial assets measured at fair value and that its financial liabilities are currently all classified within Level 3 in the fair value hierarchy. The development of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management. | |||||||||
The following tables set forth the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of September 30, 2013. | |||||||||
Fair value measurements at September 30, 2013 using: | |||||||||
30-Sep-13 | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||
Warrant derivative liability | $170,137 | - | - | $170,137 | |||||
1-Jan-13 | Change in Fair Value | 30-Sep-13 | |||||||
Warrant derivative liability | $160,812 | $9,325 | $170,137 | ||||||
The assumptions for the binomial pricing model are represented in the table below for the warrants issued in the Series D private placement reflected on a per share common stock equivalent basis. | |||||||||
Assumptions | Warrants revalued at December 31, 2012 | Warrants revalued at September 30, 2013 | |||||||
Expected life (in months) | 46 | 37 | |||||||
Expected volatility | 146.40% | 145.70% | |||||||
Risk-free interest rate | 0.44% | 0.63% | |||||||
Exercise price | $0.40 | $0.40 | |||||||
Fair value per warrant | $0.15 | $0.16 | |||||||
The following tables set forth the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of September 30, 2013. | |||||||||
Fair value measurements at September 30, 2013 using: | |||||||||
30-Sep-13 | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs | ||||||
(Level 3) | |||||||||
April 11, 2013 note, conversion option | $115,916 | - | - | $115,916 | |||||
May 24, 2013 note, conversion option | 86,252 | - | - | 86,252 | |||||
June 6, 2013 note, conversion option | 29,216 | - | - | 29,216 | |||||
June 26, 2013 note, conversion option | 49,743 | - | - | 49,743 | |||||
Embedded conversion options | $281,127 | - | - | $281,127 | |||||
Issuance date fair value | Change in fair value | 30-Sep-13 | |||||||
April 11, 2013 note, conversion option | $274,840 | ($158,924) | $115,916 | ||||||
May 24, 2013 note, conversion option | 122,223 | -35,971 | 86,252 | ||||||
June 6, 2013 note, conversion option | 158,715 | -129,499 | 29,216 | ||||||
June 26, 2013 note, conversion option | 84,146 | -34,403 | 49,743 | ||||||
Embedded conversion options | $639,924 | ($358,797) | $281,127 | ||||||
The assumptions for the binomial pricing model are represented in the table below for the conversion options reflected on a per share common stock equivalent basis. | |||||||||
Assumptions | 11-Apr-13 | Conversion options revalued at September 30, 2013 | |||||||
Expected life (in months) | 12 | 6 | |||||||
Expected volatility | 206.20% | 118.70% | |||||||
Risk-free interest rate | 0.10% | 0.04% | |||||||
Exercise price | $0.14 | $0.13 | |||||||
Fair value per conversion option | $0.29 | $0.11 | |||||||
Assumptions | 24-May-13 | Conversion options revalued at September 30, 2013 | |||||||
Expected life (in months) | 24 | 19 | |||||||
Expected volatility | 170.00% | 178.30% | |||||||
Risk-free interest rate | 0.27% | 0.22% | |||||||
Exercise price | $0.25 | $0.20 | |||||||
Fair value per conversion option | $0.31 | $0.17 | |||||||
Assumptions | 6-Jun-13 | Conversion options revalued at September 30, 2013 | |||||||
Expected life (in months) | 12 | 8 | |||||||
Expected volatility | 209.70% | 122.30% | |||||||
Risk-free interest rate | 0.13% | 0.07% | |||||||
Exercise price | $0.40 | $0.40 | |||||||
Fair value per conversion option | $0.25 | $0.05 | |||||||
Assumptions | 26-Jun-13 | Conversion options revalued at September 30, 2013 | |||||||
Expected life (in months) | 12 | 9 | |||||||
Expected volatility | 189.20% | 122.30% | |||||||
Risk-free interest rate | 0.13% | 0.07% | |||||||
Exercise price | $0.17 | $0.13 | |||||||
Fair value per conversion option | $0.26 | $0.12 | |||||||
Advertising | ' | ||||||||
Advertising | |||||||||
Advertising costs are expensed as incurred. We did not incur significant advertising expenses during the three or nine months ended September 30, 2013 or in the same period of the prior year. |
3_Summary_of_Significant_Accou2
3. Summary of Significant Accounting Policies (Tables) | 9 Months Ended | ||||||||
Sep. 30, 2013 | |||||||||
Notes to Financial Statements | ' | ||||||||
Inventories Table | ' | ||||||||
September 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Raw materials | $204,337 | $183,655 | |||||||
Finished goods | 697,131 | 789,707 | |||||||
Inventory reserve | -50,000 | -50,000 | |||||||
Total | $851,468 | $923,362 | |||||||
Customer Concentration | ' | ||||||||
For the Three Months Ended | |||||||||
September 30, | |||||||||
2013 | 2012 | ||||||||
Top Five Customers | 53% | 76% | |||||||
Federal Agencies | 27% | 38% | |||||||
For the Nine Months Ended | |||||||||
September 30, | |||||||||
2013 | 2012 | ||||||||
Top Five Customers | 51% | 54% | |||||||
Federal Agencies | 41% | 46% | |||||||
The following table illustrates the level of concentration as a percentage of net accounts receivable balance as of September 30, 2013 and December 31, 2012: | |||||||||
September 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Top Five Customers | 76% | 76% | |||||||
Federal Agencies | 24% | 30% | |||||||
Computation of Loss per Share | ' | ||||||||
For the Three Months Ended | For the Nine Months Ended | ||||||||
September 30, | September 30, | ||||||||
2013 | 2012 | 2013 | 2012 | ||||||
Numerator: | |||||||||
Net loss | $(673,214) | $(796,038) | $(2,518,624) | $(2,368,637) | |||||
Accrued dividend for Preferred Stock | (42,938) | (36,092) | (114,348) | (454,936) | |||||
Deemed dividend on Series J Convertible Preferred Stock | - | - | -651,182 | - | |||||
Preferred dividend paid in common stock | - | -88,350 | - | -249,907 | |||||
Deemed dividend on warrant modifications | - | (5,347) | - | (190,891) | |||||
Net loss applicable to common shareholders | $(716,152) | $(925,827) | $(3,284,154) | $(3,264,371) | |||||
Denominator for basic and diluted loss per share: | |||||||||
Weighted average common stock shares outstanding | 11,664,484 | 10,872,877 | 11,776,740 | 9,598,066 | |||||
Loss per common share - basic and diluted | $(0.06) | $(0.09) | $(0.28) | $(0.34) | |||||
Stockholders' Equity Activity Series C Preferred Convertible Securities Exchange | ' | ||||||||
For the Nine Months Ended | |||||||||
September 30, | |||||||||
2013 | 2012 | ||||||||
Stock options | 1,793,750 | 1,680,250 | |||||||
Convertible debt | 1,025,000 | - | |||||||
Common stock warrants | 12,034,599 | 6,080,501 | |||||||
Preferred stock warrants | - | - | |||||||
Convertible preferred stock: | |||||||||
Series D Convertible Preferred | 750,000 | 750,000 | |||||||
Series E Convertible Preferred | - | 245,098 | |||||||
Series G Convertible Preferred | 1,453,200 | 1,200,950 | |||||||
Series H Convertible Preferred | 1,000,000 | - | |||||||
Series J Convertible Preferred | 5,087,500 | - | |||||||
23,144,049 | 9,956,799 | ||||||||
Stock based compensation expense | ' | ||||||||
For the Three Months Ended | |||||||||
September 30, | |||||||||
2013 | 2012 | ||||||||
Research and development | $44,658 | $21,633 | |||||||
Selling and marketing | 17,024 | 17,877 | |||||||
General and administrative | 30,549 | 57,216 | |||||||
Total stock-based compensation expense | $92,231 | $96,726 | |||||||
For the Nine Months Ended | |||||||||
September 30, | |||||||||
2013 | 2012 | ||||||||
Research and development | $50,161 | $27,759 | |||||||
Selling and marketing | 21,216 | 24,659 | |||||||
General and administrative | 48,871 | 64,398 | |||||||
Total stock-based compensation expense | $120,248 | $116,816 | |||||||
Liabilities measured at fair value on recurring basis | ' | ||||||||
Fair value measurements at September 30, 2013 using: | |||||||||
30-Sep-13 | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||
Warrant derivative liability | $170,137 | - | - | $170,137 | |||||
1-Jan-13 | Change in Fair Value | 30-Sep-13 | |||||||
Warrant derivative liability | $160,812 | $9,325 | $170,137 | ||||||
Fair value assumptions | ' | ||||||||
Assumptions | Warrants revalued at December 31, 2012 | Warrants revalued at September 30, 2013 | |||||||
Expected life (in months) | 46 | 37 | |||||||
Expected volatility | 146.40% | 145.70% | |||||||
Risk-free interest rate | 0.44% | 0.63% | |||||||
Exercise price | $0.40 | $0.40 | |||||||
Fair value per warrant | $0.15 | $0.16 | |||||||
The following tables set forth the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of September 30, 2013. | |||||||||
Fair value measurements at September 30, 2013 using: | |||||||||
30-Sep-13 | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs | ||||||
(Level 3) | |||||||||
April 11, 2013 note, conversion option | $115,916 | - | - | $115,916 | |||||
May 24, 2013 note, conversion option | 86,252 | - | - | 86,252 | |||||
June 6, 2013 note, conversion option | 29,216 | - | - | 29,216 | |||||
June 26, 2013 note, conversion option | 49,743 | - | - | 49,743 | |||||
Embedded conversion options | $281,127 | - | - | $281,127 | |||||
Issuance date fair value | Change in fair value | 30-Sep-13 | |||||||
April 11, 2013 note, conversion option | $274,840 | ($158,924) | $115,916 | ||||||
May 24, 2013 note, conversion option | 122,223 | -35,971 | 86,252 | ||||||
June 6, 2013 note, conversion option | 158,715 | -129,499 | 29,216 | ||||||
June 26, 2013 note, conversion option | 84,146 | -34,403 | 49,743 | ||||||
Embedded conversion options | $639,924 | ($358,797) | $281,127 | ||||||
The assumptions for the binomial pricing model are represented in the table below for the conversion options reflected on a per share common stock equivalent basis. | |||||||||
Assumptions | 11-Apr-13 | Conversion options revalued at September 30, 2013 | |||||||
Expected life (in months) | 12 | 6 | |||||||
Expected volatility | 206.20% | 118.70% | |||||||
Risk-free interest rate | 0.10% | 0.04% | |||||||
Exercise price | $0.14 | $0.13 | |||||||
Fair value per conversion option | $0.29 | $0.11 | |||||||
Assumptions | 24-May-13 | Conversion options revalued at September 30, 2013 | |||||||
Expected life (in months) | 24 | 19 | |||||||
Expected volatility | 170.00% | 178.30% | |||||||
Risk-free interest rate | 0.27% | 0.22% | |||||||
Exercise price | $0.25 | $0.20 | |||||||
Fair value per conversion option | $0.31 | $0.17 | |||||||
Assumptions | 6-Jun-13 | Conversion options revalued at September 30, 2013 | |||||||
Expected life (in months) | 12 | 8 | |||||||
Expected volatility | 209.70% | 122.30% | |||||||
Risk-free interest rate | 0.13% | 0.07% | |||||||
Exercise price | $0.40 | $0.40 | |||||||
Fair value per conversion option | $0.25 | $0.05 | |||||||
Assumptions | 26-Jun-13 | Conversion options revalued at September 30, 2013 | |||||||
Expected life (in months) | 12 | 9 | |||||||
Expected volatility | 189.20% | 122.30% | |||||||
Risk-free interest rate | 0.13% | 0.07% | |||||||
Exercise price | $0.17 | $0.13 | |||||||
Fair value per conversion option | $0.26 | $0.12 |
5_Stockholders_Deficit_Tables
5. Stockholders' Deficit (Tables) | 9 Months Ended | ||||||||||||||
Sep. 30, 2013 | |||||||||||||||
Notes to Financial Statements | ' | ||||||||||||||
Fair value of the warrants | ' | ||||||||||||||
Assumptions | Series A | Series A | Series B | Series C | Aug/Sep 2011 | Feb-12 | |||||||||
(Affiliates) | Notes | PIPE | |||||||||||||
Contractual life, in years | 4.1 | 3.1 | 3.1 | 5.1 | 2.1 | 4.6 | |||||||||
Expected volatility | 132.00% | 114.10% | 114.10% | 121.90% | 126.60% | 126.60% | |||||||||
Risk-free interest rate | 0.40% | 0.40% | 0.40% | 0.40% | 0.40% | 0.40% | |||||||||
Exercise price | $0.60 | $0.60 | $0.60 | $0.60 | $0.60 | $0.60 | |||||||||
Fair value per warrant | $0.03 | $0.03 | $0.03 | $0.03 | $0.03 | $0.03 | |||||||||
Fair value of the warrants received | ' | ||||||||||||||
Assumptions | Series J warrants February 6, 2013 | Series J warrants March 28, 2013 | Series J warrants May 20, 2013 | ||||||||||||
Contractual life (in months) | 36 | 36 | 36 | ||||||||||||
Expected volatility | 141.8 | 144.3 | 147 | ||||||||||||
Risk-free interest rate | 0.39% | 0.36% | 0.36% | ||||||||||||
Exercise price | $0.40 | $0.40 | $0.40 | ||||||||||||
Fair value per warrant | $0.36 | $0.26 | $0.30 | ||||||||||||
Warrants and Options Outstanding | ' | ||||||||||||||
Stock Options | Warrants | ||||||||||||||
Weighted | Weighted | ||||||||||||||
Average price | Average price | Total | |||||||||||||
Shares | per share | Shares | per share | Shares | Exercisable | ||||||||||
Balance outstanding, January 1, 2012 | 1,508,500 | $2.33 | 4,775,501 | $1.35 | 6,284,001 | 6,112,335 | |||||||||
Granted | 1,896,250 | 0.81 | 2,909,068 | 0.62 | 4,805,318 | ||||||||||
Exercised | - | - | - | - | - | ||||||||||
Expired | (130,000) | 2.28 | -116,490 | 2.8 | -246,490 | ||||||||||
Forfeited | -1,669,000 | - | -880,980 | 2.13 | -2,549,980 | ||||||||||
Balance outstanding, December 31, 2012 | 1,605,750 | $0.80 | 6,687,099 | $0.81 | 8,292,849 | 7,989,331 | |||||||||
Granted | 363,500 | 0.4 | 5,347,500 | 0.4 | 5,711,000 | ||||||||||
Exercised | - | - | - | - | - | ||||||||||
Expired | - | - | - | - | - | ||||||||||
Forfeited | -175,500 | 0.86 | - | - | (175,500) | ||||||||||
Balance outstanding, September 30, 2013 | 1,793,750 | $0.72 | 12,034,599 | $0.68 | 13,828,349 | 13,591,746 | |||||||||
Options Outstanding | Options Exercisable | ||||||||||||||
Weighted Average | Weighted Average | ||||||||||||||
Range of Exercise Prices | Number of Options | Remaining Contractual Life (Years) | Exercise Price | Number of Options | Remaining Contractual Life (Years) | Exercise Price | |||||||||
$0.40 | - | $0.59 | 577,250 | 9.3 | $0.44 | 467,583 | 9.2 | $0.45 | |||||||
0.6 | - | 0.99 | 477,500 | 6.2 | 0.6 | 410,564 | 5.9 | 0.60 | |||||||
1 | - | 1.5 | 739,000 | 3.5 | 1 | 679,000 | 3.1 | 1 | |||||||
$0.40 | - | $1.50 | 1,793,750 | 6.1 | $0.71 | 1,557,147 | 5.7 | $0.73 |
3_Summary_of_Significant_Accou3
3. Summary of Significant Accounting Policies (Details) (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
Summary Of Significant Accounting Policies Details | ' | ' |
Raw materials | $204,337 | $183,655 |
Finished Goods | 697,131 | 789,707 |
Inventory reserve | -50,000 | -50,000 |
Total | $851,468 | $923,362 |
3_Summary_of_Significant_Accou4
3. Summary of Significant Accounting Policies (Details 1) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | Dec. 31, 2012 | |
Summary Of Significant Accounting Policies Details 1 | ' | ' | ' | ' | ' |
Top Five Customers | 53.00% | 76.00% | 51.00% | 54.00% | ' |
Federal Agencies | 27.00% | 38.00% | 41.00% | 46.00% | ' |
Top Five Customers | 76.00% | ' | 76.00% | ' | 76.00% |
Federal Agencies | 24.00% | ' | 24.00% | ' | 30.00% |
3_Summary_of_Significant_Accou5
3. Summary of Significant Accounting Policies (Details 2) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | |
Numerator: | ' | ' | ' | ' |
Net loss | ($673,214) | ($796,038) | ($2,518,624) | ($2,368,637) |
Accrued dividend for Preferred Stock | -42,938 | -36,092 | -114,348 | -454,936 |
Deemed dividend on Series J Convertible Preferred Stock | ' | ' | -651,182 | 0 |
Preferred dividend paid in common stock | ' | -88,350 | ' | -249,907 |
Deemed dividend on warrant modifications | ' | -5,347 | ' | -190,891 |
Net loss applicable to common shareholders | ($716,152) | ($925,827) | ($3,284,154) | ($3,264,371) |
Denominator for basic and diluted loss per share: | ' | ' | ' | ' |
Weighted average common stock shares outstanding | 11,664,484 | 10,872,877 | 11,776,740 | 9,598,066 |
Loss per common share - basic and diluted | ($0.06) | ($0.09) | ($0.28) | ($0.34) |
3_Summary_of_Significant_Accou6
3. Summary of Significant Accounting Policies (Details 3) | 9 Months Ended | |
Sep. 30, 2013 | Sep. 30, 2012 | |
Summary Of Significant Accounting Policies Details 3 | ' | ' |
Stock options | 1,793,750 | 1,680,250 |
Convertible debt | 1,025,000 | ' |
Common stock warrants | 12,034,599 | 6,080,501 |
Preferred stock warrants | ' | ' |
Series D Convertible Preferred | 750,000 | 750,000 |
Series E Convertible Preferred | ' | 245,098 |
Series G Convertible Preferred | 1,453,200 | 1,200,950 |
Series H Convertible Preferred | 1,000,000 | ' |
Series J Convertible Preferred | 5,087,500 | ' |
Total potentially dilutive shares | 23,144,049 | 9,956,799 |
3_Summary_of_Significant_Accou7
3. Summary of Significant Accounting Policies (Details 4) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | |
Summary Of Significant Accounting Policies Details 4 | ' | ' | ' | ' |
Research and development | $44,658 | $21,633 | $50,161 | $27,759 |
Selling and marketing | 17,024 | 17,877 | 21,216 | 24,659 |
General and administrative | 30,549 | 57,216 | 48,871 | 64,398 |
Total stock-based compensation expense | $92,231 | $96,726 | $120,248 | $116,816 |
3_Summary_of_Significant_Accou8
3. Summary of Significant Accounting Policies (Details 5) (USD $) | 9 Months Ended |
Sep. 30, 2013 | |
Warranty Derivative Liability | $170,137 |
Warranty Derivative Liability beginning balance | 160,812 |
Warranty Derivative Liability Ending balance | 170,137 |
Change in Fair Value [Member] | ' |
Change in Fair Value | 9,325 |
Quoted Prices in active markets (Level 1) | ' |
Warranty Derivative Liability | ' |
Significant Other Observable Inputs Level 2 | ' |
Warranty Derivative Liability | ' |
Significant Unobservable Inputs Level 3 | ' |
Warranty Derivative Liability | $170,137 |
3_Summary_of_Significant_Accou9
3. Summary of Significant Accounting Policies (Details 6) (USD $) | Jun. 26, 2013 | Jun. 06, 2013 | 24-May-13 | Apr. 11, 2013 | Sep. 30, 2013 | Dec. 31, 2012 |
Warrants Revalued [Member] | Warrants Revalued [Member] | |||||
Expected life (in months) | '12 months | '12 months | '24 months | '12 months | '37 months | '46 months |
Expected volatility | 189.20% | 209.70% | 170.00% | 206.10% | 145.70% | 146.40% |
Risk-free interest rate | 0.13% | 0.13% | 0.27% | 0.10% | 0.63% | 0.44% |
Exercise price | $0.17 | $0.40 | $0.25 | $0.14 | $0.40 | $0.40 |
Fair value per warrant | $0.26 | $0.25 | $0.31 | $0.29 | $0.16 | $0.15 |
Recovered_Sheet1
3. Summary of Significant Accounting Policies (Details 7) (USD $) | Sep. 30, 2013 |
April 11, 2013 note, conversion option | $115,916 |
May 24, 2013 note, conversion option | 86,252 |
June 6, 2013 note, conversion option | 29,216 |
June 26, 2013 note, conversion option | 49,743 |
Embedded conversion options | 281,127 |
Change in Fair Value [Member] | ' |
April 11, 2013 note, conversion option | -158,924 |
May 24, 2013 note, conversion option | -35,971 |
June 6, 2013 note, conversion option | -129,499 |
June 26, 2013 note, conversion option | -34,403 |
Embedded conversion options | -358,797 |
Quoted Prices in active markets (Level 1) | ' |
April 11, 2013 note, conversion option | ' |
May 24, 2013 note, conversion option | ' |
June 6, 2013 note, conversion option | ' |
June 26, 2013 note, conversion option | ' |
Embedded conversion options | ' |
Significant Other Observable Inputs Level 2 | ' |
April 11, 2013 note, conversion option | ' |
May 24, 2013 note, conversion option | ' |
June 6, 2013 note, conversion option | ' |
June 26, 2013 note, conversion option | ' |
Embedded conversion options | ' |
Significant Unobservable Inputs Level 3 | ' |
April 11, 2013 note, conversion option | 115,916 |
May 24, 2013 note, conversion option | 86,252 |
June 6, 2013 note, conversion option | 29,216 |
June 26, 2013 note, conversion option | 49,743 |
Embedded conversion options | 281,127 |
Total Fair Value | ' |
April 11, 2013 note, conversion option | 115,916 |
May 24, 2013 note, conversion option | 86,252 |
June 6, 2013 note, conversion option | 29,216 |
June 26, 2013 note, conversion option | 49,743 |
Embedded conversion options | 281,127 |
Issuance fair value [Member] | ' |
April 11, 2013 note, conversion option | 274,840 |
May 24, 2013 note, conversion option | 122,223 |
June 6, 2013 note, conversion option | 158,715 |
June 26, 2013 note, conversion option | 84,146 |
Embedded conversion options | $639,924 |
Recovered_Sheet2
3. Summary of Significant Accounting Policies (Details 8) (USD $) | Jun. 26, 2013 | Jun. 06, 2013 | 24-May-13 | Apr. 11, 2013 | Sep. 30, 2013 | Sep. 30, 2013 | Sep. 30, 2013 | Sep. 30, 2013 |
Conversion options revalued one [Member] | Conversion options revalued Two [Member] | Conversion options revalued Three [Member] | Conversion options revalued Four [Member] | |||||
Expected life (in months) | '12 months | '12 months | '24 months | '12 months | '6 months | '19 months | '8 months | '9 months |
Expected volatility | 189.20% | 209.70% | 170.00% | 206.10% | 118.70% | 178.30% | 122.30% | 122.30% |
Risk-free interest rate | 0.13% | 0.13% | 0.27% | 0.10% | 0.04% | 0.22% | 0.07% | 0.07% |
Exercise price | $0.17 | $0.40 | $0.25 | $0.14 | $0.13 | $0.20 | $0.40 | $0.13 |
Fair value per warrant | $0.26 | $0.25 | $0.31 | $0.29 | $0.11 | $0.17 | $0.05 | $0.12 |
Recovered_Sheet3
3. Summary of Significant Accounting Policies (Details Narrative) (USD $) | 3 Months Ended | |
Sep. 30, 2013 | Sep. 30, 2012 | |
Summary Of Significant Accounting Policies Details Narrative | ' | ' |
Stock-based compensation expense, recognized | $92,231 | $96,726 |
4_Commitments_and_Contingencie1
4. Commitments and Contingencies (Details Narrative) (USD $) | 9 Months Ended | |
Sep. 30, 2013 | Sep. 30, 2012 | |
Rental costs incurred | $92,740 | $88,200 |
Minimum annual royalty payment | 12,500 | 10,000 |
Promissory Note principal balance remaining | 75,000 | ' |
Interest rate | 18.00% | ' |
BMA [Member] | ' | ' |
Royalty expense | $12,946 | $14,226 |
Payment obligations termination date | '2016 | ' |
5_Stockholders_Deficit_Details
5. Stockholders' Deficit (Details) (USD $) | Sep. 30, 2013 |
Series A [Member] | ' |
Contractual life, in years | '4 years 1 month 6 days |
Expected volatility | 132.00% |
Risk-free interest rate | 0.40% |
Exercise price | $0.60 |
Fair value per warrant | $0.03 |
Series A Affiliates [Member] | ' |
Contractual life, in years | '3 years 1 month 6 days |
Expected volatility | 114.10% |
Risk-free interest rate | 0.40% |
Exercise price | $0.60 |
Fair value per warrant | $0.03 |
Series B [Member] | ' |
Contractual life, in years | '3 years 1 month 6 days |
Expected volatility | 114.10% |
Risk-free interest rate | 0.40% |
Exercise price | $0.60 |
Fair value per warrant | $0.03 |
Series C [Member] | ' |
Contractual life, in years | '5 years 1 month 6 days |
Expected volatility | 121.90% |
Risk-free interest rate | 0.40% |
Exercise price | $0.60 |
Fair value per warrant | $0.03 |
Aug/Sep 2011 Notes [Member] | ' |
Contractual life, in years | '2 years 1 month 6 days |
Expected volatility | 126.60% |
Risk-free interest rate | 0.40% |
Exercise price | $0.60 |
Fair value per warrant | $0.03 |
Feb2012PIPE [Member] | ' |
Contractual life, in years | '4 years 7 months 6 days |
Expected volatility | 126.60% |
Risk-free interest rate | 0.40% |
Exercise price | $0.60 |
Fair value per warrant | $0.03 |
Series J warrants February 6, 2013 [Member] | ' |
Contractual life, in years | '36 months |
Expected volatility | 141.80% |
Risk-free interest rate | 0.39% |
Exercise price | $0.40 |
Fair value per warrant | $0.36 |
Series J warrants March 28, 2013 [Member] | ' |
Contractual life, in years | '36 months |
Expected volatility | 144.30% |
Risk-free interest rate | 0.36% |
Exercise price | $0.40 |
Fair value per warrant | $0.26 |
Series J warrants May 20, 2013 [Member] | ' |
Contractual life, in years | '36 months |
Expected volatility | 147.00% |
Risk-free interest rate | 0.36% |
Exercise price | $0.40 |
Fair value per warrant | $0.30 |
5_Stockholders_Deficit_Details1
5. Stockholders' Deficit (Details 1) (USD $) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2013 | Dec. 31, 2012 | |
Stock Options | ' | ' |
Balance outstanding, January 1, 2012 | 1,605,750 | 1,508,500 |
Granted | 363,500 | 1,896,250 |
Exercised | ' | ' |
Expired | ' | -130,000 |
Forfeited | -175,500 | -1,669,000 |
Balance outstanding,December 31, 2012 | 1,793,750 | 1,605,750 |
Weighted Average price per share, Beginning Balance | ' | $2.33 |
Weighted Average price per share, Granted | $0.40 | $0.81 |
Weighted Average price per share, Exercised | ' | ' |
Weighted Average price per share, Expired | ' | $2.28 |
Weighted Average price per share, Forfeited | $0.86 | ' |
Weighted Average price per share, Ending Balance | $0.72 | $0.80 |
WarrantMember | ' | ' |
Balance outstanding, January 1, 2012 | 6,687,099 | 4,775,501 |
Granted | 5,347,500 | 2,909,068 |
Exercised | ' | ' |
Expired | ' | -116,490 |
Forfeited | ' | -880,980 |
Balance outstanding,December 31, 2012 | 12,034,599 | 6,687,099 |
Weighted Average price per share, Beginning Balance | ' | $1.35 |
Weighted Average price per share, Granted | $0.40 | $0.62 |
Weighted Average price per share, Exercised | ' | ' |
Weighted Average price per share, Expired | ' | $2.80 |
Weighted Average price per share, Forfeited | ' | $2.13 |
Weighted Average price per share, Ending Balance | $0.68 | $0.81 |
Exercisable [Member] | ' | ' |
Balance outstanding, January 1, 2012, Exercisable | ' | 6,112,335 |
Balance outstanding,December 31, 2012 for Exercisable | 13,591,746 | 7,989,331 |
5_Stockholders_Deficit_Details2
5. Stockholder's Deficit (Details 2) (USD $) | Sep. 30, 2013 |
Option 1 | ' |
Lower Limit of Range of Exercise Prices | $0.40 |
Upper Limit Range of Exercise Prices | $0.59 |
Number Outstanding | 577,250 |
Weighted Average Exercise Price, options outstanding | $0.44 |
Weighted Average Remaining Contractual Life | '9 years 3 months 18 days |
Number Exercisable | 467,583 |
Weighted Average Exercise Price, options exercisable | $0.45 |
Weighted Average Remaining Contractual Life Options Exercisable | '9 years 2 months 12 days |
Option 2 | ' |
Lower Limit of Range of Exercise Prices | $0.60 |
Upper Limit Range of Exercise Prices | $0.99 |
Number Outstanding | 477,500 |
Weighted Average Exercise Price, options outstanding | $0.60 |
Weighted Average Remaining Contractual Life | '6 years 2 months 12 days |
Number Exercisable | 410,564 |
Weighted Average Exercise Price, options exercisable | $0.60 |
Weighted Average Remaining Contractual Life Options Exercisable | '5 years 10 months 24 days |
Option 3 | ' |
Lower Limit of Range of Exercise Prices | $1 |
Upper Limit Range of Exercise Prices | $1.50 |
Number Outstanding | 739,000 |
Weighted Average Exercise Price, options outstanding | $1 |
Weighted Average Remaining Contractual Life | '3 years 6 months |
Number Exercisable | 679,000 |
Weighted Average Exercise Price, options exercisable | $1 |
Weighted Average Remaining Contractual Life Options Exercisable | '3 years 1 month 6 days |
Total Options | ' |
Lower Limit of Range of Exercise Prices | $0.40 |
Upper Limit Range of Exercise Prices | $1.50 |
Number Outstanding | 1,793,750 |
Weighted Average Exercise Price, options outstanding | $0.71 |
Weighted Average Remaining Contractual Life | '6 years 1 month 6 days |
Number Exercisable | 1,557,147 |
Weighted Average Exercise Price, options exercisable | $0.73 |
Weighted Average Remaining Contractual Life Options Exercisable | '5 years 8 months 12 days |
5_Stockholders_Deficit_Details3
5. Stockholder's Deficit (Details Narrative) (USD $) | Sep. 30, 2013 |
Stockholders Deficit Details Narrative | ' |
Options outstanding under the 1999 Non-qualified Stock Option Plan | 33,000 |
Number of addtional options grantable under 1999 Non-qualified Stock Option Plan | 0 |
Estimated fair value of unvested stock options to be amortized | $90,136 |