UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**Form
      10-KSB/A**





(Mark
                One)x
            Annual
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934For
                the fiscal year ended December 31, 2005 or ̈
            Transition
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934For
                the transition period from ___________________ to
                _______________________





Commission
      file number   000-21615





**PRESSURE
      BIOSCIENCES, INC.**


**(Name
      of Small Business Issuer in its Charter)**





**Massachusetts**
            
            **04-2652826**(State
                or Other Jurisdiction of Incorporation or Organization)
            
            (I.R.S.
                Employer Identification No.)**321
                Manley Street,**
              **West
                Bridgewater, Massachusetts**
            
            **02379-1040**(Address
                of Principal Executive Offices)
            
            (zip
                code)(508)
                580-1818(Issuer’s
                telephone number)





**Securities
                registered pursuant to Section 12(b) of the
                Act:**None**Securities
                registered pursuant to Section 12(g) of the
                Act:**Common
                Stock, par value $.01 per sharePreferred
                Share Purchase Rights(Title
                of Class)




Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act.  ̈





Check
      whether the issuer: (1) has filed all reports required to be filed by Section
      13
      or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
      for such shorter period that the registrant was required to file such reports),
      and (2) has been subject to such filing requirements for the past 90
      days.    Yes x No  ̈





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2) of the Exchange Act.     Yes  ̈ No x





Pressure
      BioSciences Inc.’s revenues for the most recent fiscal year ended 2005 were
      $105,526.





The
      aggregate market value of the voting and non-voting common stock held of the
      registrant at February 28, 2006 was $9,333,128 based on the closing price of
      the
      common stock as quoted on the Nasdaq Capital Market on that date. As of February
      28, 2006, there were 2,424,189 shares of the registrant’s common stock
      outstanding.





Documents
      Incorporated by Reference





Part
      III
      of this Form 10-KSB incorporates information by reference from the issuer’s
      definitive proxy statement which will be filed no later than 120 days after
      the
      end of the fiscal year covered by this report.





Transitional
      Small Business Disclosure Format (check one):
    Yes  ̈ No x












**INTRODUCTORY
                  NOTE**
 
 In
        connection with the preparation of our Quarterly Report on Form 10-QSB for
        the
        quarter ended March 31, 2006, we completed an internal review of the tax
        liability associated with the 2004 sale of assets and certain liabilities
        of our
        former core businesses, referred to herein as the BBI Core Businesses, to
        SeraCare Life Sciences, Inc. As a result of this review, we concluded that
        the
        tax liability related to discontinued operations recorded in the third quarter
        of 2005 was understated by approximately $220,000. Upon reexamining our 2005
        accounting for income taxes in its entirety, we also determined to reduce
        by
        approximately $60,000 the estimate of deferred tax liability for the unrealized
        gain from our investment in Panacos Pharmaceuticals, Inc., to increase by
        approximately $23,000 the income tax provision from continuing operations,
        and
        to revise our calculation, and disclosure of, deferred tax assets. The
        adjustments to deferred tax assets had no impact on the financial statements
        because all deferred tax assets are fully reserved for. The total impact
        of all
        of these adjustments did not change our reported pre-tax results from
        continuing operations, but income from continuing operations after income
        taxes
        for the fiscal year ended December 31, 2005 was reduced from approximately
        $873,000 to approximately $850,000.
 
 As
        a
        result of the tax review, on May 17, 2006 our senior management and the Audit
        Committee of the Board of Directors concluded that our consolidated financial
        statements for the year ended December 31, 2005 and for the quarter ended
        September 30, 2005 should no longer be relied upon, and decided to restate
        our
        financial statements for the year ended December 31, 2005 and to restate
        our
        financial statements for the quarter ended September 30, 2005. Our management
        and Audit Committee discussed this with Weinberg & Company, P.A., our
        independent registered public accounting firm.
 
 As
        a
        result of the restatement, we have amended the following items of our Annual
        Report on Form 10-KSB for the year ended December 31, 2005:
 
 ·
            Part
                II, Item 6, Management’s Discussion and Analysis or Plan of Operations,
                has been amended to: o
            reflect
                our explanation of the increase in “Income Tax (provision) benefit from
                Continuing Operations” of $(22,725) for the fiscal year ended December 31,
                2005; o
            revise
                the “Gain on Sale of Net Assets Related to Discontinued Operations”; the
                $921,648 previously recorded in fiscal year ended December 31, 2005
                has
                been reduced to $703,269 to reflect the proper accounting for a deferred
                tax liability which was created by reflecting installment sale treatment
                in our 2004 federal corporate income tax
                return; o
            reflect
                our explanation of the decrease in “Net Income”; the reduction in “Gain on
                Sale of Net Assets Related to Discontinued Operations” of $218,379 and the
                additional income tax provision from continuing operations of $(22,725)
                result in a dollar for dollar reduction in net income for fiscal
                year
                ended December 31, 2005; and o
            revise
                our discussion of Liquidity and Financial Condition to reflect a
                decrease
                in working capital of $241,105 from the previously reported amount
                of
                $7,981,841, to $7,740,736; this decrease in reported working capital
                is
                entirely due to adjustments to the income tax
                accounts. o
            Revise
                our disclosure of “Critical Accounting Policies” , to explain the
                change in the Deferred Tax Valuation
                Allowance; o
            Revise
                our disclosure of “Recent Accounting Standards”, to explain our adoption
                of SFAS 154, relative to the correction of the errors we found in
                our
                accounting for income taxes. 
 ·
            Part
                II, Item 7, Financial Statements, has been amended to reflect the
                adjustment of our accounting for income taxes. Adjustments made impact
                the
                Consolidated Statements of Operations, Consolidated Balance Sheet,
                Consolidated Statements of Comprehensive Income, Consolidated Statements
                of Changes in Stockholders’ Equity, Consolidated Statements of Cash Flows
                and Note 2 (iii) “Correction of Error”, Note 2 (xii) “Computation of
                Earnings (loss) Per Share”, Note 2 (xiv) “Recent Accounting Standards”,
                Note 2 (xv) “Stock-based Compensation”, Note 9, “Income Taxes” in the
                Notes to Consolidated Financial Statements.  We
        have
        also revised Part II, Item 8A, Controls and Procedures, to reflect the
        conclusion of our Chief Executive Officer and our Chief Financial Officer
        that
        our disclosure controls and procedures were not effective as of December
        31,
        2005. Lastly, we have revised Part III, Item 9, Directors, Executive Officers,
        Promoters and Control Persons; Compliance with Section 16(a) of the Exchange
        Act, to add Edward H. Myles as an executive officer of the Company. Mr. Myles
        was appointed as Vice President of Finance & Chief Financial Officer
        effective April 3, 2006. Mr. Myles and Mr. Richard T. Schumacher, our President
        and Chief Executive Officer, have included new certifications under Sections
        302
        and 906 of the Sarbanes-Oxley Act of 2002, which are filed with the Form
        10-KSB/A as Exhibits 31.1, 31.2, 32.1 and 32.2.
  2
 
 **ITEM
                  6.**
              **MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OR PLAN OF
                  OPERATION.**
 
 ***Overview***
 
 We
        are
        developing and marketing applications of our proprietary pressure cycling
        technology (PCT) for nucleic acid and protein extractions from various types
        of
        human, animal and plant samples in multiple industries and applications.
        Our
        pressure cycling technology uses an instrument that is capable of cycling
        pressure between ambient and high levels at controlled temperatures to rapidly
        and repeatedly control the interactions of biomolecules. PCT utilizes our
        BarocyclerTM instrument and disposable PULSETM Tubes (together, the PCT Sample
        Preparation System, or the PCT SPS) to release nucleic acids and proteins
        from
        plant/animal cells and tissues, as well as other organisms that are not easily
        disrupted by standard chemical and physical methods. We believe that our
        patented and proprietary pressure cycling technology employs a unique approach
        that has the potential for broad applications in a number of established
        and
        emerging fields, including genomics, proteomics, drug discovery and development,
        protein purification, pathogen inactivation, immunodiagnostics, food safety,
        and
        DNA sequencing.
 
 To
        date,
        we have primarily applied PCT to the area of sample preparation for genomics
        and
        proteomics. We have also developed scientific collaborations with several
        leading laboratories and academic institutions in the United States, which
        we
        expect will remain ongoing in 2006 and beyond. We further expect that the
        data
        generated by our collaborators will be publicly released in scientific
        publications and presentations, and that this could have an important positive
        impact on future sales of our PCT products. We have investigated the use
        of PCT
        for the inactivation of pathogens in human blood plasma, therapeutics, and
        diagnostic reagents and believe we have demonstrated the technical feasibility
        of applying PCT to immunodiagnostics, protein purification, pathogen
        inactivation, food safety, and DNA sequencing. We have obtained thirteen
        US and
        four foreign patents containing multiple claims covering the foregoing
        areas.
 
 In
        September 2002, we released for sale our first commercial PCT instrument,
        the BarocyclerTM NEP2017. In 2002, we also released for sale PULSETM Tubes, which
        are single-use, disposable processing and storage tubes that work in conjunction
        with the BarocyclerTM NEP2017. From September 2002 until June 2005, sales of
        these products were extremely limited. During this time, we leased one and
        sold
        two PCT Sample Preparation Systems and a limited number of PULSETM Tubes. We
        believe that sales of our pressure cycling technology products were adversely
        affected primarily as a result of the following factors: (1) the initial
        design and selling price of the BarocyclerTM NEP2017,(2) the limited amount
        of research data available during that time demonstrating its capabilities
        and
        potential, (3) the absence of a strong sales and marketing management team,
        (4) the absence of a strong promotional campaign after the commercial
        release of the BarocyclerTM NEP2017, (5) the inability to execute our sales
        plan as a result of financial constraints, (6) then current US economic
        conditions and uncertainties which negatively affected capital spending on
        laboratory instruments, (7) the financial condition of our Company during
        2003 and 2004, (8) the focus of our resources on other projects, including
        the sale of our BBI Diagnostics, BBI Biotech, and the transfer of selected
        assets and liabilities of our laboratory instrumentation business units,
        a
        process that began in October 2002 and was completed in
        September 2004, (9) the time required to complete post-transaction issues
        related to the sale of BBI Diagnostics and BBI Biotech, and (10) the effort
        required during  the first half of 2005 to restructure the Company,
        including the effort to build a new corporate infrastructure.
 
 To
        address some of these factors associated with the disappointing sales of
        the
        BarocyclerTM NEP2017, we developed a less expensive and smaller, bench top
        version of the BarocyclerTM, the NEP3229, which we expect facilitates an easier
        and quicker purchase decision by potential customers. We have also generated
        additional research data to support our sales efforts and this research effort
        will continue and expand in 2006 and the foreseeable future. We believe that
        the
        new bench top BarocyclerTM will fill an immediate and growing need in the
        genomics and proteomics sample preparation market for a smaller, more affordable
        instrument that still provides the quality, reproducibility, and safety of
        the
        NEP 2017PCT SPS.
 
 To
        increase market awareness of our products, in June 2005 we initiated a program
        to place up to twelve BarocyclerTM NEP3229 units in selected strategic customer
        sites for trial periods of three months or longer, which we believe will
        provide
        potential customers with the opportunity to develop and collect independent
        and
        objective data and statistical information. We believe that we will be able
        to
        generate sales of our products from these customers after the customer
        experiences the performance, reliability, and safety of the sample preparation
        process provided by the PCT Sample Preparation System. After the trial period,
        it is our expectation that a number of users will either purchase or lease
        the
        PCT BarocyclerTM instrument. During 2005, we placed nine bench top instruments
        under an “Evaluation Agreement”, whereby a “collaborating site” has full use of
        the instrument in their own facility, has agreed to purchase a certain number
        of
        PULSETM Tubes over the trial period, and has further agreed to use the PCT Sample
        Preparation System to generate data for public dissemination. During the
        second
        half of 2005, we sold three PCT Sample Preparation Systems to customers involved
        in the Evaluation Program.
 
 Following
        the closing of the sale of the assets and selected liabilities of BBI
        Diagnostics and BBI Biotech to SeraCare Life Sciences on September 14,
        2004, the transfer of certain assets and liabilities of BBI Source
        Scientific, Inc. to Source Scientific, LLC and the subsequent sale of 70%
        of our ownership interests of Source Scientific, LLC in June 2004, our
        operations now consist primarily of our pressure cycling technology (PCT)
        business. The results of operations discussed herein focus on the PCT business
        activities and the corporate functions associated with being a public company.
        Operating results of BBI Source Scientific, Inc., excluding any PCT related
        activities, together with Source Scientific, LLC, are reported as “Other
        operating (charges), net” hereunder. The operating results of our BBI
        Diagnostics and BBI Biotech divisions prior to their sale on September 14,
        2004, together with the results of the discontinued operations of our clinical
        laboratory testing services segment (sold in February 2001), are reported
        as
“Discontinued Operations” hereunder. Certain amounts included in the prior
        period’s financial statements have been reclassified to conform to the current
        period’s presentation.
  3
 
 ***CRITICAL
        ACCOUNTING POLICIES***
 
 To
        prepare our consolidated financial statements in conformity with generally
        accepted accounting principles, management is required to make significant
        estimates and assumptions that affect the reported amounts of assets and
        liabilities and disclosure of contingent assets and liabilities at the date
        of
        the financial statements and the reported amounts of revenues and expenses
        during the reporting period. In addition, significant estimates were made
        in
        determining the gain on the disposition of our discontinued operations including
        post-closing adjustments, in estimating future cash flows to quantify impairment
        of assets, in estimates regarding the collectibility of accounts receivable,
        the
        realizability of a loan receivable together with associated accrued interest
        from our President and Chief Executive Officer and a director including
        sufficiency of collateral, current and deferred tax assets and liabilities,
        and
        the net realizable value of our inventory.  On an on-going basis, we
        evaluate our estimates.  We base our estimates on historical experience and
        on various other assumptions that are believed to be reasonable under the
        circumstances, the results of which form the basis for making judgments about
        the carrying values of assets and liabilities that are not readily apparent
        from
        other sources. Actual results could differ from the estimates and assumptions
        used by management.
 
 *Revenue
        Recognition*
 
 We
        recognize revenue in accordance with the Securities and Exchange Commission’s
        Staff Accounting Bulletin No. 101, *Revenue
        recognition in Financial Statements* ("SAB
        101") and updated by Staff Accounting Bulletin No. 104, Revenue Recognition
        (“SAB 104”).  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; the seller’s price to the
        buyer is fixed or determinable and collectibility is reasonably assured.
        Product
        revenue is generally recognized upon shipment of the products.  In
        addition, product revenue includes revenue related to lease units. Lease
        revenue
        is recognized upon invoice.
 
 Revenue
        from service contracts is earned as the related services are performed. 
Revenue arrangements where multiple products or services are sold together
        under
        one contract are evaluated to determine if each element represents a separate
        earnings process.  In the event that an element of such multiple element
        arrangement does not represent a separate earnings process, revenue from
        this
        element is recognized over the term of the related contract.  Revenue from
        service contracts and research and development contracts is recognized as
        the
        service and research and development activities are performed under the terms
        of
        the contracts.
 
 **Inventory**
 
 Inventory
        is valued at the lower of cost or market.  Inventories consist of finished
        goods and raw materials, and work in process.  Certain factors may impact
        the realizable value of our inventory including, but not limited to,
        technological changes, market demand, changes in product mix strategy, new
        product introductions and significant changes to our cost structure.  In
        addition, estimates of reserves are made for obsolescence based on the current
        product mix on hand and its expected net realizability. If actual market
        conditions are less favorable or other factors arise that are significantly
        different than those anticipated by management, additional inventory write-downs
        or increases in obsolescence reserves may be required. We treat lower of
        cost or
        market adjustments and inventory reserves as adjustments to the cost basis
        of
        the underlying inventory.  Accordingly, favorable changes in market
        conditions are not recorded to inventory in subsequent periods.
 
 **Intangible
        Assets**
 
 We
        have
        classified as intangible assets those costs associated with the fair value
        of
        certain assets of businesses acquired.  Intangible assets relate to the
        remaining value of acquired patents associated with PCT. The cost of these
        acquired patents is amortized on a straight-line basis over sixteen years. 
We annually review our intangible assets for impairment.  When impairment
        is indicated, any excess of carrying value over fair value is recorded as
        a
        loss.  An impairment analysis of intangible assets as of December 31, 2005
        concluded that such assets were not impaired.
 
 *Long-Lived
        Assets and Deferred Costs*
 
 In
        accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
        Long-Lived Assets”, if indicators of impairment exist, we assess the
        recoverability of the affected long-lived assets by determining whether the
        carrying value of such assets can be recovered through the undiscounted future
        operating cash flows. If impairment is indicated, we measure the amount of
        such
        impairment by comparing the carrying value of the asset to the fair value
        of the
        asset and record the impairment as a reduction in the carrying value of the
        related asset and a charge to operating results. While our current and
        historical operating losses and cash flow are indicators of impairment, we
        reviewed for impairment at December 31, 2005 and determined that such long-lived
        assets were not impaired.
  4
 
 *Deferred
        Tax Valuation Allowance*
 
 A
        valuation allowance is established if it is more likely than not that all
        or a
        portion of the deferred tax asset will not be realized.  Accordingly, a
        valuation allowance was established in 2005 for the full amount of the deferred
        tax asset due to the uncertainty of realization.  Although we realized
        taxable income generated from the sale of assets to SeraCare Life Sciences
        in
        September 2004, management believes that based upon its projection of future
        taxable income for the foreseeable future, it is more likely than not that
        we
        will not be able to realize the benefit of the deferred tax asset at December
        31, 2005.  The current valuation allowance is $1,232,055.  The
        valuation allowance as of January 1, 2005 was $1,890,987.  The net change
        in the valuation allowance during the year ended December 31, 2005 was a
        decrease of $658,932.
 
 *Discontinued
        Operations*
 
 BBI
        Diagnostics and BBI Biotech Segments
 
 On
        September 14, 2004, the Company completed the sale of substantially all of
        the assets and selected liabilities of its BBI Diagnostics and BBI Biotech
        divisions to SeraCare pursuant to the Asset Purchase Agreement, for a purchase
        price of $30 million in cash of which $27.5 million was paid at the
        closing and the remaining $2.5 million was deposited in escrow pursuant to
        an escrow agreement expiring in March 2006. Following the release to
        SeraCare of $1.4 million of the escrow funds to satisfy the final adjustment
        amount in February 2005, approximately $1.1 million remained in escrow to
        secure
        our continuing indemnification obligations for breaches of representations
        and
        warranties, covenants or other agreements that remain in accordance with
        the
        terms of the Asset Purchase Agreement. These funds were released to PBI on
        March
        15, 2006.  The amounts associated with the sale of these assets and
        selected liabilities to SeraCare are reported as discontinued operations
        in the
        accompanying financial statements, in accordance with paragraphs 30 and 42
        of
        Statement of Financial Accounting Standards No. 144 “Accounting for the
        Impairment or Disposal of Long-Lived Assets”.
 
 Clinical
        Laboratory Testing Services Segment
 
 In
        February 2001, the Company sold the business and certain assets and liabilities
        of its clinical laboratory business, BBI Clinical Laboratories, Inc. (“BBICL”),
        a wholly-owned subsidiary of the Company, to a third party for an adjusted
        purchase price of $8,958,000.  The Company retained certain other assets
        and liabilities of BBICL, primarily property, plant and equipment, together
        with
        the facility lease subsequent to the closing date.  The Company wrote down
        all of the retained assets not otherwise redistributed to other business
        units
        to their estimated net realizable value.  The Company’s estimate of
        remaining short and long term accrued liabilities to exit the clinical
        laboratory testing business is approximately $8,160 as of December 31,
        2005.  The major component of this accrual relates to the long term record
        retention of medical and related records.
 
 *Assets
        and Liabilities Transferred Under Contractual Arrangements*
 
 In
        June 2004, PBI Source Scientific, Inc. transferred certain of its
        assets and liabilities to a newly formed limited liability company known
        as
        Source Scientific, LLC. At the time of the transfer, PBI Source
        Scientific, Inc. owned 100% of the ownership interests of Source
        Scientific, LLC. BBI Source Scientific, Inc. subsequently sold 70% of its
        ownership interests of Source Scientific, LLC to Mr. Richard Henson and
        Mr. Bruce A. Sargeant pursuant to a purchase agreement (the “Source
        Scientific Agreement”). As a result of the sale of 70% of PBI Source’s ownership
        interests, Mr. Henson and Mr. Sargeant each own 35% and PBI Source
        owns the remaining 30% of Source Scientific, LLC.  Under the Source
        Scientific Agreement, the Company received notes receivable in the aggregate
        amount of $900,000 (the “Notes”) payable at the end of three years bearing 8%
        interest. Despite the Company’s intent to exit the laboratory instrumentation
        business, the Company may be viewed as having a continuing involvement in
        the
        business of Source Scientific, LLC due to the fact that the Company has the
        right to designate one or potentially three members of the Board of Managers
        of
        Source Scientific, LLC. Because of this factor, even though the transaction
        is
        treated as a divestiture for legal purposes, the Company has not recognized
        the
        transaction as a divestiture for accounting purposes in accordance with
        Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”)
        Topic 5E, *Accounting
        for Divestiture of a Subsidiary or Other Business Operation* .
        In
        accordance with SAB Topic 5E, the Company has recorded the assets and
        liabilities associated with the Source Scientific, LLC operation on the
        Company’s audited consolidated balance sheet as of December 31, 2005 under the
        captions “Assets transferred under contractual arrangements” and “Liabilities
        transferred under contractual arrangements” and has recorded a charge to income
        under the caption “Other operating (charges), net” in the Company’s audited
        consolidated statements of operations for the years ended December 31, 2005
        and
        2004 equal to the amount of the loss attributable to the business of Source
        Scientific for the respective periods presented. In accordance with SAB Topic
        5E, the Company will continue this accounting treatment until circumstances
        have
        changed or until the net assets of the Source Scientific, LLC business have
        been
        written down to zero (or a net liability is recognized in accordance with
        U.S.
        GAAP.
  5
 
 *Loan
        Receivable from Director and Chief Executive Officer*
 
 In
        January 2002, the Company pledged a $1,000,000 interest bearing deposit at
        a financial institution to secure its limited guaranty of loans in the aggregate
        amount of $2,418,000 from the financial institution to an entity controlled
        by
        Richard T. Schumacher, a Director and the Company’s current President and Chief
        Executive Officer. In January 2003, the $1,000,000 held in the interest
        bearing deposit account pledged to the financial institution to secure the
        Company’s limited guaranty was used by the financial institution to satisfy its
        limited guaranty obligation to the financial institution. As of December
        31,
        2005, the Company maintained a $1.0 million loan receivable from
        Mr. Schumacher. The Company previously maintained a junior security
        interest in collateral pledged by Mr. Schumacher to the financial
        institution. The collateral includes all of Mr. Schumacher’s shares of PBI
        common stock. Following the payment in full by Mr. Schumacher of his loan
        to the financial institution in February 2005, the Company became the
        holder of a first priority security interest in Mr. Schumacher’s shares of
        common stock of Pressure BioSciences to secure the repayment of the Company’s
        $1,000,000 loan receivable together with associated accrued interest from
        Mr. Schumacher. The collateral currently consists of 489,657 shares of PBI
        common stock. The collateral and personal assets of Mr. Schumacher may not
        be sufficient to permit the Company to fully recover the principal, interest
        and
        other costs associated with this loan receivable. If the value of the collateral
        decreases, the Company may have to write down or write off the loan receivable
        or any associated accrued interest. Therefore, the Company cannot be certain
        that it will collect the full amount of the loan receivable.
 
 As
        of
        December 31, 2005, the Company evaluated the recoverability of the $1,000,000
        loan receivable from Mr. Richard T. Schumacher, which is reflected on the
        balance sheet in stockholders’ equity as a loan receivable from Director / CEO
        as of December 31, 2005. In connection with the Company’s evaluation of the
        recoverability of the loan receivable as of December 31, 2005 the Company
        performed a test for impairment of the loan receivable by analyzing the value
        of
        the collateral. This test included, among other things, a review of the current
        trading price of the Company’s common stock after taking into account factors
        that may affect the Company’s ability to sell such stock in the event it were to
        foreclose on the collateral to repay the loan receivable and any accrued
        and
        unpaid interest. After performing the impairment test, the Company determined
        that the loan receivable was not impaired. The ultimate value that the Company
        may recover is dependent on numerous factors including the Company’s stock
        price, market conditions relative to the value of and ability to sell the
        collateral, and the financial status of the Company’s President and Chief
        Executive Officer. Based on the Company’s assessment as of December 31, 2005,
        the Company estimates that the value of the collateral is sufficient to
        collateralize the amount of the recorded loan receivable.  If actual market
        conditions are less favorable, the Company’s stock price declines, or other
        factors arise that are significantly different than those in existence as
        of
        December 31, 2005, an impairment of the loan receivable together with any
        associated accrued interest is likely to be required.  The Company plans to
        continue to monitor and test the collateral for impairment due in large part
        to
        the relatively low trading volume of the Company’s common stock and recent
        volatility in our stock price, ranging from a low of $2.28 per share to a
        high
        of $6.70 per share from January 1, 2005 to December 31, 2005.
 
 **YEARS
        ENDED DECEMBER 31, 2005 AND 2004**
 
 *Revenue*
 
 We
        had
        total revenue of $105,526 in the year ended December 31, 2005, as compared
        to
        $412,616 in the prior year, a decline of $307,090 reflecting a decrease in
        grant
        revenues.
 
 PCT
        Products, Services, Others: Product revenue totaled $105,526 in the year ended December 31, 2005, compared
        to $19,310 for the corresponding period of 2004.  Product revenue in 2005
        included the sale of three Barocylcer NEP 3229 PCT Sample Preparation Systems,
        lease payments from two other customers, and sales of PULSETM Tubes to these
        customers and to collaboration sites. There were no sales of PCT Sample
        Preparation Systems in 2004.  To increase market awareness of our products,
        our strategy is to place PCT Sample Preparation Systems with potential customers
        for a trial evaluation period.  Although we can provide no assurances, we
        believe that pursuing this strategy will enable potential customers to generate
        data and statistical information, which will lead to additional sales of
        our PCT
        Sample Preparation System.  Of the three of PCT Sample Preparation Systems
        that we sold in 2005, two were purchased by the customer after a trial
        evaluation period.
 
 Grant
        Revenues: There were no grant revenues in 2005.  Grant revenue in 2004 of $393,306
        consisted predominately of the award of SBIR funding activity through the
        National Institutes of Health.  The decrease in PCT grants and services
        revenue in 2005 was primarily related to the completion of work in 2004 on
        two
        Phase-II SBIR Grants.
 
 *Cost
        of PCT Products and Services*
 
 The
        cost
        of PCT products and services was $177,350 for the year ended December 31,
        2005
        compared to $572,323 for the comparable period in 2004. The decrease in 2005
        was
        predominately driven by the decrease in grant activities which accounted
        for
        $394,806 of the total decrease of $394,973.
  6
 
 *Research
        and Development*
 
 PCT
        related research and development expenditures increased to $498,584 in the
        year
        ended December 31, 2005 from $419,936 for the comparable period of 2004. 
This increase was primarily due to the increased level of research and
        development expenditures relating to various sample preparation applications
        for
        the PCT technology.
 
 *Selling
        and Marketing*
 
 PCT
        related selling and marketing expenses decreased to $157,493 for the year
        ended
        December 31, 2005 from $194,612 in 2004.  This decrease was due to reduced
        headcount, a reduction in trade shows attended in first half of 2005 verses
        2004, and lower production of marketing materials. Offsetting this decrease,
        in
        January 2005 we hired one sales executive. For the years ended December 31,
        2005
        and 2004, the Company did not incur any material advertising costs as it
        remained an early-stage company.
 
 *General
        and Administrative*
 
 General
        and administrative costs totaled $1,691,214 in the year ended December 31,
        2005,
        as compared to $1,336,239 in the comparable period of 2004, an increase of
        $354,975. The increase was primarily due to a compensation charge of $400,000
        relating to payments made to Mr. Schumacher (i) as a reimbursement of costs
        and
        expenses, as well as for lost wages and severance benefits, resulting from
        his
        termination of employment in February 2003, and (ii) as a bonus to reward
        Mr.
        Schumacher for his valuable contributions to the Company and our stockholders
        in
        the overall restructuring and repositioning of our company over the past
        two
        years.  In addition, we provided reimbursement of $94,985 in the first
        quarter of 2005 to Mr. Schumacher for certain legal bills incurred relative
        to his termination as Chairman and Chief Executive Officer of PBI on February
        13, 2003. Those compensation and reimbursed expenses were favorably offset
        by
        lower infrastructure costs in the 2005 period.
 
 *Stock
        Based Compensation*
 
 In
        conjunction with the sale of assets and selected liabilities to SeraCare
        on
        September 14, 2004, our Board of Directors voted to extend the termination
        date of all stock options granted to employees of BBI Diagnostics and BBI
        Biotech to the later of 90 days from the closing of the SeraCare transaction
        or
        the termination of the contemplated tender offer. In accordance with the
        provisions of FASB Interpretation No. 44, we recognized non-cash stock-based
        compensation of $281,737 for 2004.  There were no charges for the twelve
        months ended December 31, 2005.
 
 *Operating
        Loss from Continuing Operations*
 
 The
        operating loss of the PCT business was $2,419,115 in the year ended December
        31,
        2005 as compared to an operating loss of $2,392,231 in 2004. While
        operating expenses decreased by $280,206 in 2005 compared to 2004, the impact
        of
        lower grant activity in 2005 impacted operating performance.
 
 *Realized
        gain of sale of securities held for sale*
 
 For
        the
        twelve months ended December 31, 2005, we recorded a gain on the sale of
        441,086
        shares of our Panacos Pharmaceuticals shares. The shares sold in 2005 generated
        a gain of $3,829,677. As of December 31, 2005, we had a total of 571,834
        Panacos
        shares remaining, including 151,938 shares held in escrow. We continue to
        monitor the stock price and sales volume of Panacos, and may decide to sell
        additional shares from time to time.
 
 *Other
        Operating (Charges), net*
 
 The
        non-PCT related activities of PBI Source Scientific, Inc., which reflects
        the activity of Source Scientific, LLC, had an operating loss of $477,154
        for
        the year ended December 31, 2005, as compared to an operating loss of $442,611
        for the same period of 2004.  See also Note 4 to the Consolidated Financial
        Statements included in Part II of Item 7 contained hereunder.
 
 *Interest
        Income*
 
 Interest
        income totaled $269,535 for the year ended December 31, 2005 as compared
        to
        interest income of $151,576 in 2004.  The increase in net interest income
        was in part the result of interest earned on investments from proceeds
        associated with the sale of our BBI Core Businesses to SeraCare and interest
        earned on cash proceeds related to the sale of shares in Panacos
        Pharmaceuticals’ stock. In addition, in 2005, we recognized the benefit of paid
        interest related to the Director / CEO’s loan receivable.  In 2004, accrued
        interest related to the loan receivable was not recognized.
  7
 
 *Income
        Tax (provision) benefit from Continuing Operations*
 
 In
        the
        year 2005 we recorded a provision from continuing operations of $352,694
        compared to a benefit of $941,350 in the comparable period in 2004.  In the
        year 2005, we maintained a full valuation allowance for our deferred tax
        assets
        in accordance with Statement of Financial Accounting Standards No. 109 and
        in
        consideration of three consecutive years of losses from continuing
        operations.
 
 *Income
        (loss) from Discontinued Operations*
 
 The
        amounts associated with the sale of our BBI Diagnostics and BBI Biotech business
        units to SeraCare are reported as discontinued operations in the accompanying
        financial statements, in accordance with paragraphs 30 and 42 of Statement
        of
        Financial Accounting Standards No. 144 “Accounting for the Impairment or
        Disposal of Long-Lived Assets” as previously described above.
 
 For
        the
        year ended December 31, 2005, the net income from discontinued operations
        was
        $50,574 as compared to a net loss of $113,196 for the same period in 2004. 
The net income recorded in 2005 from discontinued operations is reflective
        of
        the reversal of excess accruals related to a tax audit for which the statute
        of
        limitation expired in October 2005.
 
 *Gain
        on Sale of Net Assets Related to Discontinued Operations*
 
 In
        2005
        we recorded a benefit of $703,269 for the overpayment of 2004 tax estimates
        related to the sale of net assets to SeraCare in 2004.  The impact resulted
        from the utilization of favorable treatment of tax credits, utilization of
        installment sale tax treatment related to sale of assets, and treatment of
        the
        sale of the Company’s 70% interest in Source Scientific LLC.   For the
        third quarter of 2004, we recorded a benefit from the sale of the BBI
        Diagnostics and BBI Biotech business units of $14,567,697 net of tax estimates
        of $4,354,809.
 
 *Net
        Income (Loss)*
 
 Overall,
        for 2005, we had net income of $1,604,092 which included the gain of $3,829,677
        resulting from our sale of Panacos securities. This is compared to net income
        of
        $12,712,585 that was primarily due to the sale of the BBI Diagnostics and
        BBI
        Biotech business units to SeraCare in September 2004.
 
 ***LIQUIDITY
        AND FINANCIAL CONDITION***
 
 Our
        working capital position as of December 31, 2005 was approximately $7,740,736.
        Our current working capital position was driven primarily by the sale in
        2004 of
        substantially all of the assets and selected liabilities of our BBI Diagnostics
        and BBI Biotech business units to SeraCare for an aggregate purchase price
        of
        $30 million in cash of which $27.5 million was paid at the closing and
        $2.5 million initially deposited in escrow pursuant to an escrow agreement
        expiring in March 2006.  Since September 14, 2004, $1,412,192 has been
        released from escrow to SeraCare pursuant to our settlement of final closing
        balance sheet claims, and the proceeds and gain from the sale have been reduced
        accordingly.  On February 11, 2005, we completed an issuer tender offer and
        purchased from stockholders 5,210,001 shares of common stock for an aggregate
        purchase price of $16.3 million, which included 761,275 shares issued upon
        exercise of stock options. As a result of the completion of the tender offer,
        immediately following payment for the tendered shares, we had 2,424,189 shares
        of common stock outstanding.  In addition, working capital improved by the
        sale of Panacos shares, generating $3,833,712 in cash during 2005.
 
 Net
        cash
        used by continuing operations for the year ended December 31, 2005 was
        $2,829,829. The cash used in operations for 2005 was primarily a result of
        losses incurred.
 
 Net
        cash
        provided by investing activities totaled $3,512,807.  This was generated by
        the sale of 441,086 of the Company’s holdings in Panacos Pharmaceutical stock
        generating $3,833,712.  This was offset by the purchase of approximately
        $321,000 in capital equipment, which was primarily used for Barocyclers for
        collaboration sites.
 
 Net
        cash
        used by financing activities for the year ended December 31, 2005 was
        $16,303,863.  This is largely reflective of the Company’s use of cash
        related to the tender offer that was completed in February 2005.
 
 *Investment
        in Panacos Pharmaceuticals*
 
 On
        June 11, 2005, V.I. Technologies, Inc. (“Vitex”) announced that it had
        closed its merger with Panacos Pharmaceuticals, Inc. (“Panacos”), pursuant
        to the Agreement and Plan of Merger dated as of June 2, 2004, as amended on
        November 5, 2004, November 28, 2004, December 8, 2004, and
        February 14, 2005 (the “Merger Agreement”). As a result of the merger and a
        subsequent reverse stock split, we received 1,012,920 shares of Vitex common
        stock in place of our Panacos capital stock. Fifteen percent of Vitex stock
        owned by former owners of Panacos stock, including fifteen percent of the
        Vitex
        common stock owned by us, is being held in escrow per the Merger Agreement.
        On
        August 18, 2005, V.I. Technologies formerly changed its company name to Panacos
        Pharmaceuticals Inc. and changed its trading symbol on the Nasdaq National
        Market to “PANC”.
 
 In
        2005,
        we sold an aggregate of 441,086 shares of Vitex for which we received $3,833,712
        in cash proceeds, net of charges and commission.  We continue to hold an
        additional 419,896 shares of Panacos and may receive an additional 151,938
        shares that are being held in escrow until September 2006, per the terms
        of the
        March 10, 2005 merger between Vitex and Panacos Pharmaceuticals.  On
        December 31, 2005, the closing price of Panacos common stock was $6.93 per
        share
        as quoted on the Nasdaq National Market.
  8
 
 **CONTRACTUAL
        OBLIGATIONS**
 
 The
        following is a summary of our future contractual obligations as of December
        31,
        2005:
 
 **Contractual
                  Obligations**
              
              **Total**
              
              **Less
                  than**
                **1
                  year**
              
              **More
                  than**
                **1
                  year**Lease
                  for Maryland operating office (1)
              
              $
              29,425
              
              $
              29,425
              
              $
              0Obligations
                  relating to Discontinued Operations (2)
              
              
              8,160
              
              
              2,040
              
              
              6,120Total
                  Contractual Obligations
              
              $
              37,585
              
              $
              31,465
              
              $
              6,120
  
 (1) 
                  On May 5, 2005 we entered into a lease with Saul Holdings Limited
                  Partnership for approximately 2,784 square feet of office space
                  located at
                  209 Perry Parkway, Gaithersburg, Maryland 20877 for a term of twelve
                  months.  We will pay base annual rent in the amount of $55,680, or
                  $4,640 per month during the initial term of the Lease, plus $1,245
                  per
                  month for operating expense.(2) 
                  In December 2000, we exited the clinical laboratory testing services
                  segment and in February 2001, we sold the assets of our wholly owned
                  subsidiary, BBI Clinical Laboratories, Inc. to Specialty Laboratories,
                  Inc. of Santa Monica, CA.  Our estimate of remaining short and long
                  term accrued liabilities to exit the clinical laboratory testing
                  business
                  is $8,160 as of December 31, 2005.
 
 The
        table
        above excludes obligations of Source Scientific LLC associated with leased
        facilities in Irvine, CA.  The term of the LLC leased facility commenced in
        April 2005 and runs through June 2010.  In addition certain administrative
        support equipment lease arrangements were entered into commencing in January
        2005 and ending in November 2006.  They are as follows:
 
 **Contractual
                  Obligations**
              
              **Total**
              
              **1
                  year**
                **or
                  less**
              
              **More
                  than**
                **1
                  year**Lease
                  for Irvine, CA facility
              
              $
              1,075,922
              
              $
              226,952
              
              $
              848,970Obligations
                  relating equipment operating leases
              
              
              5,681
              
              
              2,964
              
              
              2,717Total
                  Contractual Obligations for Source, LLC
              
              $
              1,081,603
              
              $
              229,916
              
              $
              851,687
 
 **Related
        Party Transaction**
 
 In
        January 2002, the Company pledged a $1,000,000 interest bearing deposit at
        a financial institution to secure its limited guaranty of loans in the aggregate
        amount of $2,418,000 from the financial institution to an entity controlled
        by
        Richard T. Schumacher, a Director and the Company’s current President and Chief
        Executive Officer. In January 2003, the $1,000,000 held in the interest
        bearing deposit account pledged to the financial institution to secure the
        Company’s limited guaranty was used by the financial institution to satisfy its
        limited guaranty obligation to the financial institution. As of December
        31,
        2005, the Company maintained a $1.0 million loan receivable from
        Mr. Schumacher. The Company previously maintained a junior security
        interest in collateral pledged by Mr. Schumacher to the financial
        institution. The collateral includes all of Mr. Schumacher’s shares of PBI
        common stock. Following the payment in full by Mr. Schumacher of his loan
        to the financial institution in February 2005, the Company became the
        holder of a first priority security interest in Mr. Schumacher’s shares of
        common stock of Pressure BioSciences to secure the repayment of the Company’s
        $1,000,000 loan receivable together with associated accrued interest from
        Mr. Schumacher and are held as collateral. The collateral currently
        consists of 489,657 shares of Pressure BioSciences common stock. The collateral
        and personal assets of Mr. Schumacher may not be sufficient to permit the
        Company to fully recover the principal, interest and other costs associated
        with
        this loan receivable. If the value of the collateral decreases, the Company
        may
        have to write down or write off the loan receivable or associated accrued
        interest. Therefore, the Company cannot be certain that it will collect the
        full
        amount of the loan receivable.
 
 As
        of
        December 31, 2005, the Company evaluated the recoverability of the $1,000,000
        loan receivable from Mr. Richard T. Schumacher, which is reflected on the
        balance sheet in stockholders’ equity as a loan receivable. In connection with
        the Company’s evaluation of the recoverability of the loan receivable as of
        December 31, 2005, the Company performed a test for impairment of the loan
        receivable by analyzing the value of the collateral. This test included,
        among
        other things, a review of the current trading price of the Company’s common
        stock after taking into account factors that may affect the Company’s ability to
        sell such stock in the event it were to foreclose on the collateral to repay
        the
        loan receivable and any accrued and unpaid interest. After performing the
        impairment test, the Company determined that the loan receivable was not
        impaired. The ultimate value that the Company may recover is dependent on
        numerous factors including the Company’s stock price, market conditions relative
        to the value of and ability to sell the collateral, and the financial status
        of
        the Company’s President and Chief Executive Officer. Based on the Company’s
        assessment as of December 31, 2005, the Company estimates that the value
        of the
        collateral is sufficient to collateralize the amount of the recorded loan
        receivable.  If actual market conditions are less favorable, the Company’s
        stock price declines or other factors arise that are significantly different
        than those in existence as of December 31, 2005, an impairment of the loan
        receivable is likely to be required.  The Company plans to continue to
        monitor and test the collateral for impairment due in large part to the
        relatively low trading volume of the Company’s common stock and recent
        volatility in our stock price, ranging from a low of $2.28 per share to a
        high
        of $6.70 per share from January 1, 2005 to December 31, 2005.
  9
 
 ***Recent
        Accounting Standards***
 
 In
        December 2004, the Financial Accounting Standards Board (FASB) issued a revision
        of Statement of Financial Accounting Standards No. 123, “Accounting for
        Stock-Based Compensation” (SFAS 123R). SFAS 123R supersedes APB Opinion No. 25,
“Accounting for Stock Issued to Employees” and its related implementation
        guidance and eliminates the alternative to use Opinion 25’s intrinsic value
        method of accounting that was provided in Statement 123 as originally issued.
        Under Opinion 25, issuing stock options to employees generally resulted in
        recognition of no compensation cost. SFAS 123(R) requires all entities to
        recognize compensation expense in an amount equal to the fair value of
        share-based payments (e.g. stock options and restricted stock) granted to
        employees. This applies to all transactions involving the issuance of our
        own
        equity in exchange for goods or services, including employee services. Upon
        adoption of SFAS 123(R), all stock option awards to employees will be recognized
        as expense in the income statement, typically over any related vesting period.
        SFAS 123(R) carried forward the guidance from SFAS 123 for payment transactions
        with non-employees. The Securities and Exchange Commission amended the
        compliance date on April 14, 2005, to require public companies to adopt the
        standard as of the beginning of the first annual period that begins after
        June 15, 2005. We will, therefore, be required to adopt SFAS 123(R) in the
        first quarter of 2006.
 
 SFAS
        123(R) permits public companies to adopt its requirements using one of two
        methods:
 
 1.  Modified
        Prospective Method under which compensation cost is recognized beginning
        with
        the effective date (a) based on the requirements of SFAS 123(R) for all
        share-based payments granted after the effective date and (b) based on the
        requirements of SFAS 123 for all awards granted to employees prior to the
        effective date of SFAS 123(R) that remain unvested on the effective
        date.
 
 2.  Modified
        Retrospective Method which includes the requirements of the modified prospective
        method described above, but also permits entities to restate based on the
        amounts previously recognized under SFAS 123 for purposes of pro forma
        disclosures either (a) all prior periods presented or (b) prior
        interim periods of the year of adoption.
 
 At
        this
        time, we have not determined which method of adoption we will use.
 
 In
        May
        2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections”,
        which replaces APB 20, “Accounting Changes”, and SFAS 3, “Reporting Accounting
        Changes in Interim Financial Statements - An Amendment of APB Opinion No.
        28”.
        SFAS 154 provides guidance on the accounting for and the reporting of accounting
        changes and error corrections. It establishes retrospective application,
        or the
        latest practicable date, as the required method for reporting a change in
        accounting principle and the reporting of a correction of an error. SFAS
        154 is
        the required method for reporting a change in accounting principle and the
        reporting of a correction of an error. We have adopted SFAS 154 to correct
        an
        error made during the quarter ended September 30, 2005 and discovered during
        the
        quarter ended March 31, 2006.
 
 On
        March
        15, 2006, we received $1,094,162 from Wells Fargo Corporate Trust Escrow
        Services, representing the remaining principal held in escrow from the 2004
        sale
        of the assets and certain liabilities of our BBI Core Businesses to SeraCare
        Life Sciences Inc., (“SeraCare”), plus interest through February 28, 2006. The
        receipt of these funds triggered the recognition of taxable income, accounted
        for as an installment sale for federal income tax purposes. During the financial
        statement closing process for the quarter ended March 31, 2006, we determined
        that a deferred tax liability of approximately $220,000 should have been
        established during the quarter ended September 30, 2005, the period in which
        we
        filed our federal income tax return. Upon reexamining our accounting for
        income
        taxes in its entirety, we further determined that the deferred tax liability
        in
        connection with the unrealized gain on Panacos should be reduced by
        approximately $60,000, and that the income tax provision from continuing
        operations should be increased by $23,000. We also adjusted our its deferred
        tax
        assets however there is no impact from these adjustments as deferred tax
        assets
        continue to be carried with a full valuation allowance. The total impact
        of all
        of these adjustments will not change the our reported pre-tax results from
        continuing operations, but income from continuing operations after income
        taxes
        for the fiscal year ended December 31, 2005 will be reduced from approximately
        $873,000 to approximately $850,000.
 
 For
        the
        year ended December 31, 2005, the impact to basic and diluted earnings per
        share
        from discontinued operations was a decrease from $0.33 to $0.25 and from
        $0.31
        to $0.25, respectively. For the year ended December 31, 2005, the impact
        to
        basic earnings per share from continuing operations was less than one penny.
        The
        impact of these adjustments to diluted earnings per share from continuing
        operations was a decrease from $0.28 to $0.27.
  10
 
 The
        accompanying Consolidated Balance Sheet as of December 31, 2005 and related
        Consolidated Statements of Operations, Comprehensive Income, Changes in
        Stockholders’ Equity, and Statement of Cash Flows for the year ended December
        31, 2005 and Note 2 (iii) “Correction of Error”, Note 2 (xii), “Computation of
        Earnings (Loss) Per Share”, Note 2 (xiv) “Recent Accounting Standards”, Note 2
        (xv), Stock-Based Compensation, and Note 9, “Income Taxes” have been
        revised to reflect the appropriate adjustments to the income tax
        accounts
 
 **FORWARD-LOOKING
        STATEMENTS**
 
 This
        report contains forward-looking statements that involve risks and uncertainties,
        such as statements of our objectives, expectations and intentions. The
        cautionary statements made in this report should be read as applicable to
        all
        forward-looking statements wherever they appear in this report. Our actual
        results could differ materially from those discussed herein. Factors that
        could
        cause or contribute to such differences include those discussed below, as
        well
        as those discussed elsewhere in this report.
 
 ***We
        may require additional capital to further develop our pressure cycling
        technology products and services and cannot assure that additional capital
        will
        be available on acceptable terms or at all.***
 
 We
        have
        experienced negative cash flows from operations with respect to our pressure
        cycling technology business since its inception in 1997. Until
        September 2004, we funded our pressure cycling technology activities
        primarily from revenue generated from our BBI Diagnostics and BBI Biotech
        businesses (referred to in this report as the “BBI Core Businesses”), which we
        sold to SeraCare in September 2004 ***.*** As of
        February 28, 2006, we had available cash of approximately $6.2 million
        which excluded the escrow release form the SeraCare transaction of approximately
        $1.1 million which was received on March 15, 2006.
 
 We
        will
        need additional capital if we experience unforeseen costs or expenses,
        unanticipated liabilities or delays in implementing our business plan,
        developing our products and achieving commercial sales. We also believe that
        we
        will need substantial capital to accelerate the growth and development of
        our
        pressure cycling technology products and services. Our capital requirements
        will
        depend on many factors, including but not limited to:
 
 *•*  ** any
        payments we receive from Mr. Schumacher on our $1.0 million loan
        receivable plus accrued interest;
 
 *•*  the
        amount, if any, we receive in payment of the $900,000 in aggregate principal
        amount of promissory notes that we received in connection with the Source
        Scientific Agreement; to date, there have been no payments made;
 
 *•*  the
        problems, delays, expenses and complications frequently encountered by
        early-stage companies;
 
 *•*  market
        acceptance of our pressure cycling technology products and
        services;
 
 *•*  the
        success of our sales and marketing programs; and
 
 *•*  changes
        in economic, regulatory or competitive conditions of our planned
        business.
 
 To
        satisfy our potential capital requirements if our current capital does not
        adequately cover the development of our pressure cycling technology products
        and
        services, we may need to raise additional funds in the public or private
        capital
        markets. Additional financing may not be available to us on a timely basis,
        if
        at all, or on terms acceptable to us. If adequate funds are not available
        or we
        fail to obtain acceptable additional financing, we may be required
        to:
 
 *•*  obtain
        financing with terms that may have the effect of diluting or adversely affecting
        the holdings or the rights of the holders of our common stock;
 
 *•*  ** obtain
        funds through arrangements with future collaborative partners or others that
        may
        require us to relinquish rights to some or all of our technologies or products;
        or
 
 *•*  otherwise
        reduce planned expenditures and forego other business opportunities, which
        could
        harm our business.
 
 ***Our
        business may be harmed if we encounter problems, delays, expenses and
        complications that typically affect early-stage
        companies.***
 
 By
        selling our BBI Core Businesses to SeraCare in September 2004, we sold our
        business units that generated our most significant sources of revenue and
        profits. We are now primarily an early-stage company focused on the further
        development and commercialization of our pressure cycling technology products
        and services. Early-stage companies typically encounter problems, delays,
        expenses and complications, many of which may be beyond our control or may
        harm
        our business or prospects. These include, but are not limited to, unanticipated
        problems and costs relating to the development, testing, production, marketing
        and sale of our products, availability of adequate financing and competition.
        This increases our business risk because we are less diversified than before
        the
        sale of the BBI Core Businesses to SeraCare and because our remaining business
        is speculative. There can be no assurance that we will successfully complete
        the
        transition from an early-stage company to the successful commercialization
        of
        our pressure cycling technology products and services.
  11
 
 ***Our
        business is dependent on the success of our pressure cycling technology products
        and services, which has a limited operating history and has generated
        substantial losses and only a limited amount of revenues to
        date.***
 
 The
        BBI
        Core Businesses sold to SeraCare in September 2004 represented more than
        90% of our annual revenue in each of the past two years. Our business following
        the sale to SeraCare leaves us dependent on the performance of our pressure
        cycling technology activities, which is our only operating business going
        forward. Our pressure cycling technology business has a limited operating
        history and has incurred significant losses to date. Our first products
        utilizing our pressure cycling technology, the BarocyclerTM NEP2017 instrument
        and related disposable PULSETM Tubes, were introduced for commercial sale in
        September 2002. To date we have invested approximately $12.0 million
        towards the development of our pressure cycling technology since 1997 and
        we
        have generated only limited revenue from sales of our pressure cycling
        technology products and related services. We leased one and sold two BarocyclerTM
NEP2017 units since it was introduced in 2002, and we leased two and sold
        three
        Bench Top NEP 3229 Sample Preparation Systems since it was introduced in
        2005.
        In fiscal year 2004 and 2005, respectively, we generated approximately $413,000
        and $106,000 in revenue from sales of our pressure cycling technology products
        and services (including grants). Our failure to generate revenues from sales
        of
        our pressure cycling technology products and services will adversely affect
        our
        business and may affect our ability to stay in business.
 
 ***Our
        pressure cycling technology business has a history of operating
        losses.***
 
 Our
        pressure cycling technology business has experienced significant operating
        losses since 1997. Our ability to achieve profitability will depend, among
        other
        things, on successfully completing the development and commercialization
        of
        additional pressure cycling technology products, establishing marketing,
        sales
        and manufacturing capabilities or collaborative arrangements with others
        who
        possess such capabilities and market acceptance of our products. We currently
        have only seven customers who have purchased or leased our pressure cycling
        technology products and services. Our ability to achieve profitability will
        also
        depend upon our ability to develop additional customers for our pressure
        cycling
        technology products and services. There can be no assurance that we will
        be able
        to achieve profitability or that profitability, if achieved, can be
        sustained.
 
 ***Our
        pressure cycling technology products and services are new and have limited
        market awareness or acceptance.***
 
 Our
        pressure cycling technology products have limited market awareness. To date,
        we
        leased one and sold two PCT BarocyclerTM NEP 2017 units since commercial
        introduction in 2002, and we leased two and sold three Bench Top NEP3229
        PCT
        Sample Preparation Systems since commercial introduction in 2005. Our future
        success will be dependent in significant part on our ability to generate
        demand
        for our pressure cycling technology products and services and to develop
        additional commercial applications that incorporate our pressure cycling
        technology. To this end, we must increase market awareness and acceptance
        of our
        pressure cycling technology products to generate increased revenue. Our products
        and services require a sophisticated sales effort targeted to both the
        scientists who would use this technology and the senior management of our
        prospective customers. Currently, we have one employee focused on sales and
        marketing and another on business development. We cannot be certain that
        we will
        have sufficient funds in the future to hire any additional sales or marketing
        personnel. Our sales and marketing efforts will not be successful if we are
        unable to attract and retain qualified sales and marketing personnel. If
        we are
        not successful in building greater market awareness or acceptance and generating
        increased sales, our future results of operations will be adversely
        affected.
 
 ***The
        sales cycle of our pressure cycling technology products has been lengthy
        and as
        a result, we have incurred and may continue to incur significant expenses
        and we
        may not generate any significant revenue related to those
        products.***
 
 Our
        current and potential customers have required several months, a much longer
        time
        than we had originally estimated, to test and evaluate our pressure cycling
        technology related products. This increases the possibility that a customer
        may
        decide to cancel its order or otherwise change its plans, which could reduce
        or
        eliminate our sales to that potential customer. As a result of this lengthy
        sales cycle, we have incurred and may continue to incur significant research
        and
        development, selling, and general and administrative expenses, and we have
        not
        generated any significant related revenue for these products, and we may
        never
        generate the anticipated revenue if a customer cancels or changes its plans.
        Factors associated with this lengthy sales cycle include the initial selling
        price of the PCT BarocyclerTM NEP2017 and the limited, though expanding, amount
        of research data presently available demonstrating the  capabilities and
        potential of both the PCT BarocyclerTM NEP2017 and our less expensive and smaller
        Bench Top NEP3229 PCT Sample Preparation System. There can be no assurance
        that
        either the PCT Floor Model BarocylcerTM or the Bench Top model will be successful
        or that we will generate any significant revenue from sales of these
        products.
  12
 
 ***If
        we are unable to protect our patents and other proprietary technology relating
        to our pressure cycling technology products, our business will be
        harmed.***
 
 Our
        ability to further develop and successfully commercialize our products will
        depend, in part, on our ability to enforce our patents, preserve trade secrets
        and operate without infringing on the proprietary rights of third parties.
        We
        currently have thirteen United States patents issued and several pending
        patent
        applications for our pressure cycling technology. Several of these have been
        followed up with foreign applications, for which three patents have been
        issued
        in Europe and one patent has been issued in Australia. We expect to file
        additional foreign applications in the future relating to our pressure cycling
        technology.  The patents which have been issued expire between 2015 and
        2021.
 
 There
        can
        be no assurance that:
 
 *•*  any
        patent applications filed by us will result in issued patents;
 
 *•*  patent
        protection will be secured for any particular technology;
 
 *•*  any
        patents that have been or may be issued to us will be valid or
        enforceable; **
 
 *•* any
        patents will provide meaningful protection to us;
 
 *•*  others
        will not be able to design around our patents; or
 
 *•*  that
        our
        patents will provide a competitive advantage or have commercial
        application.
 
 The
        failure to obtain adequate patent protection would have a material adverse
        effect on us and may adversely affect our ability to enter into, or affect
        the
        terms of, any arrangement for the marketing or sale of any product.
 
 There
        can
        be no assurance that patents owned by us will not be challenged by others.
        We
        could incur substantial costs in proceedings, including interference proceedings
        before the United States Patent and Trademark Office and comparable proceedings
        before similar agencies in other countries, in connection with any claims
        that
        may arise in the future. These proceedings could result in adverse decisions
        about the patentability of our inventions and products, as well as about
        the
        enforceability, validity or scope of protection afforded by the
        patents.
 
 We
        also
        rely on trade secrets and other unpatented proprietary information in our
        product development activities. To the extent we rely on trade secrets and
        unpatented know-how to maintain our competitive technological position, there
        can be no assurance that others may not independently develop the same or
        similar technologies. We seek to protect trade secrets and proprietary
        knowledge, in part, through confidentiality agreements with our employees,
        consultants, advisors and contractors. Nevertheless, these agreements may
        not
        effectively prevent disclosure of our confidential information and may not
        provide us with an adequate remedy in the event of unauthorized disclosure
        of
        such information. If our employees, consultants, advisors or contractors
        develop
        inventions or processes independently that may be applicable to our products,
        disputes may arise about ownership of proprietary rights to those inventions
        and
        processes. Such inventions and processes will not necessarily become our
        property, but may remain the property of those persons or their employers.
        Protracted and costly litigation could be necessary to enforce and determine
        the
        scope of our proprietary rights. Failure to obtain or maintain trade secret
        protection, for any reason, could have a material adverse effect on
        us.
 
 ***If
        we infringe on the intellectual property rights of others, our business will
        be
        harmed.***
 
 There
        can
        be no assurance that the manufacture, use or sale of our pressure cycling
        technology products or services will not infringe patent rights of others.
        We
        may be unable to avoid infringement of the patent or other intellectual property
        rights of others and may be required to seek a license, defend an infringement
        action or challenge the validity of the patents or other intellectual property
        rights in court. There can be no assurance that a license will be available
        to
        us on terms and conditions acceptable to us, if at all, or that we will prevail
        in any patent or other intellectual property rights litigation. Patent or
        other
        intellectual property rights litigation is costly and time-consuming, and
        there
        can be no assurance that we will have sufficient resources to bring any possible
        litigation related to such infringement to a successful conclusion. If we
        do not
        obtain a license under such patents or other intellectual property rights,
        or
        are found liable for infringement, or are not able to have such patents declared
        invalid, we may be liable for significant monetary damages, may encounter
        significant delays in successfully commercializing and developing our pressure
        cycling technology products or may be precluded from participating in the
        manufacture, use or sale of our pressure cycling technology products or services
        requiring such licenses.
  13
 
 
 ***We
        may be unable to adequately respond to rapid changes in
        technology.***
 
 The
        introduction of products and services embodying new technology and the emergence
        of new industry standards may render our existing pressure cycling technology
        products and related services obsolete and unmarketable if we are unable
        to
        adapt to change. We may be unable to allocate the funds necessary to improve
        our
        current products or introduce new products to address our customers’ needs and
        respond to technological change. In the event that other companies develop
        more
        technologically advanced products, our competitive position relative to such
        companies would be harmed.
 
 ***We
        may not be able to compete successfully.***
 
 A
        number
        of companies have developed, or are expected to develop, products that compete
        or will compete with our products. We will compete with companies that have
        existing technologies for the extraction of nucleic acids and proteins from
        “hard-to-lyse” cells and tissues, including methods such as mortar and pestle,
        sonication, rotor-stator homogenization, French press, bead beating, freezer
        milling, enzymatic digestion, and chemical dissolution. We will also compete
        with a number of companies that offer competitive sample extraction and
        purification technologies to the life sciences industry. We are aware that
        there
        are additional companies pursuing new technologies with similar goals to
        the
        products developed or being developed by us. Some of the companies with which
        we
        now compete or may compete in the future have or may have more extensive
        research, marketing and manufacturing capabilities, more experience in genomics
        and proteomics sample preparation, protein purification, pathogen inactivation,
        immunodiagnostics, and DNA sequencing and significantly greater technical,
        personnel and financial resources than we do, and may be better positioned
        to
        continue to improve their technology in order to compete in an evolving
        industry. To compete, we must be able to demonstrate to potential customers
        that
        our products provide improved performance and capabilities. Our failure to
        compete successfully could harm our business and prospects.
 
 ***We
        currently have very few employees and our future success is dependent on
        the
        continued services of Richard T. Schumacher, our President and Chief Executive
        Officer.***
 
 We
        currently have eight employees. Mr. Richard T. Schumacher, our founder,
        President and Chief Executive Officer, is involved in virtually all aspects
        of
        our business. Four of our other employees are involved in research and
        development, one in marketing and business development, one in technical
        support, and one is involved in sales. Although we believe that we currently
        do
        not need a large staff of employees at this time, we do believe we need
        additional sales personnel. Depending upon the availability of funds, we
        expect
        to hire additional sales personnel in 2006. If we do not have adequate funds,
        we
        will be unable to hire any additional personnel. Because of our limited staff
        and the knowledge and background necessary to successfully develop, market,
        and
        sell our pressure cycling technology products and services, we believe that
        our
        future success is dependent upon the continued services of Mr. Schumacher
        and our ability to engage and retain additional qualified sales and financial
        personnel. If we are unable to retain Mr. Schumacher or if we are unable to
        engage and retain additional qualified sales and financial personnel, we
        may be
        unable to implement our business plan, maintain our current products and
        service
        initiatives and successfully deliver new products and services in the future,
        and we may have difficulty staying in business.
 
 ***We
        rely on third parties for our manufacturing, engineering and other related
        services.***
 
 Source
        Scientific, LLC, an instrumentation company in which we own a 30% interest,
        agreed to provide engineering, manufacturing, and other related services
        for our
        pressure cycling technology products until September 30, 2005. Under our
        agreement with Source Scientific, LLC, we agreed to pay Source Scientific,
        LLC
        not less than an average of $25,000 per month for design, development and
        manufacturing services for our pressure cycling technology products through
        September 30, 2005.  Since September 30, 2005, Source Scientific, LLC
        has continued to provide these services to us without a formal extension
        of our
        agreement.  These services are integral to the success of our business.
        Since we expect that Source Scientific, LLC will manufacture our products,
        our
        success will depend, in part, on the ability of Source Scientific, LLC to
        manufacture our products cost effectively, in sufficient quantities to meet
        our
        customer demand when and if such demand occurs, and in meeting our quality
        requirements. If Source Scientific, LLC experiences manufacturing problems
        or
        delays, or if Source Scientific, LLC decides not to continue to provide us
        with
        these services, our business may be harmed. While we believe other contract
        manufacturers are available to address our manufacturing and engineering
        needs,
        if we find it necessary to replace Source Scientific, LLC, there will be
        a
        disruption in our business and we could incur additional costs and delays
        that
        would have an adverse effect on our business.
 
 ***In
        connection with the sale of our BBI Core Businesses, we continue to be exposed
        to contingent liabilities up to an amount equal to the purchase price for
        the
        BBI Core Businesses, which could prevent us from pursuing our remaining business
        operations in the event an indemnification claim is brought against
        us.***
 
 In
        connection with the sale of our BBI Core Businesses to SeraCare, pursuant
        to the
        Asset Purchase Agreement, we agreed to indemnify SeraCare for any losses
        from
        breaches of most of our representations, warranties, or covenants that occur
        prior to June 14, 2006. Our indemnification obligations for breaches of
        some representations and warranties, however, extend for a longer period
        of
        time. More specifically, our indemnification obligation for a breach of
        representations and warranties relating to compliance with environmental
        laws
        extend until September 14, 2009, representations and warranties relating to
        tax matters extend for the applicable statute of limitations period (which
        varies depending on the nature of claim), and representations and warranties
        relating to our due organization, subsidiaries, authorization to enter into
        and
        perform the transactions contemplated by the Asset Purchase Agreement, and
        brokers fees, extend indefinitely. Our indemnification obligations are limited
        by an overall cap equal to the $30 million purchase price. On
        March 22, 2005, we received a claim for indemnification from SeraCare
        relating to testing and other services performed by us for the University
        of
        Pittsburgh prior to the sale of the BBI Core Businesses to SeraCare. The
        claim
        for indemnification is for an unspecified amount relating to the cost of
        retesting certain of the samples previously tested by us. If we are required
        to
        pay this claim for indemnification, or any other possible new claims for
        indemnification from SeraCare, we will have less cash available to fund our
        operations, our business may be harmed and, if we are subject to additional
        indemnification claims or unanticipated expenses or liabilities, it may be
        difficult to continue our business as planned unless we are able to obtain
        equity or debt financing.
  14
 
 ***We
        may not be able to fully collect the $900,000 in aggregate principal amount
        of
        promissory notes which we received in connection with the sale of 70% of
        the
        ownership interests in Source Scientific, LLC.***
 
 In
        June 2004, we transferred certain assets and liabilities of our PBI Source
        Scientific, Inc. subsidiary to a newly formed limited liability company
        known as Source Scientific, LLC. At the time of the transfer we owned 100%
        of
        the ownership interests of Source Scientific, LLC. We subsequently sold 70%
        of
        our ownership interests of Source Scientific, LLC to Mr. Richard Henson and
        Mr. Bruce A. Sargeant pursuant to a purchase agreement (the “Source
        Scientific Agreement”). As a result of the sale of 70% of our ownership
        interests, Mr. Henson and Mr. Sargeant each own 35% and we own the
        remaining 30% of Source Scientific, LLC. We received secured promissory notes
        in
        the aggregate principal amount of $900,000, which, together with accrued
        interest, are due on or before May 31, 2007. The aggregate principal amount
        of the notes could have been reduced to $720,000 if the notes were paid in
        full
        by May 31, 2005 or may be reduced to $810,000 if the notes are paid in full
        by May 31, 2006. The notes are secured by pledges of the purchasers’
ownership interests in the newly formed limited liability company. Source
        Scientific, LLC may not be able to generate sufficient cash flow to enable
        the
        makers of the notes to pay the principal and interest on such notes. If we
        are
        unable to collect the principal and interest on the notes, we will have less
        cash available to run our pressure cycling technology business.
 
 ***We
        may not be able to fully collect the principal and interest due on a $1,000,000
        loan receivable from our President and Chief Executive Officer, which could
        harm
        our business and financial condition.***
 
 We
        have a
        $1,000,000 loan receivable from our President and Chief Executive Officer,
        Richard T. Schumacher. We previously maintained a junior security interest
        in
        collateral pledged by Mr. Schumacher to a financial institution. The
        collateral includes all of Mr. Schumacher’s shares of our common stock.
        Following the payment in full by Mr. Schumacher of his loan to the
        financial institution in February 2006, we became the holder of a first priority
        security interest in all of Mr. Schumacher’s common stock of Pressure
        BioSciences to secure the repayment of our $1.0 million loan receivable
        together with associated accrued interest from Mr. Schumacher. The
        collateral and personal assets of Mr. Schumacher may not be sufficient to
        permit us to fully recover the principal, interest and other costs associated
        with this loan receivable. If the value of the collateral decreases, we may
        have
        to write down or write off the loan receivable or any associated accrued
        interest. Therefore, we cannot be certain that we will collect the full amount
        of the loan receivable or any associated accrued interest. Our failure to
        collect all or a portion of this loan receivable and any accrued interest
        could
        harm our business and financial condition.
 
 ***The
        market price for our common stock may fluctuate due to low trading volume,
        and
        it may be difficult for you to sell your stock at the prices and times you
        desire.***
 
 Historically,
        the trading volume of our common stock on the Nasdaq National Market has
        been
        low compared with other Nasdaq listed companies. Our common stock commenced
        trading on the Nasdaq Capital Market on March 30, 2005 following the
        transfer of our common stock from the Nasdaq National Market. Due to the
        low
        trading volume of our common stock, the market price of our common stock
        may
        fluctuate significantly. Attempts to purchase or sell relatively small amounts
        of our common stock could cause the market price of our common stock to
        fluctuate. Low trading volume levels, which have continued following the
        completion of our issuer tender offer on February 11, 2005, due in part to
        the significant number of our outstanding shares of common stock that are
        owned
        by Mr. Schumacher, who is subject to trading restrictions imposed on
        affiliates under Rule 144 promulgated under the Securities Act, may also
        affect our remaining stockholders’ ability to sell shares of our common stock
        quickly at the current market price. In addition, sales of substantial amounts
        of our common stock, or the perception that such sales could occur, could
        adversely affect the prevailing market prices for our common stock.
 
 ***Mr. Richard
        T. Schumacher controls a significant percentage of voting power and may exercise
        his voting power in a manner adverse to other stockholders’
interests.***
 
 Our
        President and Chief Executive Officer, Mr. Richard T. Schumacher, has
        voting control over approximately 25% of the outstanding shares of our common
        stock as of February 28, 2006. Because of his significant ownership
        percentage, Mr. Schumacher effectively controls stockholder votes for the
        election of directors, increasing the authorized capital stock, and authorizing
        mergers and sales of assets. Given Mr. Schumacher’s potential ability to
        influence and control stockholder actions, it is possible that he may act
        in a
        manner that is adverse to your personal interests.
  15
 
 ***Provisions
        in our charter and by-laws and our shareholders rights plan may discourage
        or
        frustrate stockholders’ attempts to remove or replace our current
        management.***
 
 In
        addition to the fact that Mr. Schumacher may be in a position to control
        stockholder votes on the election of directors and the approval of significant
        transactions, our Amended and Restated Articles of Organization, as amended,
        and
        Amended and Restated Bylaws, as amended, contain provisions that may make
        more
        difficult or discourage changes in our management that our stockholders may
        consider to be favorable. These provisions include:
 
 *•* a
        classified board of directors;
 
 *•* advance
        notice for stockholder nominations to the board of directors;
 
 *•* limitations
        on the ability of stockholders to remove directors; and
 
 *•* a
        provision that allows a majority of the directors to fill vacancies on the
        board
        of directors.
 
 On
        February 27, 2003, our board of directors entered into a shareholders
        rights agreement. This agreement may also have the effect of discouraging
        or
        preventing a change in control.
 
 These
        provisions could prevent or frustrate attempts to make changes in our management
        that our stockholders consider to be beneficial and could limit the price
        that
        our stockholders might receive in the future for shares of our common
        stock.
 ***The
        costs of compliance with the reporting obligations of the Securities Exchange
        Act of 1934, as amended, and with the requirements of the Sarbanes-Oxley
        Act of
        2002 may place a strain on our limited resources and our management’s attention
        may be diverted from other business concerns.***
 
 As
        a
        result of the regulatory requirements applicable to public companies, we
        may
        incur legal, accounting and other expenses that are significant in relation
        to
        the size of our company.  In addition, the Sarbanes-Oxley Act of 2002, as
        well as new rules subsequently implemented by the Securities and Exchange
        Commission and Nasdaq, have required changes in corporate governance practices
        of public companies, some of which are currently applicable to us and others
        may
        become applicable to us in the future.  These new rules and regulations may
        increase our legal and financial compliance costs and may make some activities
        more time-consuming.  These requirements may place a strain on our systems
        and on our management and financial resources.
  16
 
 **ITEM
                  7.**
              **FINANCIAL
                  STATEMENTS**
 
 **PRESSURE
        BIOSCIENCES, INC., AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEET**
 **AS
        OF DECEMBER 31, 2005**
 ASSETS(restated)CURRENT
                    ASSETS:Cash
                    and cash equivalents
                
                $
                6,416,772Restricted
                    cash
                
                
                255,612Accounts
                    receivable, less allowance of $115,908
                
                
                58,798Inventories,
                    net
                
                
                85,207Investments
                    in marketable securities
                
                
                1,533Escrow
                    deposit related to sale of assets to SeraCare
                
                
                1,117,305Income
                    tax receivable
                
                
                531,122Prepaid
                    expenses, deposits, and other current assets
                
                
                75,286Total
                    current assets
                
                
                8,541,635Property
                    and equipment, net
                
                
                282,780OTHER
                    ASSETS:Intangible
                    assets, net
                
                
                425,554Assets
                    transferred under contractual arrangements
                
                
                1,420,996Investments
                    in marketable securities
                
                
                3,962,810Total
                    other assets
                
                
                5,809,360TOTAL
                    ASSETS
                
                $
                14,633,775LIABILITIES
                    AND STOCKHOLDERS' EQUITYCURRENT
                    LIABILITIES:Accounts
                    payable
                
                $
                56,395Accrued
                    employee compensation
                
                
                94,354Other
                    accrued expenses
                
                
                99,718Income
                    taxes payable
                
                
                63,730Current
                    deferred tax liability
                
                
                219,949Accrued
                    SeraCare liabilities
                
                
                264,713Liabilities
                    from discontinued operations
                
                
                2,040Total
                    current liabilities
                
                
                800,899LONG
                    TERM LIABILITIESLiabilities
                    from discontinued operations
                
                
                6,120Deferred
                    tax liability
                
                
                1,419,662Liabilities
                    transferred under contractual arrangements
                
                
                1,042,493Total
                    long term liabilities
                
                
                2,468,275Total
                    Liabilities
                
                
                3,269,174COMMITMENTS
                    AND CONTINGENCIESSTOCKHOLDERS'
                    EQUITY:Common
                    stock, $.01 par value; 20,000,000 shares authorized,2,424,189
                    issued and outstanding
                
                
                24,242Additional
                    paid-in capital
                
                
                6,027,020Loan
                    receivable from Director / CEO
                
                
                (1,000,000
                )Accumulated
                    other comprehensive income, net of tax
                
                
                2,537,963Retained
                    earnings
                
                
                3,775,376Total
                    stockholders' equity
                
                
                11,364,601TOTAL
                    LIABILITIES & STOCKHOLDERS' EQUITY
                
                $
                14,633,775
  The
        accompanying notes are an integral part of these consolidated financial
        statements
  17
 
 **PRESSURE
        BIOSCIENCES, INC., AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**
 2005
                  
                  2004(restated)REVENUE:PCT
                      Products, services, other
                  
                  $
                  105,526
                  
                  $
                  19,310Grant
                      Revenues
                  
                  
                  —
                  
                  
                  393,306Total
                      revenue
                  
                  
                  105,526
                  
                  
                  412,616COSTS
                      AND EXPENSES:Cost
                      of PCT products & services
                  
                  
                  177,350
                  
                  
                  572,323Research
                      and development
                  
                  
                  498,584
                  
                  
                  419,936Selling
                      and marketing
                  
                  
                  157,493
                  
                  
                  194,612General
                      and administrative
                  
                  
                  1,691,214
                  
                  
                  1,336,239Stock
                      based compensation
                  
                  
                  —
                  
                  
                  281,737Total
                      operating costs and expenses
                  
                  
                  2,524,641
                  
                  
                  2,804,847Operating
                      loss from continuing operations
                  
                  
                  (2,419,115
                  )
                  
                  (2,392,231
                  )OTHER
                      INCOME (EXPENSE):Realized
                      gain on securities held for sale
                  
                  
                  3,829,677
                  
                  
                  —Other
                      operating (charges), net
                  
                  
                  (477,154
                  )
                  
                  (442,611
                  )Interest
                      income
                  
                  
                  269,535
                  
                  
                  151,576Total
                      other income (expense)
                  
                  
                  3,622,058
                  
                  
                  (291,035
                  )Income
                      (loss) from continuing operations before income taxes
                  
                  
                  1,202,943
                  
                  
                  (2,683,266
                  )Income
                      tax (provision) benefit from continuing operations
                  
                  
                  (352,694
                  )
                  
                  941,350Income
                      (loss) from continuing operations
                  
                  
                  850,249
                  
                  
                  (1,741,916
                  )Discontinued
                      operations:Income
                      / (loss) from discontinued operations (net of income tax
                      provisionof
                      $35,054 and $913, respectively,
                  
                  
                  50,574
                  
                  
                  (113,196
                  )Gain
                      on sale of net assets related to discontinued operations(includes
                      effect of income taxes of $703,269 in 2005, andnet
                      of income taxes accrued of $4,354,809 in 2004)
                  
                  
                  703,269
                  
                  
                  14,567,697Net
                      income from discontinued operations
                  
                  
                  753,843
                  
                  
                  14,454,501Net
                      income
                  
                  $
                  1,604,092
                  
                  $
                  12,712,585Income
                      / (loss) per share from continuing operations - basic
                  
                  $
                  0.29
                  
                  $
                  (0.25
                  )Income
                      per share from discontinued - basic
                  
                  $
                  0.25
                  
                  $
                  2.11Net
                      income per share, basic
                  
                  $
                  0.54
                  
                  $
                  1.86Income
                      / (loss) per share from continuing operations - diluted
                  
                  $
                  0.27
                  
                  $
                  (0.25
                  )Income
                      per share from discontinued - diluted
                  
                  $
                  0.25
                  
                  $
                  2.11Net
                      income per share, diluted
                  
                  $
                  0.52
                  
                  $
                  1.86Weighted
                      average number of shares used to calculatebasic
                      per share (loss) / income
                  
                  
                  2,972,662
                  
                  
                  6,850,380Weighted
                      average number of shares used to calculate
                  
                  
                  3,107,973
                  
                  
                  6,850,380diluted
                      per share (loss) / income
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements
  18
  **PRESSURE
        BIOSCIENCES, INC., AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF COMPREHENSIVE INCOME**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**
 Other
                      Comprehensive Income:
                  
                  2005
                  
                  2004(restated)Net
                      income
                  
                  $
                  1,604,092
                  
                  $
                  12,712,585Unrealized
                      gain on marketable securities
                  
                  
                  3,957,626
                  
                  
                  —Less:
                      Income tax related to items of other comprehensive income
                  
                  
                  (1,419,663
                  )
                  
                  —Total
                      other comprehensive income, net of taxes
                  
                  
                  2,537,963
                  
                  
                  —Comprehensive
                      income
                  
                  $
                  4,142,055
                  
                  $
                  12,712,585
 
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements
  19
  **PRESSURE
        BIOSCIENCES, INC., AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**
 Accumulated
                  
                  Loan
                      Receivable
                  
                  RetainedCommon
                      Stock
                  
                  Additional
                  
                  
                  
                  Other
                  
                  From
                  
                  Earnings
                  
                  Total$.01
                      Par
                  
                  Paid-In
                  
                  Comprehensive
                  
                  Comprehensive
                  
                  Officer/
                  
                  (Accumulated
                  
                  Stockholders'Shares
                  
                  Value
                  
                  Capital
                  
                  Income
                  
                  Income
                  
                  Director
                  
                  Deficit)
                  
                  EquityBALANCE,
                      December 31, 2003
                  
                  
                  6,827,592
                  
                  $
                  68,276
                  
                  $
                  21,888,234
                  
                  
                  
                  
                  $
                  —
                  
                  $
                  (1,000,000
                  )
                  $
                  (10,541,301
                  )
                  $
                  10,415,209Common
                      stock issued in connection withEmployee
                      Stock Purchase Plan
                  
                  
                  7,073
                  
                  
                  71
                  
                  
                  15,942
                  
                  
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  16,013Stock
                      options and other warrants exercised
                  
                  
                  38,250
                  
                  
                  382
                  
                  
                  100,482
                  
                  
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  100,864Stock
                      options plans exercise period extended
                  
                  
                  —
                  
                  
                  —
                  
                  
                  281,737
                  
                  
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  281,737Interest
                      accured on loan receivable from Director  and CEO
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  
                  
                  —
                  
                  
                  (134,262
                  )
                  
                  —
                  
                  
                  (134,262
                  )Net
                      income
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  $
                  12,712,585
                  
                  
                  —
                  
                  
                  —
                  
                  
                  12,712,585
                  
                  
                  12,712,585Comprehensive
                      income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  12,712,585BALANCE,
                      December 31,2004
                  
                  
                  6,872,915
                  
                  
                  68,729
                  
                  
                  22,286,395
                  
                  
                  
                  
                  
                  —
                  
                  
                  (1,134,262
                  )
                  
                  2,171,284
                  
                  
                  23,392,146Repurchase
                      shares via tender offer
                  
                  
                  (5,210,001
                  )
                  
                  (52,030
                  )
                  
                  (18,401,516
                  )
                  
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (18,453,615
                  )Stock
                      options and other warrants exercised
                  
                  
                  761,275
                  
                  
                  7,543
                  
                  
                  2,142,141
                  
                  
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  2,149,684Proceeds
                      from interest on loan receivable from Director and
                      CEO
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  
                  134,262
                  
                  
                  —
                  
                  
                  134,262Net
                      income
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  $
                  1,604,092
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1,604,092
                  
                  
                  1,604,092Unrealized
                      gain on investments (net of tax)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  2,537,963
                  
                  
                  2,537,963
                  
                  
                  —
                  
                  
                  —
                  
                  
                  2,537,963Comprehensive
                      income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  4,142,055BALANCE,
                      December 31,2005
                  
                  
                  2,424,189
                  
                  $
                  24,242
                  
                  $
                  6,027,020
                  
                  
                  
                  
                  $
                  2,537,963
                  
                  $
                  (1,000,000
                  )
                  $
                  3,775,376
                  
                  $
                  11,364,601
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
  20
 
 **PRESSURE
        BIOSCIENCES, INC., AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**
 2005
                
                (Revised-See
                    Note 13)(restated)
                
                2004CASH
                    FLOWS FROM OPERATING ACTIVITIES:Net
                    income
                
                $
                1,604,092
                
                $
                12,712,585Less
                    income from discontinued operations
                
                
                753,843
                
                
                14,454,501Income
                    (loss) from continuing operations
                
                
                850,249
                
                
                (1,741,916
                )Adjustments
                    to reconcile income (loss) from continuing operations to net
                    cashused
                    in operating activities :Depreciation
                    and amortization
                
                
                106,552
                
                
                146,266Provision
                    for doubtful accounts
                
                
                —
                
                
                205,085Realized
                    gain on sale of marketable securities
                
                
                (3,829,677
                )
                
                —Interest
                    received (accrued) on loan outstanding from Director / CEO
                
                
                134,263
                
                
                (134,262
                )Changes
                    in operating assets and liabilities:Accounts
                    receivable
                
                
                152,500
                
                
                (391,064
                )Inventories
                
                
                72,610
                
                
                140,534Investments
                    in marketable securities
                
                
                6,016
                
                
                518Income
                    tax receivable
                
                
                (531,123
                )
                
                —Escrow
                    deposits and deferred costs related to tender offer
                
                
                110,529
                
                
                —Prepaid
                    expenses and other current assets
                
                
                (43,103
                )
                
                (55,980
                )Restricted
                    cash payable to SeraCare
                
                
                (225,796
                )
                
                (29,816
                )Assets
                    and liabilities transferred under contractual obligations,
                    (net)
                
                
                442,348
                
                
                37,254Other
                    accrued expenses
                
                
                (205,320
                )
                
                146,263Income
                    tax payable
                
                
                (111,281
                )
                
                175,011Deferred
                    tax liability
                
                
                —
                
                
                (100,367
                )Accounts
                    payable
                
                
                15,120
                
                
                (192,091
                )Accrued
                    employee compensation
                
                
                7,830
                
                
                (72,069
                )Accrued
                    expenses due to SeraCare
                
                
                218,454
                
                
                —Net
                    cash used in operating activities
                
                
                (2,829,829
                )
                
                (1,866,632
                )CASH
                    FLOWS FROM INVESTING ACTIVITIES:Payments
                    for additions to property and equipment
                
                
                (320,905
                )
                
                —Proceeds
                    from sale of marketable securities
                
                
                3,833,712
                
                
                —Net
                    cash provided by investing activities
                
                
                3,512,807
                
                
                —CASH
                    FLOWS FROM FINANCING ACTIVITIES:Proceeds
                    from issuance of common stock
                
                
                2,149,684
                
                
                116,877Use
                    of funds to repurchase common stock
                
                
                (18,453,547
                )
                
                —Escrow
                    deposits related to sale of assets Seracare
                
                
                —
                
                
                (1,057,038
                )Net
                    cash used in financing activities
                
                
                (16,303,863
                )
                
                (940,161
                )CASH
                    FLOW FROM DISCONTINUED OPERATIONS:Operating
                    cash flows, net of taxes
                
                
                (4,035
                )
                
                497,837Investing
                    cash flows, net of taxes
                
                
                839,902
                
                
                22,543,562Net
                    cash provided from discontinued operations
                
                
                835,867
                
                
                23,041,399INCREASE
                    ( DECREASE) IN CASH AND CASH EQUIVALENTS:
                
                
                (14,785,018
                )
                
                20,234,605Cash
                    and cash equivalents, beginning of year
                
                
                21,201,790
                
                
                967,185Cash
                    and cash equivalents, end of year
                
                $
                6,416,772
                
                $
                21,201,790SUPPLEMENTAL
                    INFORMATION:Income
                    Taxes Paid
                
                $
                23,508
                
                $
                3,180,000Interest
                    Paid
                
                $
                —
                
                $
                102,817
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements
  21
  **PRESSURE
        BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
        OF DECEMBER 31, 2005**
  **(1)  Business
        Overview**
 
 Pressure
        BioSciences, Inc., a Massachusetts corporation formerly known as Boston
        Biomedica, Inc. (the “Company” or “PBI”), is engaged in research, development
        and commercialization of products utilizing its patented pressure cycling
        technology (“PCT”), a novel platform technology for the control of bio-molecular
        interactions.  The Company’s pressure cycling technology uses an instrument
        that is capable of cycling pressure between low and high levels at controlled
        temperatures to rapidly and repeatedly control the interactions of
        bio-molecules. PCT utilizes our BarocyclerTM instrument and disposable PULSETM
Tubes to release nucleic acids and proteins from plant and animal cells and
        tissues, as well as other organisms that are not easily disrupted by standard
        chemical and physical methods.
 
 **(2)  Summary
        of Significant Accounting Policies**
 
 ***(i) Principles
        of Consolidation***
 
 The
        consolidated financial statements include the accounts of Pressure BioSciences,
        Inc. (formerly Boston Biomedica Inc.), and its wholly-owned subsidiaries,
        PBI
        Biotech Research Laboratories, Inc. (formerly known as BBI Biotech Research
        Laboratories, Inc. and referred to herein as “PBI Biotech” or “BBI Biotech”)),
        PBI Source Scientific, Inc. (formerly known as BBI Source Scientific, Inc.
        and
        referred to herein as “PBI Source” or “BBI Source”), and PBI BioSeq, Inc.
        (formerly known as BBI BioSeq, Inc. and referred to herein as “PBI BioSeq” or
“BBI BioSeq”)).
 
 Effective
        September 14, 2004, pursuant to an Asset Purchase Agreement dated April 16,
        2004, as amended on July 20, 2004 (the “Asset Purchase Agreement”) between the
        Company, BBI Biotech and SeraCare Life Sciences, Inc. (“SeraCare”), the Company
        completed the sale of substantially all of the assets and certain liabilities
        of
        its BBI Diagnostics and BBI Biotech divisions to SeraCare (the “Asset
        Sale”).  In connection with the Asset Sale, the Company changed its legal
        name from Boston Biomedica, Inc. to Pressure BioSciences, Inc. effective
        September 14, 2004.  The accompanying consolidated financial statements
        have been reclassified to report the results of operations for the BBI
        Diagnostics and BBI Biotech divisions (also referred to as “business units”) as
        discontinued operations.
 
 In
        June 2004, PBI Source Scientific, Inc. transferred certain of its
        assets and liabilities to a newly formed limited liability company known
        as
        Source Scientific, LLC. At the time of the transfer, PBI Source
        Scientific, Inc. owned 100% of the ownership interests of Source
        Scientific, LLC. PBI Source Scientific, Inc. subsequently sold 70% of its
        ownership interests of Source Scientific, LLC to Mr. Richard Henson and
        Mr. Bruce A. Sargeant pursuant to a purchase agreement (the “Source
        Scientific Agreement”). As a result of the sale of 70% of PBI Source’s ownership
        interests, Mr. Henson and Mr. Sargeant each own 35% and PBI Source
        owns the remaining 30% of Source Scientific, LLC.  Under the Source
        Scientific Agreement, the Company received notes receivable in the aggregate
        amount of $900,000 (the “Notes”) payable at the end of three years bearing 8%
        interest. Despite the Company’s intent to exit the laboratory instrumentation
        business, the Company may be viewed as having a continuing involvement in
        the
        business of Source Scientific, LLC due to the fact that the Company has the
        right to designate one or potentially three members of the Board of Managers
        of
        Source Scientific, LLC. Because of this factor, even though the transaction
        is
        treated as a divestiture for legal purposes, the Company has not recognized
        the
        transaction as a divestiture for accounting purposes in accordance with
        Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”)
        Topic 5E, *Accounting
        for Divestiture of a Subsidiary or Other Business Operation* .
        In
        accordance with SAB Topic 5E, the Company has recorded the assets and
        liabilities associated with the Source Scientific, LLC operation on the
        Company’s audited consolidated balance sheet as of December 31, 2005 under the
        captions “Assets transferred under contractual arrangements” and “Liabilities
        transferred under contractual arrangements” and has recorded a charge to income
        under the caption “Other operating (charges), net” in the Company’s audited
        consolidated statements of operations for the years ended December 31, 2005
        and
        2004 equal to the amount of the loss attributable to the business of Source
        Scientific, LLC for the respective periods presented. In accordance with
        SAB
        Topic 5E, the Company will continue this accounting treatment until
        circumstances have changed or until the net assets of the Source Scientific,
        LLC
        business have been written down to zero (or a net liability is recognized
        in
        accordance with U.S. Generally Accepted Accounting Principles
        (“GAAP”)).
 
 As
        a
        result of the above transactions, the audited consolidated financial statements
        included herein, and the accompanying notes to such consolidated financial
        statements, report the results of the Company’s remaining operations, which
        consist of all pressure cycling technology (“PCT”) related activities, including
        the PCT related activities of PBI Source and PBI BioSeq, Inc., and the portion
        of corporate activities directly associated with the Company’s remaining
        corporate functions, including costs associated with being a public
        company.  As described above, operating results of PBI Source, excluding
        any PCT related activities, together with Source Scientific, LLC, are reported
        as “Other operating (charges), net”. The operating results of the Company’s BBI
        Diagnostics and BBI Biotech divisions, together with the results of the
        discontinued operations of the Company’s clinical laboratory testing services
        segment (sold in February 2001), are reported as “Discontinued
        Operations”.  Certain amounts included in the prior period’s financial
        statements have been reclassified to conform to the current period’s
        presentation.  All inter-company accounts and transactions have been
        eliminated in consolidation.
  22
  **PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2005**
 ***(ii) Use
        of Estimates***
 
 To
        prepare the consolidated financial statements in conformity with generally
        accepted accounting principles, management is required to make significant
        estimates and assumptions that affect the reported amounts of assets and
        liabilities and disclosure of contingent assets and liabilities at the date
        of
        the consolidated financial statements and the reported amounts of revenues
        and
        expenses during the reporting periods. In addition, significant estimates
        were
        made in determining the gain on the disposition of the Company’s discontinued
        operations including post-closing adjustments, in estimating future cash
        flows
        to quantify impairment of assets, in estimates regarding the collectability
        of
        accounts receivable, realizability of a loan receivable from the Company’s
        President and Chief Executive Officer, deferred tax assets, and the net
        realizable value of the Company’s inventories, as well as an estimate for
        remaining liabilities associated with discontinued operations.  On an
        on-going basis, the Company evaluates its estimates.  The Company bases its
        estimates on historical experience and on various other assumptions that
        are
        believed to be reasonable under the circumstances, the results of which form
        the
        basis for making judgments about the carrying values of assets and liabilities
        that are not readily apparent from other sources. Actual results could differ
        from the estimates and assumptions used by management.
 
 ***(iii) Correction
        of Error***
 
 In
        May
        2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections”,
        which replaces APB 20, “Accounting Changes”, and SFAS 3, “Reporting Accounting
        Changes in Interim Financial Statements - An Amendment of APB Opinion No.
        28”.
        SFAS 154 provides guidance on the accounting for and the reporting of accounting
        changes and error corrections. It establishes retrospective application, or the
        latest practicable date, as the required method for reporting a change in
        accounting principle and the reporting of a correction of an error. SFAS
        154 is
        the required method for reporting a change in accounting principle and the
        reporting of a correction of an error. The Company has adopted SFAS 154 to
        correct an error made during the quarter ended September 30, 2005 and discovered
        during the quarter ended March 31, 2006.
 
 On
        March
        15, 2006, the Company received $1,094,162 from Wells Fargo Corporate Trust
        Escrow Services, representing the remaining principal, and interest, held
        in escrow from the 2004 sale of the assets and certain liabilities of BBI
        Core
        Businesses to SeraCare Life Sciences Inc., (“SeraCare”). The receipt of these
        funds triggered the recognition of taxable income, accounted for as an
        installment sale for federal income tax purposes. During the financial statement
        closing process for the quarter ended March 31, 2006, management determined
        that
        a deferred tax liability of approximately $220,000 should have been established
        during the quarter ended September 30, 2005, the period in which the
        Company filed its federal income tax return. Upon reexamining the
        Company’s accounting for income taxes in its entirety, management further
        determined that the deferred tax liability in connection with the unrealized
        gain on Panacos Pharmaceuticals, Inc., should be reduced by approximately
        $60,000, and that the income tax provision from continuing operations should
        be
        increased by approximately $23,000. The Company also adjusted its deferred
        tax
        assets however there is no impact from these adjustments as deferred tax
        assets
        continue to be carried with a full valuation allowance. The total impact
        of all
        of these adjustments will not change the Company’s reported pre-tax results
        from continuing operations, but income from continuing operations after income
        taxes for the fiscal year ended December 31, 2005 will be reduced from
        approximately $873,000 to approximately $850,000.
 
 For
        the
        year ended December 31, 2005, the impact to basic and diluted earnings per
        share
        from discontinued operations was a decrease from $0.33 to $0.25 and from
        $0.31
        to $0.25, respectively. For the year ended December 31, 2005, the impact
        to
        basic earnings per share from continuing operations was less than one penny.
        The
        impact of these adjustments to diluted earnings per share from continuing
        operations was a decrease from $0.28 to $0.27.
 
 The
        accompanying Consolidated Balance Sheet as of December 31, 2005 and related
        Consolidated Statements of Operations, Comprehensive Income, Changes in
        Stockholders’ Equity, and Statement of Cash Flows for the year ended December
        31, 2005 as well as Note 2 (xii), “Computation of Earnings (Loss) Per Share”,
        Note 2 (xiv) “Recent Accounting Standards”, Note 2 (xv), “Stock-Based
        Compensation”, and Note 9, “Income Taxes” have been revised to reflect the
        appropriate adjustments to the income tax accounts.
 
 ***(iv)
        Revenue Recognition***
 
 The
        Company recognizes revenue in accordance with the Securities and Exchange
        Commission’s Staff Accounting Bulletin No. 101, *Revenue
        recognition in Financial Statements* ("SAB
        101") as updated by Staff Accounting Bulletin No. 104, Revenue Recognition
        (“SAB
        104”) *.* 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; the seller’s price to the buyer is fixed
        or determinable and collectibility is reasonably assured.  Product revenue
        is generally recognized upon shipment of the products.
  23
  **PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2005**
 ***(v) Cash
        / Restricted Cash / Cash equivalents***
 
 The
        Company’s policy is to invest available cash in short-term, investment grade,
        interest-bearing obligations, including money market funds, municipal notes,
        and
        bank and corporate debt instruments. Securities purchased with initial
        maturities of three months or less are valued at cost plus accrued interest,
        which approximates fair market value, and are classified as cash
        equivalents.
 
 The
        Company’s restricted cash consisted of payments from customers of its former
        business units that were sold in 2004 who remit payments to the Company in
        error.  The cash is deposited in the Company’s lockbox system and analyzed,
        and isolated to be remitted to SeraCare in a timely fashion.  The balances
        reflected are those indicative of timing of transfers to SeraCare. At the
        time
        the cash is classified as restricted, a corresponding liability is established
        to have no effect on net assets of the Company.
 
 ***(vi) 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 and overhead costs, are expensed as incurred. The Company’s
        research activities are performed at its site in Maryland and in conjunction
        with the collaboration partner sites.  The Company utilizes units
        capitalized as fixed assets amortized over a three year period placed at
        the
        collaborative sites in support of the research activities.
 
 ***(vii) Inventories***
 
 Inventories
        are valued at the lower of cost or market.  The composition of inventory is
        as follows:
 
 **December
                  31,**
                **2005**Raw
                  materials
              
              $
              32,188Work-in-process
              
              
              31,565Finished
                  goods
              
              
              21,454Total
              
              $
              85,207
  Certain
        factors may impact the realizable value of the Company’s inventory including,
        but not limited to: technological changes, market demand, changes in product
        mix
        strategy, new product introductions and significant changes to the Company’s
        cost structure.  In addition, estimates of reserves are made for
        obsolescence based on the current product mix on hand and its expected net
        realizability.  If actual market conditions are less favorable or other
        factors arise that are significantly different than those anticipated by
        management, additional inventory write-downs or increases in obsolescence
        reserves may be required.     The Company treats lower of
        cost or market adjustments and inventory reserves as an adjustment to the
        cost
        basis of the underlying inventory.  Accordingly, favorable changes in
        market conditions are not recorded to inventory in subsequent
        periods.
 
 **Inventory**
                **Reserve**
              
              **Balance
                  at**
                **Beginning****of**
                **Period**
              
              **Additions**
              
              **Recoveries**
              
              **Deductions**
              
              **Balance
                  at**
                **End
                  of**
                **Period**2005
              
              $
              144,428
              
              $
              20,447
              
              $
              (104,186
              )
              $
              —
              
              $
              60,689
 
 In
        2005,
        the Company increased reserves by $20,447 while identifying $104,186 of common
        components of previously reserved NEP2017 inventory that was utilized in
        the
        manufacture of the NEP3229 units.  The gross inventory of NEP2017 units has
        been reserved for in its entirety.
 
 ***(viii) Property
        and Equipment***
 
 Property
        and equipment are stated at cost, less accumulated depreciation and
        amortization. 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 capitalized as fixed assets.
  24
  **PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2005**
 ***(ix) Intangible
        Assets and Goodwill***
 
 The
        Company has classified as intangible assets, costs associated with the fair
        value of certain assets of the businesses acquired.  Intangible assets
        including patents are being amortized on a straight-line basis over sixteen
        years.  As of December 31, 2005, the remaining net book value of goodwill
        was reclassified to assets transferred under contractual arrangements. The
        Company annually reviews its intangible assets for impairment.  When
        impairment is indicated, any excess of carrying value over fair value is
        recorded as a loss. An impairment analysis of intangible assets as of December
        31, 2005 concluded that no impairment of intangible assets had
        occurred.
 
 ***(x) Long-Lived
        Assets and Deferred Costs***
 
 In
        accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
        Long-Lived Assets”, if indicators of impairment exist, the Company assesses the
        recoverability of the affected long-lived assets by determining whether the
        carrying value of such assets can be recovered through the undiscounted future
        operating cash flows. If impairment is indicated, the Company measures the
        amount of such impairment by comparing the carrying value of the asset to
        the
        fair value of the asset and records the impairment as a reduction in the
        carrying value of the related asset and a charge to operating results. While
        the
        Company’s current and historical operating losses and cash flow are indicators
        of impairment, the Company reviewed criteria for annual test for impairment
        at
        December 31, 2005 and determined that such long-lived assets was not
        impaired.
 
 ***(xi) Concentration
        of Credit Risk***
 
 Financial
        instruments, which potentially subject the Company to concentrations of credit
        risk, are principally cash and cash equivalents, and accounts receivable.
        The
        Company places its cash and cash equivalents with high credit quality financial
        institutions.  The Company’s total cash and cash equivalents at December
        31, 2005 are deposited in financial institutions in which deposits are insured
        under the Federal Deposit Insurance Corporation (up to the level required
        by law
        of $100,000 per depositor **);** in
        addition, one financial institution provides additional insurance for funds
        on
        deposit via the Depositors Insurance Fund, the latter being a private,
        industry-sponsored deposit insurance company. The Company limits credit risk
        in
        cash equivalents by investing only in short-term, money market accounts.
        The
        Company does not require collateral from its customers.
 
 ***(xii) Computation
        of Earnings (Loss) per Share***
 
 Basic
        earnings (loss) per share is computed by dividing income (loss) available
        to
        common shareholders by the weighted average number of common shares outstanding.
        Diluted earnings per share is computed by dividing income (loss) available
        to
        common shareholders by the weighted average number of common shares outstanding
        plus additional common shares that would have been outstanding if dilutive
        potential common shares had been issued. For purposes of this calculation,
        stock
        options are considered common stock equivalents in periods in which they
        have a
        dilutive effect. Options and warrants that are antidilutive are excluded
        from
        the calculation.
 
 Potentially
        dilutive securities having a net effect of 135,311 for the year ended 2005
        are
        reflected below.  Potentially dilutive securities having a net effect of
        91,363 for year ended 2004 were not included in the computation of diluted
        loss
        per share because to do so would have been antidilutive for income from
        continuing operations.
 
 For
        the
        years ended December 31, 2005 and 2004, options outstanding having exercise
        prices greater than the average fair market price of common shares totaled
        585,000 and 104,100, respectively.
  25
  **PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2005**
 Year
                    ended
                
                Year
                    endedNumerator:
                
                2005
                
                2004Income
                    (loss) from continuing operations
                
                $
                850,249
                
                $
                (1,741,916
                )Demoninator:Weighted
                    Average Shares Outstanding, basic
                
                
                2,972,662
                
                
                6,850,380Net
                    effect of dilutive common stockequivalents-based
                    on treasury stockmethod
                    using average market price
                
                
                135,311
                
                
                0Weighted
                    Average Shares Outstanding, diluted
                
                
                3,107,973
                
                
                6,850,380Income
                    (loss) per share from continuing operations, - basic
                
                $
                0.29
                
                $
                (0.25
                )Income
                    (loss)per share from continuing operations, - diluted
                
                $
                0.27
                
                $
                (0.25
                )
 
 ***(xiii) Segment
        Reporting***
 
 SFAS
        No. 131, “Disclosures about Segments of an Enterprise and Related
        Information,” establishes standards for the way that public business enterprises
        report information about operating segments in annual financial statements
        and
        requires selected information about operating segments in interim financial
        reports. It also establishes standards for related disclosures about products
        and services, geographic areas and major customers. Operating segments are
        components of an enterprise for which separate financial information is
        available that is evaluated regularly by senior management in deciding how
        to
        allocate resources and in assessing the performance of each segment. The
        Company
        is organized along legal entity lines and senior management regularly reviews
        financial results for all entities, focusing primarily on revenue and operating
        income. The Company’s underlying accounting records are maintained on a legal
        entity basis for government and public reporting requirements, as well as
        for
        segment performance and internal management reporting.
 
 Following
        the Company’s sale of its core businesses in 2004, its laboratory
        instrumentation business unit in 2004, and its clinical laboratory business
        unit
        in 2001, the single remaining segment is the pressure cycling technology
        (PCT)
        family of products and services.
 
 **(** ***xiv) Recent
        Accounting Standards***
 
 In
        December 2004, the FASB issued FASB Statement No. 123 (revised 2004),
“Share-Based Payment” (“FAS 123(R)”). FAS 123(R) replaces FASB Statement
        No. 123, “Accounting for Stock-Based Compensation”, and supersedes APB
        Opinion No. 25, “Accounting for Stock Issued to Employees”. FAS 123(R)
        requires that the compensation cost relating to share-based payment transactions
        be recognized in financial statements. That cost will be measured based on
        the
        fair value of the equity or liability instruments issued. The provisions
        of this
        Statement are effective for Small Business Issuers for the first fiscal year
        that begins after December 15, 2005.
 
 In
        May
        2005, the FASB issued FASB Statement No. 154 “Accounting Changes and Error
        Corrections”—a replacement of APB Opinion No. 20 and FASB Statement No. 3. This
        Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement
        No. 3, Reporting Accounting Changes in Interim Financial Statements, and
        changes
        the requirements for the accounting for and reporting of a change in accounting
        principle. This Statement applies to all voluntary changes in accounting
        principle. It also applies to changes required by an accounting pronouncement
        in
        the unusual instance that the pronouncement does not include specific transition
        provisions. The Company has adopted SFAS 154 to correct an error made during
        the
        quarter ended September 30, 2005 and discovered during the quarter ended
        March
        31, 2006.
 
 On
        March
        15, 2006, the Company received $1,094,162 from Wells Fargo Corporate Trust
        Escrow Services, representing the remaining principal,and interest, held in
        escrow from the 2004 sale of the assets and certain liabilities of BBI Core
        Businesses to SeraCare Life Sciences Inc., (“SeraCare”). The receipt of these
        funds triggered the recognition of taxable income, accounted for as an
        installment sale for federal income tax purposes. During the financial statement
        closing process for the quarter ended March 31, 2006, management determined
        that
        a deferred tax liability of approximately $220,000 should have been established
        during the quarter ended September 30, 2005, the period in which the
        Company filed its federal income tax return. Upon reexamining the
        Company’s accounting for income taxes in its entirety, management further
        determined that the deferred tax liability in connection with the unrealized
        gain on Panacos should be reduced by approximately $60,000, and that the
        income
        tax provision from continuing operations should be increased by approximately
        $23,000. The Company also adjusted its deferred tax assets however there
        is no
        impact from these adjustments as deferred tax assets continue to be carried
        with
        a full valuation allowance. The total impact of all of these adjustments
        will not change the Company’s reported pre-tax results from continuing
        operations, but income from continuing operations after income taxes for
        the
        fiscal year ended December 31, 2005 will be reduced from approximately $873,000
        to approximately $850,000.
  26
  **PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2005**
 For
        the
        year ended December 31, 2005, the impact to basic and diluted earnings per
        share
        from discontinued operations was a decrease from $0.33 to $0.25 and from
        $0.31
        to $0.25, respectively. For the year ended December 31, 2005, the impact
        to
        basic earnings per share from continuing operations was less than one penny.
        The
        impact of these adjustments to diluted earnings per share from continuing
        operations was a decrease from $0.28 to $0.27.
 
 ( ***xv) Stock-Based
        Compensation***
 
 The
        Company has elected to follow Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” (APB 25) and related
        interpretations in accounting for its employee stock options. Under APB 25,
        the intrinsic value method is used to account for stock options granted to
        employees. The Company has adopted the disclosure-only provisions of Statement
        of Financial Accounting Standards No. 123, “Accounting for Stock-Based
        Compensation” (SFAS 123).
 
 As
        the
        Company accounts for its plans under the recognition and measurement principles
        of APB 25, “Accounting for Stock Issued to Employees” and related
        interpretations, no compensation cost has been recognized under SFAS 123
        because
        the exercise price of employee stock options equals the market price of the
        underlying stock on the date of grant.  SFAS 123 was amended by SFAS 148
“Accounting for Stock-Based Compensation-Transition and Disclosure”, which
        requires companies to disclose in interim financial statements the pro forma
        effect on net income per common share of the estimated fair market value
        of
        stock options or warrants issued to employees.
 
 Had
        compensation cost for awards under those plans been determined based on the
        grant date fair values, consistent with the method required under SFAS 123,
        the Company’s net income and net income per share would have been impacted by
        the pro forma amounts indicated below:
 2005
                
                2004Net
                    income - as reported
                
                $
                1,604,092
                
                $
                12,712,585Add
                    back: Stock-based compensationin
                    net income, as reported
                
                
                —
                
                
                281,737Deduct:
                    Stock-based employee compensationexpense
                    determined under fair value based methodfor
                    all awards, net of related tax effects
                
                
                (151,982
                )
                
                (524,989
                )Net
                    Income - pro forma
                
                $
                1,452,110
                
                $
                12,469,333Basic
                    net income per share - as reported
                
                $
                0.54
                
                $
                1.86Basic
                    net income per share - pro forma
                
                $
                0.49
                
                $
                1.82Diluted
                    net income per share - as reported
                
                $
                0.52
                
                $
                1.86Diluted
                    net income per share - pro forma
                
                $
                0.47
                
                $
                1.82
 
 
 The
        fair
        value of these options was estimated at the date of grant using a Black-Scholes
        option pricing model with the following weighted average assumptions for
        2005
        and 2004.
  27
  **PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2005**
 **2005**
              
              **2004**Risk-free
                  interest rate
              
              
              3.69
              %
              
              3.40
              %Volatility
                  factor
              
              
              55.66
              %
              
              40.28
              %Weighted
                  average expected life
              
              
              4.0
              
              
              5.7Expected
                  dividend yield
              
              
              —
              
              
              —
 
 The
        Black-Scholes option valuation model was developed for use in estimating
        the
        fair value of traded options, which have no vesting restrictions and are
        fully
        transferable. In addition, option valuation models require the input of highly
        subjective assumptions including the expected stock price volatility. Because
        the Company’s employee stock options have characteristics significantly
        different from those of traded options, and because changes in the subjective
        input assumptions can materially affect the fair value estimate, in management’s
        opinion the existing models do not necessarily provide a reliable single
        measure
        of the fair value of its employee stock options.
  For
        purposes of pro forma disclosures, the amount of unamortized stock-based
        compensation expense that will be recognized over the next three years or
        the
        vesting period in accordance with SFAS 123r representing the FMV of options
        issued to employees this year less the portion recognized in the SFAS 148
        disclosure as if 123 had been applied is approximately $375,468.
 
 ( ***xvi)  Investment
        in Marketable Securities***
 
 The
        Company’s investment in marketable securities reflects its holdings of common
        stock of Panacos Pharmaceuticals Inc. (formerly V.I. Technologies (“Vitex”)), a
        publicly traded company listed on the Nasdaq National Market.  The Company
        held shares in Panacos Pharmaceuticals Inc. (Panacos), a private company
        prior
        to its merger with Vitex in March 2005, and this investment was reflected
        on a
        cost basis as presented on the December 31, 2004 financial statements.  As
        a result of Vitex’s merger with Panacos Pharmaceuticals in March 2005, and the
        Company’s subsequent receipt of shares of Vitex common stock in exchange for all
        of its shares of Panacos, the Company’s investment commencing with the first
        quarter of fiscal 2005 has been accounted for under SFAS 115 “Accounting for
        Certain Investments in Debt and Equity Securities”, as available for sale. At
        December 31, 2005, the fair value of the Company’s remaining shares of Panacos
        common stock was approximately $4.0 million based on the closing price of
        $6.93
        per share of Panacos common stock as reported on the Nasdaq National Market
        on
        December 31, 2005.  In recording the fair value, the Company has recorded a
        deferred tax liability of approximately $1.5 million and comprehensive income
        of
        approximately $2.5 million.
 
 ***(xvii)  Fair
        Value of Financial Instruments***
 
 Due
        to
        their short maturities, the carrying amounts for cash and cash equivalents,
        accounts receivable, accounts payable, accounts payable, and accrued expenses
        approximate their fair value. Long-term liabilities are primarily related
        to
        liabilities transferred under contractual arrangements with carrying values
        that
        approximate fair value.
 
 ***(xviii)*** ** ***Advertising***
 
 Advertising
        costs are expensed as incurred. There were no advertising costs for the years
        ended December 2005 and 2004 as the Company’s primary concentration was in
        research and development.
 
 ***(xix)  Allowance
        for Doubtful Accounts***
 
 The
        Company has established a policy of assessing its outstanding trade accounts
        on
        a periodic basis and establishing a reserve for those accounts which are
        determined to be uncollectable. The current allowance reflects balances due
        from
        customers for activity related to its former Core Businesses in the amount
        of
        $115,908 and are fully reserved for.  Any subsequent collections of
        accounts previously reserved are recorded as other income when
        collected.
 
 **3)  Discontinued
        Operations**
 
 a) BBI
        Diagnostics and BBI Biotech Business Units
 
 On
        September 14, 2004, the Company completed the sale of substantially all of
        the assets and certain liabilities of its BBI Diagnostics and BBI Biotech
        business units, previously classified as assets and liabilities held for
        sale as
        of June 30, 2004, to SeraCare pursuant to the Asset Purchase Agreement, for
        a
        purchase price of $30 million in cash of which $27.5 million was paid
        at the closing and the remaining $2.5 million was deposited in escrow
        pursuant to an escrow agreement expiring on March 15, 2006.  The
        results of operations relating to assets and selected liabilities sold to
        SeraCare are reported as discontinued operations in the accompanying
        consolidated financial statements. The purchase price was subject to increase
        or
        decrease on a dollar-for-dollar basis if the net asset value (as defined
        in the
        Asset Purchase Agreement) of the assets sold as of the closing date was greater
        or less than $8.5 million.  In November 2004, in accordance with
        the terms of the Asset Purchase Agreement, SeraCare delivered the closing
        balance sheet, which reflected a deficiency of approximately $3.1 million
        when compared to the target net asset value of $8.5 million. We objected to
        certain calculations in the closing balance sheet, including, without
        limitation, SeraCare’s calculation of accounts receivable and inventory. In
        December 2004, we settled our dispute with SeraCare concerning the
        collectibility of accounts receivable sold to SeraCare in connection with
        the
        Asset Purchase Agreement. We agreed that, solely for purposes of settling
        our
        dispute with SeraCare, $412,192 of accounts receivable would be deemed past
        due,
        therefore resulting in an adjustment to the purchase price requiring us to
        pay
        SeraCare that amount. We also agreed that the $412,192 deficiency would be
        released from the $2.5 million held in escrow; thereby leaving
        approximately $2.1 million remaining in escrow. In February 2005, we
        further agreed with SeraCare to settle our remaining differences relating
        to the
        closing balance sheet, including the calculation of inventory, by releasing
        to
        SeraCare an additional $1,000,000 from the escrow account. Additionally,
        the
        parties released all claims they may have had against the other with respect
        to
        the closing balance sheet and certain other representations and warranties
        contained in the Asset Purchase Agreement relating to the closing balance
        sheet
        items. Following the release of the escrow funds, approximately
        $1.1 million remained in escrow.
  28
  **PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2005**
 On
        March
        15, 2006, the Company received $1,094,162 from Wells Fargo Corporate Trust
        Escrow Services, representing the remaining principal held in escrow, plus
        interest through February 28, 2006.
 
 The
        assets sold included all accounts and notes receivable, contract rights,
        owned
        and leased real property, fixtures and equipment, inventory, intellectual
        property and books and records that relate to the BBI Diagnostics and BBI
        Biotech business units (such business units are collectively referred to
        herein
        as the “BBI Core Businesses”). The assets sold also included the owned real
        property located at 375 West Street, West Bridgewater, MA. The Company retained
        all of its assets not relating to the BBI Core Businesses, including: all
        assets
        relating to the Company’s pressure cycling technology activities; inter-company
        receivables and payables; a $1.0 million loan receivable from Richard T.
        Schumacher, the Company’s Chief Executive Officer and a director; its passive
        stock ownership interest in Panacos Pharmaceuticals, Inc.; its 30%
        ownership interest in Source Scientific, LLC, a limited liability company
        which
        purchased substantially all of the assets of BBI’s Source Scientific business
        unit; promissory notes in the aggregate principal amount of $900,000 from
        the
        principals of Source Scientific, LLC; and all of its cash and cash equivalents.
        A summary of the SeraCare transaction is as follows:
 
 Cash
                  consideration (1)
              
              $
              30,000,000Post
                  closing adjustment (2)
              
              
              (1,412,193
              )Transaction
                  & related expenses
              
              
              (1,561,339
              )Estimated
                  taxes
              
              
              (4,354,809
              )Net
                  assets disposed
              
              
              (8,103,962
              )Gain
                  on disposition
              
              $
              14,567,697
  
 (1)
              Includes
                  initial escrow amounts of $2,500,000 established prior to post-closing
                  adjustments.(2)
              Reflects
                  $412,192 accounts receivable returned to the Company and $1,000,000
                  settlement related to ending balance sheet items affecting inventory
                  valuation.
 
 b) Clinical
        Laboratory Testing Services Segment
 
 In
        February 2001, the Company sold the business and certain assets and liabilities
        of its clinical laboratory business, BBI Clinical Laboratories, Inc. (“BBICL”),
        a wholly-owned subsidiary of the Company, to a third party for an adjusted
        purchase price of $8,958,000.  The Company retained certain other assets
        and liabilities of BBICL, primarily property, plant and equipment, together
        with
        the facility lease subsequent to the closing date.  The Company wrote down
        all of the retained assets not otherwise redistributed to other business
        units
        to their estimated net realizable value.
 
 On
        March
        4, 2004, the Company entered into a lease termination agreement with the
        landlord relative to the facility previously occupied by BBICL.  The
        agreement provided for a series of reduced payments over a nine month period
        ending in November 2004 in return for the Company vacating the facility on
        or
        before May 31, 2004; the Company vacated the facility in the second quarter
        of
        2004.   Accordingly, the Company recognized a $135,000 gain in the
        first quarter of 2004 associated with this lease termination agreement and
        reduction of the related remaining liability. The Company’s estimate of
        remaining short and long term accrued liabilities to exit the clinical
        laboratory testing business is approximately $8,160 as of December 31,
        2005.
  29
  **PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2005**
 **4)  Assets
        and Liabilities Transferred Under Contractual Arrangements**
 
 In
        June
        2004, the Company completed the sale of substantially all of the assets as
        well
        as selected liabilities of PBI Source Scientific, Inc. (the Company’s laboratory
        instrumentation division) to Source Scientific, LLC, an entity owned 35%
        by Mr.
        Richard W. Henson, 35% by Mr. Bruce A. Sargeant, and 30% by the Company (the
        “Source Scientific Agreement”).  Under the Source Scientific Agreement, the
        Company received notes receivable in the aggregate amount of $900,000 (the
        “Notes”) payable at the end of three years bearing 8% interest.  The Source
        Scientific Agreement provides for discounts on the Notes in the event of
        an
        early payoff.  As part of the Source Scientific Agreement, Source
        Scientific, LLC has agreed to provide engineering, manufacturing, and other
        related services for PBI’s Pressure Cycling Technology (PCT) products on an on
        going basis without specific contractual terms.  The Source Scientific
        Agreement also offers Mr. Henson and Mr. Sargeant the opportunity to purchase
        PBI’s 30% ownership interest in Source Scientific, LLC until May 31, 2007 at
        an
        escalating premium (10-50%) over PBI’s initial ownership value, provided that
        they have first paid off the Notes in their entirety.  Although the Company
        expects the Notes to be paid in full by Mr. Henson and Mr. Sargeant, the
        repayment of the Notes may be viewed as being dependent on the future successful
        operations of the business of Source Scientific, LLC.  Despite the
        Company’s intent to exit the laboratory instrumentation business, the Company
        may be viewed as having a continuing involvement in the business of Source
        Scientific, LLC due to the fact that the Company has the right to designate
        one
        or potentially three members of the Board of Managers of Source Scientific,
        LLC
        and the Company had guaranteed certain facility lease payments until January
        31,
        2005.  Because of these factors, even though the transaction is treated as
        a divestiture for legal purposes, the Company has not recognized the transaction
        as a divestiture for accounting purposes in accordance with Securities and
        Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) Topic 5E, *Accounting
        for Divestiture of a Subsidiary or Other Business Operation* . 
        In accordance with SAB Topic 5E, the Company has recorded the assets and
        liabilities associated with the Source Scientific, LLC operation on the
        Company’s audited consolidated balance sheet as of December 31, 2005 under the
        captions “Assets transferred under contractual arrangements” and “Liabilities
        transferred under contractual arrangements” and has  recorded a charge to
        income under the caption “Other operating (charges), net”  in the Company’s
        audited consolidated statements of operations for the years ended December
        31,
        2005 and 2004 equal to the amount of the loss attributable to the business
        of
        Source Scientific for the respective periods presented.  In accordance with
        SAB Topic 5E, the Company will continue this accounting treatment until
        circumstances have changed or until the net assets of the Source Scientific,
        LLC
        business have been written down to zero (or a net liability is recognized
        in
        accordance with GAAP).
 
 Gross
        revenues of approximately $3,117,911 for Source Scientific, LLC are not
        reflected in revenues in the Company’s audited consolidated statements of
        operations. Source Scientific, LLC revenues, cost of goods sold, and operating
        expenses are reflected within the Company’s audited consolidated statements of
        operations as a charge to income as described above income under the caption
        “Other operating (charges), net”  in the Company’s audited consolidated
        statements of operations for the years ended December 31, 2005 and 2004 equal
        to
        the amount of the loss attributable to the business of Source Scientific,
        LLC
        for the respective periods presented. The concentration of revenues for Source
        Scientific, LLC for the year ended December 31, 2005 is as follows:
 
 Hitachi
              
              
              -
              
              $
              800KVicam
              
              
              -
              
              $
              550KVysis
              
              
              -
              
              $
              320K
   30
  **PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2005**
 As
        of
        December 31, 2005, assets and liabilities transferred under contractual
        arrangements consisted of the following:
 
 Cash
              
              $
              27,900Accounts
                  receivable, net
              
              
              535,140Inventories
              
              
              414,550Prepaid
                  assets
              
              
              48,626Property
                  and equipment, net
              
              
              105,944Goodwill
              
              
              227,084All
                  other assets
              
              
              61,752Total
                  assets transferred under contractual arrangements
              
              
              1,420,996Accounts
                  payable
              
              
              (346,043
              )Accrued
                  expenses and compensation
              
              
              (279,477
              )Deferred
                  revenue
              
              
              (251,476
              )Note
                  payable
              
              
              (50,000
              )Equity
                  contributions
              
              
              (57,860
              )Deferred
                  rent
              
              
              (57,637
              )Total
                  liabilities transferred under contractual arrangements
              
              
              (1,042,493
              )Net
                  assets and liabilities transferred under contractual
                  arrangements
              
              $
              378,503
   31
  **PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2005**
 **(5)  Property
        and Equipment**
 
 Property
        and equipment at December 31, 2005 consisted of the following:
 
 **2005**Laboratory
                  and manufacturing equipment
              
              $
              195,502Office
                  equipment
              
              
              59,316PCT
                  collaboration / demo / lease systems
              
              
              424,564Total
              
              
              679,382Less
                  accumulated depreciation
              
              
              (396,602
              )Net
                  book value
              
              $
              282,780
 
 Depreciation
        expense for the year ended December 31, 2005 and 2004 was $57,917 and $97,631
        respectively.
 
 **(6)  Intangible
        Assets**
 
 Intangible
        assets consist of acquired PCT patents.  Intangible assets at December 31,
        2005 consisted of the following:
 
 **2005**PCT
                  Patents
              
              $
              778,156Less
                  accumulated amortization
              
              
              (352,602
              )Net
                  book value
              
              $
              425,554
 
 Amortization
        expense for each of the years ended December 31, 2005 and 2004 was
        $48,635.
 
 Intangible
        assets as of December 31, 2005 reflect patents and related capitalized costs
        associated with the Company’s PCT business. Acquired PCT patents are being
        amortized to expense on a straight line basis at the rate of $48,635 per
        year
        over their estimated remaining useful life and are reflective of the amounts
        amortized in each of the years 2005 and 2004.  The estimated annual future
        amortization expense of other intangible assets excluding goodwill is as
        follows:
 
 2006
              
              $
              48,6352007
              
              $
              48,6352008
              
              $
              48,6352009
              
              $
              48,6352010
              
              $
              48,635Thereafter
              
              $
              182,379
 
 **(7)  Debt**
 
 The
        Company has no debt obligations.
 
 **(8)  Retirement
        Plan**
 
 In
        January 1993, the Company adopted a retirement savings plan for its employees,
        which has been qualified under Section 401(k) of the Internal Revenue Code.
        Eligible employees are permitted to contribute to the plan through payroll
        deductions within statutory limitations and subject to any limitations included
        in the plan. Company contributions are made at the discretion of management.
        As
        of December 31, 2001, no such contributions had been made: however, commencing
        in 2002, the Company formally adopted and implemented a limited matching
        contribution program. During 2005 and 2004, the Company recognized
        administrative expense of approximately $6,000 and $23,000, in connection
        with
        the plan.
  32
  **PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2005**
 **(9)  Income
        Taxes**
 
 The
        components of the (benefit) provision for income taxes from continuing
        operations are as follows:
  2005
                
                2004Current
                    (benefit) provision: federal
                
                $
                239,023
                
                $
                (942,606
                )Current
                    provision: state
                
                
                113,671
                
                
                1,256Total
                    current provision
                
                
                352,694
                
                
                (941,350
                )Deferred
                    provision: federal
                
                
                —
                
                
                —Deferred
                    provision: state
                
                
                —
                
                
                —Total
                    deferred provision
                
                
                —
                
                
                —Total
                    provision (benefit) for income taxes from continuing
                    operations
                
                $
                352,694
                
                $
                (941,350
                )
  Significant
        items making up the deferred tax assets and deferred tax liabilities are
        as
        follows:
 2005
                
                2004Current
                  deferred taxes:Inventories
                
                $
                24,512
                
                $
                141,558Accounts
                    receivable allowance
                
                
                46,676
                
                
                83,558Technology
                    licensed
                
                
                —
                
                
                186,718Other
                    accruals
                
                
                24,889
                
                
                158,671Deferred
                    tax liability related to installment sale & unrealized
                    gain
                
                
                (219,949
                )
                
                —Less:
                    valuation allowance
                
                
                (96,077
                )
                
                (570,506
                )Total
                    current deferred tax liability
                
                
                (219,949
                )
                
                —Long
                    term deferred taxes:Depreciation
                
                
                10,245
                
                
                (9,991
                )Source
                    Scientific Note, OID
                
                
                28,994
                
                
                —Operating
                    loss carryforwards and tax credits
                
                
                1,268,109
                
                
                984,424Goodwill
                    and intangibles
                
                
                (171,370
                )
                
                346,049Deferred
                    tax liability related to unrealized gain
                
                
                (1,419,662
                )
                
                —Less:
                    valuation allowance
                
                
                (1,135,978
                )
                
                (1,320,481
                )Total
                    long term deferred tax assets (liabilities), net
                
                
                (1,419,662
                )
                
                —Total
                    net deferred tax liabilities
                
                $
                (1,639,611
                )
                $
                —
 
 A
        valuation allowance is established if it is more likely than not that all
        or a
        portion of the deferred tax asset will not be realized.  Accordingly, a
        valuation allowance was established in 2005 and 2004 for the full amount
        of the
        deferred tax asset due to the uncertainty of realization.  Although the
        Company realized taxable income generated from the sale of assets to SeraCare
        Life Sciences in September 2004, and the sale of Panacos securities in 2005,
        management believes that based upon its projection of future taxable operating
        income for the foreseeable future, it is more likely than not that the Company
        will not be able to realize the benefit of the deferred tax asset at December
        31, 2005.  The valuation allowance as of January 1, 2005 was
        $1,890,987.  The net change in the valuation allowance during the year
        ended December 31, 2005 was a decrease of $658,932.
 
 The
        Company has not reserved for a deferred tax liability which totals $1,419,663
        related to the unrealized gain associated with the increase in value of its
        investment of marketable securities of Panacos shares held for sale. The
        Company
        recorded an additional deferred tax liability of $219,949 related to the
        remaining installment gain on the 2004 sale of certain assets and liabilities
        to
        SeraCare. Additionally, as part of its internal review of the accounting
        for
        income taxes the Company adjusted various deferred tax asset balances. These
        adjustments had no impact on the financial statements as deferred tax assets
        continue to be fully reserved for.
 
 The
        Company had net operating loss carry-forwards for federal income tax purposes
        of
        approximately $196,000 and $760,000 at December 31, 2005 and 2004,
        respectively.  Included in these numbers are loss carry-forwards that were
        obtained through the acquisition of BioSeq, Inc. and are subject to Section
        382
        NOL limitations.  These net operating loss carry-forwards expire at various
        dates from 2012 through 2024.  The Company had net operating loss
        carry-forwards for state income tax purposes of approximately $12,174,000
        and
        $10,940,000 at December 31, 2005 and 2004, respectively.  These net
        operating loss carry-forwards expire at various dates from 2006 through
        2024.
  33
  **PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2005**
 The
        Company’s effective income tax (benefit) rate for continuing operations differs
        from the statutory federal income tax benefit rate as follows:
 2005
                
                2004Federal
                    Statutory Rate
                
                
                34
                %
                
                -34
                %State
                    taxes, net
                
                
                6
                %
                
                0
                %Permanent
                    differences
                
                
                -2
                %
                
                0
                %Valuation
                    allowance
                
                
                -9
                %
                
                -1
                %Effective
                    income tax (benefit) provision rate from continuing
                    operations
                
                
                29
                %
                
                -35
                %
 
 **(10)  Commitments
        and Contingencies**
 
 **Operating
        Leases**
 
 On
        May 5,
        2005 the Company entered into a lease with Saul Holdings Limited Partnership
        for
        approximately 2,784 square feet of office space located at 209 Perry Parkway,
        Gaithersburg, Maryland for a term of twelve months with an annual rent in
        the
        amount of $55,680, or $4,640 per month during the initial term of the lease,
        plus $1,245 per month for operating expenses.
 
 The
        obligations of Source Scientific, LLC associated with leased facilities in
        Irvine, CA are excluded from the Company’s obligations. The obligations are
        deemed by the Company to be obligations of Source LLC and the Company has
        provided no guarantees.  The term of Source LLC leased facility commenced
        in April 2005 and runs through June 2010.  In addition certain
        administrative support equipment lease arrangements were entered into commencing
        in January 2005 and ending in November 2006.  Source LLC’s minimum lease
        payments are as follows:
 **Total**
              
              **1
                  year**
                **or
                  less**
              
              **More
                  than**
                **1
                  year**Lease
                  for Irvine, CA facility
              
              $
              1,075,922
              
              $
              226,952
              
              $
              848,970Equipment
                  operating leases
              
              
              5,681
              
              
              2,964
              
              
              2,717Total
                  Contractual Obligations for Source, LLC
              
              $
              1,081,603
              
              $
              229,916
              
              $
              851,687
 
 *Royalty
        Commitments*
 
 The
        Company acquired in 1998 all the remaining common stock outstanding of BioSeq
        Inc., a development stage company involved with PCT. In accordance with the
        provisions of a technology transfer agreement assumed in the transaction,
        the
        Company is obligated to pay a 5% royalty on net sales until March 2016 of
        future
        sales by the Company utilizing PCT. The Company announced the availability
        of
        its PCT products for commercial sale in the latter part of 2002.  The
        Company’s minimum royalty payment requirements ceased in the fourth quarter of
        2003 in accordance with contractual provisions.  The royalty payments
        totaled approximately $5,000 during 2005.
 
 *Purchase
        Commitments*
 
 In
        June 2004, Source Scientific, LLC agreed to provide engineering,
        manufacturing, and other related services for the Company’s pressure cycling
        technology products until September 30, 2005. Under the agreement, it was
        estimated that reimbursement to Source Scientific, LLC by the Company was
        expected to be at the rate of $25,000 per month. Since the Company has met
        the
        minimum commitment under the agreement, and there are no future minimum
        payments, all obligations are contingent upon actual services being rendered
        to
        us by Source Scientific, LLC.  The Company expects to continue to utilize
        the services of Source Scientific, LLC for the Company’s pressure cycling
        technology products.
  34
  **PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2005**
 *Indemnifications*
 
 In
        conjunction with the sale of the former BBI Diagnostics and BBI Biotech business
        units, the Company has agreed to indemnify the other parties with respect
        to
        certain liabilities related to the operation of the business. The scope and
        duration of such indemnity obligations vary from transaction to transaction.
        Where appropriate, an obligation for such indemnifications is recorded as
        a
        liability. Generally, a maximum obligation cannot be reasonably estimated.
        Other
        than obligations recorded as liabilities at the time of divestiture,
        historically the Company has not made significant payments for these
        indemnifications.  The Company believes the estimated fair value of these
        agreements is minimal.
 
 In
        connection with the sale of substantially all of the assets of the Company’s BBI
        Diagnostics and BBI Biotech business units to SeraCare, pursuant to the Asset
        Purchase Agreement, the Company agreed to indemnify SeraCare for any losses
        from
        breaches of most of the Company’s representations, warranties or covenants that
        occur prior to June 14, 2006.  The Company’s indemnification obligations
        for breaches of some representations and warranties, however, extend for
        a
        longer period of time.  The Company’s indemnification obligations are
        limited by an overall cap equal to adjusted purchase price.  The payment of
        any such indemnification obligations could adversely impact the Company’s cash
        resources following the completion of the sale to SeraCare and the Company’s
        ability to pursue the development of its pressure cycling technology
        business.  In addition, a large indemnification claim against the Company
        could have a material adverse effect upon the Company.
 
 *Other
        Contingencies*
 
 Various
        claims may be asserted against the Company in the ordinary course of
        business.  In certain instances, the amounts claimed or alleged may be
        significant.  While it is possible that the Company’s results of operations
        and/or liquidity could be materially affected by these contingent liabilities,
        based upon information currently available, management believes that there
        are
        no outstanding claims that will have a material adverse impact on the financial
        position of the Company.
 
 *Environmental
        Matters*
 
 In
        1997,
        Pressure BioSciences, Inc. acquired the assets and selected liabilities of
        Source Scientific, Inc.  Environmental issues related to Source Scientific
        were not acquired.  In 2003, the EPA named Source Scientific as a
        Potentially Responsible Party at the Omega Superfund Site.  In December
        2004, the EPA concluded that the volume allocated to Source Scientific was
        below
        the diminimus levels, and indicated that they would not pursue Pressure
        BioSciences further in this matter.
 
 **(11)  Stockholders’
        Equity**
 
 ***Preferred
        Stock***
 
 In
        1996,
        the Company authorized the issuance of 1,000,000 shares of preferred stock
        having a par value of $0.01.  None of theses shares have been issued to
        date.
 
 ***Common
        Stock***
 
 *Shareholders
        Purchase Rights Plan*
 
 On
        March
        3, 2003, the Company’s Board of Directors adopted a shareholder purchase rights
        plan (“the Rights Plan”) and declared a distribution of one Right for each
        outstanding share of the Company’s Common Stock to shareholders of record at the
        close of business on March 21, 2003. Initially, the Rights will trade
        automatically with the Common Stock and separate Right Certificates will
        not be
        issued.  The Rights Plan is designed to deter coercive or unfair takeover
        tactics and to ensure that all of the Company’s shareholders receive fair and
        equal treatment in the event of an unsolicited attempt to acquire the Company.
        The Rights Plan was not adopted in response to any effort to acquire the
        Company, and the Board is not aware of any such effort. The Rights will expire
        on February 27, 2013 unless earlier redeemed or exchanged.  Each Right
        entitles the registered holder, subject to the terms of a Rights Agreement,
        to
        purchase from the Company one one-thousandth of a share of the Company’s Series
        A Junior Participating Preferred Stock at a purchase price of $45.00 per
        one
        one-thousandth of a share, subject to adjustment. In general, the Rights
        will
        not be exercisable until a subsequent distribution date that will only occur
        if
        a person or group acquires beneficial ownership of 15% or more of the Company’s
        Common Stock or announces a tender or exchange offer that would result in
        such
        person or group owning 15% or more of the Common Stock. With respect to any
        person or group who currently beneficially owns 15% or more of the Company’s
        Common Stock, the Rights will not become exercisable unless and until such
        person or group acquires beneficial ownership of additional shares of Common
        Stock.
  35
  **PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2005**
 Subject
        to certain limited exceptions, if a person or group acquires beneficial
        ownership of 15% or more of the Company’s outstanding Common Stock or if a
        current 15% beneficial owner acquires additional shares of Common Stock,
        each
        holder of a Right (other than the 15% holder whose Rights become void once
        such
        holder reaches the 15% threshold) will thereafter have a right to purchase,
        upon
        payment of the purchase price of the Right, that number of shares of the
        Company’s Common Stock which at the time of such transaction will have a market
        value equal to two times the purchase price of the Right  In the event
        that, at any time after a person or group acquires 15% or **** more
        of
        the Company’s Common Stock, the Company is acquired in a merger or other
        business combination transaction or 50% or more of its consolidated assets
        or
        earning power are sold, each holder of a Right will thereafter have the right
        to
        purchase, upon payment of the purchase price of the Right, that number of
        shares
        of common stock of the acquiring company which at the time of such transaction
        will have a market value of two times the purchase price of the
        Right.
 
 The
        Board
        of Directors of the Company may exchange the Rights (other than Rights owned
        by
        such person or group which have become void), in whole or in part, at an
        exchange ratio of one share of Common Stock per Right (subject to
        adjustment).  At any time prior to the time any person or group acquires
        15% or more of the Company’s Common Stock, the Board of Directors of the Company
        may redeem the Rights in whole, but not in part, at a price of $0.001 per
        Right.
 
 ***Employee
        Stock Purchase Plan***
 
 The
        Plan
        was established in July 1999, whereby the Company’s Board of Directors and
        shareholders approved the 1999 Employee Stock Purchase Plan.  The Company
        adopted this Plan, which allowed eligible employees to purchase shares of
        the
        Company’s stock at 85% of market value as determined at the beginning and the
        end of the offering period.  A total of 250,000 shares have been reserved
        for this Plan. As of December 31, 2005, 52,674 shares had been issued under
        this
        Plan. Due to the sale of certain assets and liabilities to SeraCare, the
        Company’s Board elected to suspend its employee stock purchase plan on July 29,
        2004.
 
 ***Options
        and Warrants***
 
 On
        June
        16, 2005, the Company’s stockholders approved the Company’s 2005 Equity
        Incentive Plan (the “Plan”), pursuant to which an aggregate of 1,000,000 shares
        of common stock of the Company are reserved for issuance upon exercise of
        stock
        options or other equity awards made under the Plan.  Under the Plan, the
        Company may award stock options, stock issuances and other equity interests
        in
        the Company to employees, officers, directors, consultants and advisors of
        the
        Company and its subsidiaries and to any other persons the Board of Directors
        determines to have made or is expected to make contributions to the
        Company.  As of December 31, 2005, options to acquire 360,000 shares have
        been granted under the Plan.
 
 All
        other
        option plans have either lapsed or been used in issuances.
 
 The
        average fair value of options granted during 2005 and 2004 is estimated as
        $1.37
        and $1.76 respectively.
  36
  **PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2005**
 The
        Company has reserved shares of its authorized but unissued common stock for
        the
        following:
 
 **Stock
                  Options**
              
              **Warrants****Shares**
              
              **Weighted**
                **Average
                  price**
                **per
                  share**
              
              **Shares**
              
              **Weighted**
                **Average
                  price**
                **per
                  share**
              
              **Total****Shares**
              
              **Exercisable**Balance
                  outstanding, 12/31/2003:
              
              1,245,825
              
              $
              2.94
              
              
              135,556
              
              $
              3.60
              
              
              1,381,381
              
              
              844,970Granted
              
              
              90,500
              
              
              2.60
              
              
              —
              
              
              
              
              
              90,500Exercised
              
              
              (38,250
              )
              
              2.63
              
              
              0
              
              
              
              
              
              (38,250
              )Expired
              
              
              (150,650
              )
              
              2.93
              
              
              0
              
              
              
              
              
              (150,650
              )Forfeited
              
              
              (76,083
              )
              
              2.66
              
              
              0
              
              
              
              
              
              (76,083
              )Balance
                  outstanding, 12/31/2004
              
              1,071,342
              
              $
              2.93
              
              
              135,556
              
              $
              3.60
              
              
              1,206,898
              
              
              520,556Granted
              
              
              360,000
              
              
              2.98
              
              
              —
              
              
              
              
              
              360,000Exercised
              
              
              (761,275
              )
              
              2.85
              
              
              
              
              
              
              
              
              (761,275
              )Expired
              
              
              (35,067
              )
              
              3.75
              
              
              (135,556
              )
              $
              3.60
              
              
              (170,623
              )Forfeited
              
              
              (50,000
              )
              
              2.92
              
              
              
              
              
              
              
              
              (50,000
              )Balance
                  outstanding, 12/31/2005
              
              585,000
              
              $
              2.96
              
              
              —
              
              
              
              
              
              585,000
              
              
              385,000
 
 The
        following table summarizes information concerning options outstanding and
        exercisable as of December 31, 2005:
 
 **Options
                  Outstanding**
              
              **Options
                  Exercisable****Range
                  of**
                **Exercise
                  Prices**
              
              **Weighted**
                **Average**
                **Remaining
                  Life**
              
              **Number
                  of Options**
              
              **Weighted**
                **Average**
                **Exercise****Price**
              
              **Number
                  of**
                **Options**
              
              **Weighted**
                **Average**
                **Exercise**$2.50  -  2.70
              
              
              7.0
              
              
              166,000
              
              $
              2.64
              
              
              166,000
              
              $
              2.642.71  -  3.00
              
              
              9.0
              
              
              260,000
              
              
              2.92
              
              
              60,000
              
              
              2.923.01  -  3.99
              
              
              5.3
              
              
              134,500
              
              
              3.18
              
              
              134,500
              
              
              3.184.00  -  4.25
              
              
              3.7
              
              
              24,500
              
              
              4.23
              
              
              24,500
              
              
              4.232.50  -  4.25
              
              
              6.4
              
              
              585,000
              
              
              2.96
              
              
              385,000
              
              
              2.97
 
 The
        total
        number of options exercisable as of December 31, 2005 and 2004 was 385,000
        and
        520,556 respectively. The weighted average exercise prices of options
        exercisable as of December 31, 2005 and 2004 were $2.97 and $2.93,
        respectively.
 
 Pursuant
        to the completion of the Company's tender offer on February 11, 2005, 5,210,001
        shares were purchased from shareholders at $3.50 per share which included
        761,275 shares issued upon exercise of stock options. The Company utilized
        approximately $16.3 million of available cash, net of proceeds from the exercise
        of the stock options, to complete the transaction. The purchase of the shares
        was accounted for under the treasury method and cost in excess or par value
        for
        the common shares was charged to additional paid in capital.
  37
  **PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2005**
 **(12)  Related
        Party Transaction**
 
 In
        January 2002, the Company pledged the $1,000,000 interest bearing deposit
        at a financial institution to secure its limited guaranty of loans in the
        aggregate amount of $2,418,000 from the financial institution to an entity
        controlled by Richard T. Schumacher, a Director and the Company’s current
        President and Chief Executive Officer. In January 2003, the $1,000,000 held
        in the interest bearing deposit account pledged to the financial institution
        to
        secure the Company’s limited guaranty was used by the financial institution to
        satisfy its limited guaranty obligation to the financial institution. As
        of
        December 31, 2005, the Company maintained a $1.0 million loan receivable
        from Mr. Schumacher. The Company previously maintained a junior security
        interest in collateral pledged by Mr. Schumacher to the financial
        institution. The collateral includes all of Mr. Schumacher’s shares of PBI
        common stock. Following the payment in full by Mr. Schumacher of his loan
        to the financial institution in February 2005, the Company became the
        holder of a first priority security interest in Mr. Schumacher’s shares of
        common stock of Pressure BioSciences to secure the repayment of the Company’s
        $1,000,000 loan receivable together with associated accrued interest from
        Mr. Schumacher and are held as collateral. The collateral currently
        consists of 489,657 shares of Pressure BioSciences common stock. The collateral
        and personal assets of Mr. Schumacher may not be sufficient to permit the
        Company to fully recover the principal, interest, and other costs associated
        with this loan receivable. If the value of the collateral decreases, the
        Company
        may have to write down or write off the loan receivable or any associated
        accrued interest. Therefore, the Company cannot be certain that it will collect
        the full amount of the loan receivable.
 
 As
        of
        December 31, 2005, the Company evaluated the recoverability of the $1,000,000
        loan receivable from Mr. Richard T. Schumacher, which is reflected on the
        balance sheet in stockholders’ equity as a loan receivable as of December 31,
        2005. In connection with the Company’s evaluation of the recoverability of the
        loan receivable as of December 31, 2005 the Company performed a test for
        impairment of the loan receivable by analyzing the value of the collateral.
        This
        test included, among other things, a review of the current trading price
        of the
        Company’s common stock after taking into account factors that may affect the
        Company’s ability to sell such stock in the event it were to foreclose on the
        collateral to repay the loan receivable. After performing the impairment
        test,
        the Company determined that the loan receivable was not impaired. The ultimate
        value that the Company may recover is dependent on numerous factors including
        the Company’s stock price, market conditions relative to the value of and
        ability to sell the collateral, and the financial status of the Company’s
        President and Chief Executive Officer. Based on the Company’s assessment as of
        December 31, 2005, the Company estimates that the value of the collateral
        is
        sufficient to collateralize the amount of the recorded loan receivable.  If
        actual market conditions are less favorable, the Company’s stock price declines
        or other factors arise that are significantly different than those in existence
        as of December 31, 2005, an impairment of the loan receivable together with
        any
        associated accrued interest is likely to be required.  The Company plans to
        continue to monitor and test the collateral for impairment due in large part
        to
        the relatively low trading volume of the Company’s common stock and recent
        volatility in stock price, ranging from a low of $2.28 per share to a high
        of
        $6.70 per share from January 1, 2005 to December 31, 2005.
 
 **(13)  Statement
        of Cash Flows**
 
 The
        presentation of cash flows has been revised for the year ended December 31,
        2004
        to reflect current reporting requirements. The Company has presented cash
        flow
        from discontinued operations reflecting those components related to financing,
        investing, and operating activities. The favorable impact of cash flow from
        discontinued operations for the years ended December 31, 2005 and 2004 relate
        to
        the sale of the Company's Core Business to SeraCare in September 2004. The
        favorable impact in 2004 is a result of the sale of the net assets. The
        favorable impact in 2005 primarily represents the anticipated refund of the
        overpayment of taxes in 2004 related to the sale of the assets. This activity
        is
        not expected to continue or have a material impact after 2005.
 
 **(14)  Subsequent
        Events**
 
 On
        March
        15, 2006, the Company received $1,094,162 from Wells Fargo Corporate Trust
        Escrow Services, representing the remaining amount held in escrow from the
        sale
        of the assets and certain liabilities of our BBI Core Businesses to SeraCare
        on
        September 14, 2004, plus interest though February 28, 2006.
 
 On
        March
        1, 2006, the Company entered into a lease agreement with Proteome Systems,
        Inc.,
        pursuant to which we have agreed to lease approximately 650 sq. feet of
        laboratory space plus 100 sq. feet of office space from Proteome Systems
        in
        Woburn, Massachusetts.  The lease period will expire on December 31,
        2006.  PBI will pay $2,350 per month for the use of these
        facilities.
 
 On
        February 1, 2006, the Company entered into an agreement with the University
        of
        New Hampshire, pursuant to which the University of New Hampshire has agreed
        to
        perform certain research and development services for the Company through
        December 31, 2006. Subject to the terms of the agreement, the Company will
        pay
        the University of New Hampshire an aggregate of $157,850 during the term
        of the
        agreement.
  38
 
 
 **Report
        of Independent Registered Public Accounting Firm**
 
 
 To
        the
        Board of Directors of
 Pressure
        BioSciences, Inc. and Subsidiaries:
 
 
 We
        have
        audited the accompanying consolidated balance sheet of Pressure BioSciences,
        Inc. and Subsidiaries (the "Company") as of December 31, 2005 and the related
        consolidated statements of operations, comprehensive income, changes in
        stockholders' equity and cash flows for the years ended December 31, 2005
        and
        2004. These consolidated financial statements are the responsibility of the
        Company's management. Our responsibility is to express an opinion on these
        consolidated financial statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audits to obtain reasonable assurance about whether the
        consolidated financial statements are free of material misstatement. An audit
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the consolidated financial statements. An audit also includes
        assessing the accounting principles used and significant estimates made by
        management, as well as evaluating the overall financial statement presentation.
        We believe that our audits provide a reasonable basis for our
        opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above, present
        fairly, in all material respects, the financial position of Pressure
        BioSciences, Inc. and Subsidiaries as of December 31, 2005, and the results
        of
        their operations and their cash flows for the years ended December 31, 2005
        and
        2004, in conformity with accounting principles generally accepted in the
        United
        States of America.
 
 As
        more
        fully described in Note 2 (iii) of the notes to the consolidated financial
        statements, errors resulting in an understatement of income tax expense and
        deferred taxes payable relating to discontinued operations and an overstatement
        of income tax expense and deferred taxes payable relating to other comprehensive
        income as of and for the year ended December 31, 2005 were discovered by
        management of the Company during 2006. Accordingly, the consolidated balance
        sheet as of December 31, 2005 and the consolidated statements of operations,
        comprehensive income, stockholders’ equity and cash flows for the year ended
        December 31, 2005 have been restated to reflect corrections to previously
        reported amounts.
 
 
  WEINBERG
        & COMPANY, P.A.
 
 
 Boca
        Raton, Florida
 March
        23,
        2006, except for Note 2 (iii), as to which the date is May 22,
        2006.
  39
  **ITEM
                  8A.**
              **CONTROLS
                  AND PROCEDURES.**
 
 We
        maintain disclosure controls and procedures that are designed to ensure that
        information required to be disclosed in our Securities Exchange Act reports
        is
        recorded, processed, summarized and reported within the time periods specified
        in the SEC’s rules and forms, and that such information is accumulated and
        communicated to our management, including our President (Principal Executive
        Officer) and Acting Chief Financial Officer (Principal Financial Officer),
        as
        appropriate, to allow timely decisions regarding required disclosure. In
        designing and evaluating the disclosure controls and procedures, management
        recognized that any controls and procedures, no matter how well designed
        and
        operated, can provide only reasonable assurance of achieving the desired
        control
        objectives, as ours are designed to do, and management necessarily was required
        to apply its judgment in evaluating the cost-benefit relationship of possible
        controls and procedures.
 
 In
        connection with the preparation of our Quarterly Report on Form 10-QSB for
        the
        quarter ended March 31, 2006, we completed an internal review of our tax
        liability associated with the 2004 sale of assets and certain liabilities
        of our
        former core businesses, referred to herein as the BBI Core Businesses, to
        SeraCare Life Sciences, Inc. As a result of this review, we concluded that
        the
        tax liability related to discontinued operations recorded in the third quarter
        of 2005 was understated by approximately $220,000. In connection with our
        internal tax review, we also determined to reduce by approximately $60,000
        the
        estimate of our deferred tax liability for the unrealized gain from our
        investment in Panacos Pharmaceuticals, Inc. and to increase by approximately
        $23,000 the income tax provision from continuing operations. We therefore
        decided to restate our previously issued financial statements for the fiscal
        year ended December 31, 2005 and our financial statements for the fiscal
        quarter
        ended September 30, 2005 to reflect these changes. We are filing this amended
        Annual Report on Form 10-KSB/A to restate our financial results for the year
        ended December 31, 2005. In connection with the filing of this amendment,
        we
        carried out a further evaluation, as of December 31, 2005, under the supervision
        and with the participation of our management, including our President (Principal
        Executive Officer) and Chief Financial Officer (Principal Financial Officer),
        of
        the effectiveness of the design and operation of our disclosure controls
        and
        procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
        Securities Exchange Act of 1934. Based upon that evaluation, our President
        (Principal Executive Officer) and Chief Financial Officer (Principal Financial
        Officer) concluded that our disclosure controls and procedures were not
        effective as of December 31, 2005 in enabling us to record, process, summarize
        and report information required to be included in our periodic SEC filings
        within the required time period. We believe that the hiring of our new Chief
        Financial Officer, effective as of April 3, 2006, has enabled us to conclude
        that our disclosure controls and procedures are now effective.
 
 Other
        than the changes described above, there have been no changes in our internal
        control over financial reporting that occurred during the period covered
        by this
        Report that have materially affected, or are reasonably likely to materially
        affect, our internal control over financial reporting.
  40
  
 **PART
        III**
 
 **ITEM
                  9.**
              **DIRECTORS,
                  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                  SECTION
                  16(a) OF THE EXCHANGE ACT**
 
 **Our
        Executive Officers**
 
 The
        following table sets forth the names, ages and positions of our current
        executive officers:
 
 **Name**
              
              **Age**
              
              **Position**Richard
                  T. Schumacher
              
              55
              
              President
                  & Chief Executive OfficerEdward
                  H. Myles
              
              34
              
              Vice
                  President of Finance & Chief Financial
                  Officer
 
 
 *Mr. 
        Schumacher* ,
        the
        founder of our Company, has served as a director of Pressure BioSciences
        since
        1978. He is a Class III Director whose term of office expires at the 2008
        Annual
        Meeting of Stockholders.  He has served as Chief Executive Officer of
        Pressure BioSciences since April 16, 2004 and President since September 14,
        2004.  He has also been serving as Acting Chief Financial Officer since
        January 1, 2006. He previously served as Chief Executive Officer and Chairman
        of
        the Board of Pressure BioSciences from 1992 to February 2003. From
        July 9, 2003 until April 16, 2004, he served as a consultant to the Company
        pursuant to a consulting agreement. He served as President from 1986 to
        August 1999. Mr. Schumacher served as the Director of Infectious
        Disease Services for Clinical Sciences Laboratory, a New England-based medical
        reference laboratory, from 1986 to 1988. From 1972 to 1985, Mr. Schumacher
        was employed by the Center for Blood Research, a nonprofit medical research
        institute associated with Harvard Medical School. Mr. Schumacher received a
        B.S. in Zoology from the University of New Hampshire.
 
 *Mr.
        Myles* was
        appointed to serve as Vice President of Finance and Chief Financial Officer
        on
        April 3, 2006. Prior to joining Pressure BioSciences, Inc., Mr. Myles served
        as
        the controller for EMD Pharmaceuticals, a wholly-owned affiliate of Merck
        KGaA,
        from 2003 to 2005. At EMD, Mr. Myles held a wide variety of responsibilities
        in
        the areas of accounting, licensing & business development. Prior to EMD
        Pharmaceuticals, Mr. Myles worked in the health care investment banking group
        of
        SG Cowen Securities Corporation from 2002 to 2003, where he provided advisory
        services to emerging and middle-market companies. From 2000 to 2002, Mr.
        Myles
        was enrolled in the full-time MBA program at Washington University in St.
        Louis,
        where he helped co-found Luminomics, an early-stage biotechnology
        company. Prior to enrolling in graduate school Mr. Myles was the
        Corporate Controller of Boston Biomedica, Inc., where he oversaw all financial
        reporting, accounting and financial operations. Prior to joining Boston
        Biomedica, Inc., in 1997 he worked at the accounting firms Price Waterhouse
        LLP
        and Coopers & Lybrand LLP where he held positions of increasing
        responsibility between 1993 and 1997. Mr. Myles became a CPA in 1996, and
        earned
        a B.S.B.A. in accounting and finance from the University of Hartford, and
        an MBA
        from Washington University in St. Louis.
 
 The
        additional information required by this Item 9 is hereby incorporated by
        reference to our definitive proxy statement to be filed within 120 days after
        the close of our fiscal year.
  41
 
 
 **ITEM
                  13.**
              **EXHIBITS.**
 
 **EXHIBIT
        INDEX**
 
 **Exhibit
                  No.**
              
              
              **Reference**3.1
              
              Amended
                  and Restated Articles of Organization of the Company
              A**3.2
              
              Articles
                  of Amendment to Amended and Restated Articles of Organization of
                  the
                  Company
              M**3.3
              
              Amended
                  and Restated Bylaws of the Company
              A**3.4
              
              Amendment
                  to Amended and Restated Bylaws of the Company
              B**4.1
              
              Specimen
                  Certificate for Shares of the Company’s Common Stock
              04.2
              
              Description
                  of Capital Stock (contained in the Amended and Restated Articles
                  of
                  Organization, as amended, of the Company filed as Exhibits 3.1
                  and
                  3.2)
              A**4.3
              
              Rights
                  Agreement dated as of February 27, 2003 between Boston Biomedica,
                  Inc. and
                  Computershare Trust Company, Inc.
              G**4.4
              
              Amendment
                  No. 1 to Rights Agreement dated April 16, 2004 between Boston Biomedica,
                  Inc. and Computershare Trust Company, Inc.
              M**10.1
              
              1994
                  Employee Stock Option Plan*
              A**10.2
              
              1999
                  Non-Qualified Stock Option Plan*
              D**10.3
              
              1999
                  Employee Stock Purchase Plan*
              D**10.4
              
              First
                  Amendment to lease dated as of December 12, 2001 by and between
                  Cabot
                  Industrial Properties, L. P. and BBI Source Scientific,
                  Inc.
              C**10.5
              
              Lease
                  Agreement dated March 1, 2004, for Frederick, Maryland facility,
                  between
                  MIE Properties, Inc., and the Company.
              M**10.6
              
              Asset
                  Purchase Agreement dated February 20, 2001, by and between BBI
                  Clinical
                  Laboratories, Inc., Boston Biomedica, Inc., and Specialty Laboratories,
                  Inc.
              E**10.7
              
              Junior
                  Participation Agreement dated as of January 15, 2002, by and between
                  Commerce Bank and Trust Company, Resorts Accommodations International
                  LLC,  Richard T. Schumacher and Boston Biomedica,
                  Inc.
              F**10.8
              
              Pledge
                  and Security Agreement dated as of January 15, 2002, by and between
                  Richard T. Schumacher, Boston Biomedica, Inc., and Commerce Bank
                  and Trust
                  Company.
              F**10.9
              
              Pledge
                  Agreement effective as of January 15, 2002, by and between Boston
                  Biomedica, Inc. and Commerce Bank and Trust Company
              F**10.10
              
              Limited
                  Guaranty dated as of January 15, 2002, by and between Boston Biomedica,
                  Inc. and Commerce Bank and Trust Company.
              F**10.11
              
              Description
                  of Compensation for Certain Directors
              P**
  42
 
 10.12
              
              Consultant
                  Agreement between Boston Biomedica, Inc. and Richard T.
                  Schumacher
              H**10.13
              
              Agreement
                  between Boston Biomedica, Inc. and Richard T. Schumacher
              H**10.15
              
              Consultant
                  Agreement between Boston Biomedica, Inc. and Richard T. Schumacher
                  entered
                  into as of December 31, 2003
              H**10.16
              
              LLC
                  Membership Interest Purchase Agreement dated June 8, 2004 by and
                  between
                  BBI Source Scientific Inc., Boston Biomedica, Inc., and Source
                  Scientific
                  LLC.
              J**10.17
              
              Asset
                  Purchase Agreement dated April 16, 2004 between the Company, BBI
                  Biotech
                  Research Laboratories, Inc. and SeraCare Life Sciences,
                  Inc.
              M**10.18
              
              Amendment
                  No. 1 to Asset Purchase Agreement dated July 20, 2004, by and between
                  the
                  Company, BBI Biotech and SeraCare Life Sciences, Inc.
              F**10.19
              
              Extension
                  Agreement dated August 6, 2004 by and between the Company, BBI
                  Biotech
                  Research Laboratories, Inc. and SeraCare Life Sciences,
                  Inc.
              F**10.20
              
              Letter
                  Agreement regarding Closing Balance Sheet Matters dated November
                  22, 2004
                  by and between the Company, BBI Biotech Research Laboratories,
                  Inc. and
                  SeraCare Life Sciences, Inc.
              L**10.21
              
              Closing
                  Balance Sheet Agreement dated February 17, 2005 by and between
                  the
                  Company, BBI Biotech Research Laboratories, Inc. and SeraCare Life
                  Sciences, Inc.
              K**10.22
              
              License
                  Agreement dated as of October 7, 1996 by and between BioMolecular
                  Assays,
                  Inc. and BioSeq, Inc.; and the Company
              N**10.23
              
              Flex
                  Space Office Lease dated May 5, 2005 by and between Saul Holding
                  Limited Partnership and the registrant
              Q**10.24
              
              Letter
                  Agreement dated June 30, 2005 by and between the registrant and
                  Richard T.
                  Schumacher.*
              R**10.25
              
              2005
                  Equity Incentive Plan*
              S**10.26
              
              Agreement
                  for Research Services dated February 1, 2006 by and between the
                  registrant
                  and the University of New Hampshire
              T**23.1
              
              Consent
                  of Independent Registered Public Accounting Firm
              Filed
                  herewith31.1
              
              Principal
                  Executive Officer Certification Pursuant to Item 601(b)(31) of
                  Regulation
                  S-B, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
                  of
                  2002
              Filed
                  herewith31.2
              
              Principal
                  Financial Officer Certification Pursuant to Item 601(b)(31) of
                  Regulation
                  S-B, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
                  of
                  2002
              Filed
                  herewith32.1
              
              Principal
                  Executive Officer Certification Pursuant to Item 601(b)(32) of
                  Regulation
                  S-B, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                  of
                  2002
              Filed
                  herewith32.2
              
              Principal
                  Financial Officer Certification Pursuant to Item 601(b)(32) of
                  Regulation
                  S-B, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                  of
                  2002
              Filed
                  herewith
 
 43
 
  A
              Incorporated
                  by reference to the registrant’s Registration Statement on Form S-1
                  (Registration No. 333-10759) filed August 23, 1996 (the “Registration
                  Statement”).B
              Incorporated
                  by reference to the registrant’s Annual Report on Form 10-K for the fiscal
                  year ended December 31, 2002.C
              Incorporated
                  by reference to the registrant’s Quarterly Report on Form 10-Q for the
                  fiscal quarter ended March 31, 2002.D
              Incorporated
                  by reference to the registrant’s proxy statement filed June 14,
                  1999.E
              Incorporated
                  by reference to the registrant’s Report on Form 8-K filed with the
                  Commission March 8, 2001.F
              Incorporated
                  by reference to the registrant’s Annual Report on Form 10-K for the fiscal
                  year ended December 31, 2001.G
              Incorporated
                  by reference to Exhibit 4 of the registrant’s Current Report on Form 8-K
                  filed  with the Commission March 12, 2003.H
              Incorporated
                  by reference to the registrant’s Quarterly Report on Form 10-Q for the
                  fiscal quarter ended September 30, 2003.I
              Incorporated
                  by reference to the registrant’s Annual Report on Form 10-K for the fiscal
                  year ended December 31, 2003.J
              Incorporated
                  by reference to the registrant’s Current Report on Form 8-K filed with the
                  Commission June 16, 2004.K
              Incorporated
                  by reference to the registrant’s Current Report on Form 8-K filed with the
                  Commission February 24, 2005.L
              Incorporated
                  by reference to the registrant’s Quarterly Report on Form 10-Q filed for
                  the fiscal quarter ended September 30, 2004.M
              Incorporated
                  by reference to the registrant’s Current Report on Form 8-K filed with the
                  Commission April 16, 2004.N
              Incorporated
                  by reference to the registrant’s amendment to the Registration Statement
                  filed on Form S-1/A on October 8, 1996.O
              Incorporated
                  by reference to Exhibit 4.1 to the registrant’s Annual Report on Form
                  10-KSB filed with the Commission on April 22, 2005.P
              Incorporated
                  by reference to Exhibit 10.11 to the registrant’s Annual Report on Form
                  10-KSB filed with the Commission on April 22, 2005.Q
              Incorporated
                  by reference to Exhibit 10.1 to the registrant’s Current Report on Form
                  8-K filed with the Commission on May 11, 2005.R
              Incorporated
                  by reference to Exhibit 10.1 to the registrant’s Current Report on Form
                  8-K filed with the Commission on July 7, 2005.S
              Incorporated
                  by reference to Exhibit 99.1 to the registrant’s Registration Statement on
                  Form S-8 (Reg. No. 333-128594) filed with the Commission on September
                  26,
                  2005.T Incorporated by reference to Exhibit 10.1 to the registrant’s
                  Current Report on Form 8-K filed with the Commission on February
                  7,
                  2006.T
              Incorporated
                  by reference to Exhibit 10.1 to the registrant’s Current Report on Form
                  8-K filed with the Commission on February 7, 2006.*
              Management
                  contract or compensatory plan or arrangement.**
              In
                  accordance with Rule 12b-32 under the Securities Exchange Act of
                  1934, as
                  amended, reference is made to the documents previously filed with
                  the
                  Securities and Exchange Commission, which documents are hereby
                  incorporated by reference.
 
 44
 
 In
        accordance with Section 13 or 15d of the Exchange Act, the registrant caused
        this amendment to Form 10-KSB to be signed on its behalf by the undersigned,
        thereunto duly authorized.
 
 Date: 
                  May 22, 2006
              Pressure
                  BioSciences, Inc.By:
              */s/
                  Richard T. Schumacher*Richard
                  T. SchumacherPresident
                  and Chief Executive Officer
 
  45