UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**Form
      10-KSB**





(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, 2006 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:**Common
                Stock, par value $.01 per share
              Preferred
                Share Purchase Rights**Securities
                registered pursuant to Section 12(g) of the
                Act:**(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 Exchange Act 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 December 31,
      2006 were $210,289.





The
      aggregate market value of the voting and non-voting common stock held by
      non-affiliates of the registrant at March 16, 2007 was $7,383,530 based on
      the
      closing price of the common stock as quoted on the NASDAQ Capital Market on
      that
      date. As of March 16, 2007, there were 2,065,425 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







TABLE
      OF
      CONTENTS





**Page**PART
                IItem
                1.
            Description
                of Business
            
            4Item
                2.
            Description
                of Property
            
            12Item
                3.
            Legal
                Proceedings
            
            12Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            
            12PART
                IIItem
                5.
            Market
                for Common Equity, Related Stockholder Matters and Small Business
                Issuer
                Purchases of Equity Securities
            
            12Item
                6.
            Management’s
                Discussion and Analysis or Plan of Operation
            
            14Item
                7.
            Financial
                Statements
            
            28Item
                8.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            
            47Item
                8A.
            Controls
                and Procedures
            
            47Item
                8B.
            Other
                Information
            
            47PART
                IIIItem
                9.
            Directors,
                Executive Officers, Promoters and Control Persons and Corporate
                Governance; Compliance with Section 16(a) of the Exchange
                Act
            
            48Item
                10.
            Executive
                Compensation
            
            50Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            50Item
                12.
            Certain
                Relationships and Related Transactions, and Directors Independence
            
            50Item
                13.
            Exhibits
            
            51Item
                14.
            Principal
                Accountant Fees and Services
            
            54





-
          2 -


**Introductory
      Comment**





Throughout
      this Annual Report on Form 10-KSB, the terms “we,” “us,” “our,” “the
      Company” and “our company” refer to Pressure BioSciences, Inc., a Massachusetts
      corporation, and, unless the context indicates otherwise, also includes our
      wholly-owned subsidiaries.





**PART
      I**





**SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**





This
      Annual Report on Form 10-KSB contains forward-looking statements within the
      meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
      Securities Exchange Act of 1934.  In some cases, forward-looking statements
      are identified by terms such as “may”, “will”, “should”, “could”, “would”,
“expects”, “plans”, “anticipates”, “believes”, “estimates”, “projects”,
“predicts”, “potential”, and similar expressions intended to identify
      forward-looking statements. Such statements include, without limitation,
      statements regarding:





•
            our
                plans and expectations with respect to our pressure cycling technology
                (PCT) operations;•
            potential
                growth in the market for our PCT products;•
            market
                acceptance and the potential for commercial success of our PCT
                products;•
            our
                belief that PCT provides a superior solution for sample
                extraction;•
            the
                potential applications for PCT;•
            our
                belief that we have sufficient liquidity to finance operations based
                upon
                current projections;•
            our
                intent to sell our shares of Panacos Pharmaceuticals and the timing
                thereof;•
            the
                amount of cash necessary to operate our business;•
            our
                ability to raise additional capital when and if needed;•
            general
                economic conditions; and•
            the
                anticipated future financial performance and business operations
                of our
                Company.





These
      forward-looking statements are only predictions and involve known and unknown
      risks, uncertainties, and other factors that may cause our actual results,
      levels of activity, performance, or achievements to be materially different
      from
      any future results, levels of activity, performance, or achievements expressed
      or implied by such forward-looking statements. Also, these forward-looking
      statements represent our estimates and assumptions only as of the date of this
      Report.  Except as otherwise required by law, we expressly disclaim any
      obligation or undertaking to release publicly any updates or revisions to any
      forward-looking statement contained in the Report to reflect any change in
      our
      expectations or any change in events, conditions, or circumstances on which
      any
      of our forward-looking statements are based.  Factors that could cause or
      contribute to differences in our future financial results include those
      discussed in the risk factors set forth in Part II, Item 6 of this Report as
      well as those discussed elsewhere in this Report. We qualify all of our
      forward-looking statements by these cautionary statements.




-
          3 -




**ITEM
                1.**
            **DESCRIPTION
                OF BUSINESS.**





**Introduction**





We
      are an
      early-stage life sciences company focused on the development and
      commercialization of a novel, enabling, platform technology called pressure
      cycling technology (“PCT”). PCT uses cycles of hydrostatic pressure between
      ambient and ultra-high levels (up to 35,000 psi and greater) to control
      bio-molecular interactions.





Our
      pressure cycling technology uses internally developed instrumentation that
      is
      capable of cycling pressure between ambient and ultra-high levels at controlled
      temperatures to rapidly and repeatedly control the interactions of
      bio-molecules. Our instrument, the Barocycler®, and our internally developed
      disposable PULSE© (Pressure Used to Lyse Samples for Extraction) Tubes, together
      make up the PCT Sample Preparation System (“PCT SPS”).





We
      hold
      13 United States and 5 foreign patents covering multiple indications of PCT
      in
      the life sciences field. Our pressure cycling technology employs a unique
      approach that has the potential for broad applications in a number of
      established and emerging life sciences areas, including;





-
            sample
                preparation for genomic, proteomic, and small molecule studies;


-
            control
                of chemical (enzymatic) reactions;


-
            protein
                purification;


-
            pathogen
                inactivation;


-
            immunodiagnostics;


-
            DNA
                sequencing; and


-
            food
                safety.





We
      were
      incorporated in the Commonwealth of Massachusetts in August 1978 and commenced
      significant operations in 1986 as Boston Biomedica, Inc. In September 2004
      we
      completed the sale of the Boston Biomedica core business units and began to
      focus exclusively on the development and commercialization of pressure cycling
      technology. Pursuant to this change in business strategy, we changed our name
      from Boston Biomedica, Inc. to Pressure BioSciences, Inc., and commenced
      significant operations as Pressure BioSciences, Inc. (PBI) in February 2005.





**Sample
      Preparation for Genomic, Proteomic, and Small Molecule
      Studies**





Since
      we
      began significant operations as Pressure BioSciences in February 2005, we have
      been focusing substantially all of our research and development and
      commercialization efforts on sample preparation for genomic, proteomic, and
      small molecule studies.





Considering
      the platform nature of PCT, we elected to initially focus our resources in
      the
      important and rapidly growing market of genomic, proteomic, and small molecule
      sample preparation. We chose to focus on this application because we believe
      it
      is an area that:





-
            is
                a rapidly growing market;


-
            has
                a large and immediate need for better
                technology;


-
            is
                comprised mostly of research laboratories and thus subject to minimal
                governmental regulation;


-
            is
                the least technically challenging application for the development
                of our
                products;


-
            is
                compatible with our technical core competency; and


-
            is
                the area in which we currently have our strongest patent
                protection.





The
      process of preparing samples for genomic, proteomic, and small molecule studies
      includes a crucial step called sample extraction, or sample disruption. This
      is
      the process of extracting nucleic acid (“DNA” and/or “RNA”), proteins, or small
      molecules from the plant or animal cells and tissues that are being studied.
      Sample preparation is widely regarded as a significant impediment to research
      and discovery, and sample extraction is generally regarded as the key part
      of
      sample preparation. Our current commercialization efforts are based upon our
      belief that pressure cycling technology provides a superior solution to sample
      extraction, and can thus significantly improve sample preparation.




-
          4 -




*Collaboration
      Programs*





Throughout
      2005 and 2006, our commercialization efforts have been centered on the
      development, and expansion, of our collaboration program. The collaboration
      program was initiated in June 2005 with the goal of placing our PCT Sample
      Preparation System in selected, strategic sites for trial periods of three
      months or longer, in an effort to generate data from leading, independent users
      of the PCT SPS. We believe that this program has provided, and continues to
      provide us with independent and objective data about PCT from well respected
      laboratories throughout the United States. Since the initiation of our
      collaboration program, our instruments have been evaluated by customers in
      approximately 20 independent laboratories. Twelve of our collaboration programs
      have resulted in the sale or lease of the PCT Sample Preparation System, which
      includes our Barocycler instrument and our single-use PULSE Tubes. Some of
      our
      other collaborations have resulted in the withdrawal of the instrument, an
      extension of time to use the instrument, expansion of the scope of research
      being performed with the instrument, and the publication and presentation of
      favorable third party data. In all cases, we gained valuable knowledge about
      our
      technology, our instrumentation, and various aspects of the markets that we
      are
      trying to penetrate. This knowledge is beneficial to us as we continue to expand
      our collaboration program, refine our instrumentation, and continue to expand
      our sales and marketing efforts during 2007.





*Independent
      Third-Party Data Regarding PCT*





We
      believe that one of the most valuable returns on our investment in the
      collaboration program has been, and will continue to be, the dissemination
      of
      positive third-party data about our technology. As a company with limited
      resources, the placement of instruments in the laboratories of our collaborators
      has allowed us to advance the development of our technology more quickly and
      efficiently than we would have been able to do on our own. These placements
      have
      also served as the basis for our commercialization efforts, which we have
      continued to accelerate in early 2007, as we hired a second, and began to plan
      for the addition of three more US sales directors. Since the initiation of
      our
      collaboration program there have been thirteen presentations and publications
      about PCT by our collaborators. A selected list of the areas covered by third
      party publications is listed below:





·
            Plant
                genomics - Improvements by PCT in the extraction of pathogen DNA
                in plants
                and soil


·
            Proteomics
                - Signal pathway analysis of human adipose tissue extracted by PCT
                for
                research in the areas of Non-alcoholic Fatty Liver Disease and
                Diabetes


·
            Human
                genomics - Analysis of RNA recovery and gene expression in the epidermis
                after PCT extraction





During
      the second half of 2006, we began to see early indications of market traction,
      such as the purchase of the PCT SPS by several of our collaborators and
      inquiries from several other groups about how our technology could improve
      their
      areas of research. Based on these indications we began to accelerate our
      marketing activities. We began to advertise in more industry periodicals and
      we
      significantly increased our participation in, and sponsorship of, industry
      trade
      shows.





*The
      Market*





According
      to PhorTech International Research, there are more than 200,000 nucleic acid
      (DNA and RNA) researchers in more than 45,000 laboratories worldwide. Frontline
      Strategic Consulting estimates that the worldwide nucleic acid market will
      exceed $16 billion in 2010 and Frost & Sullivan projects that the worldwide
      proteomics market will reach $3 billion by 2008. We believe that a significant
      portion of these researchers can benefit from the use of pressure cycling
      technology in their research and development efforts.





**Other
      Applications of Pressure Cycling Technology**





PCT
      is a
      platform technology by which our scientists are utilizing a bio-physical process
      that had not previously been used to control bio-molecular interactions. During
      the early developmental stages of pressure cycling technology (under the
      corporate structure of Boston Biomedica, Inc.), our scientists spent
      approximately $12 million researching the use of this bio-physical process
      in
      many areas in addition to our current work in genomic, proteomic, and small
      molecule sample preparation. The data generated during these early years,
      combined with the data generated since PBI began significant operations in
      February 2005, form the basis of knowledge that we believe will allow us to
      successfully commercialize PCT in the sample preparation market.




-
          5 -




PCT
      has
      been shown to be beneficial in a number of significant areas of the life
      sciences, including: control of chemical (particularly enzymatic) reactions,
      protein purification, pathogen inactivation, immunodiagnostics, DNA sequencing,
      and food safety. The extensive research performed by our scientists has resulted
      in patent filings in all of these areas, and patents have been issued with
      approved claims that give us protection and allow us to practice PCT in all
      of
      these areas. Our pursuit of market penetration into these markets depends on
      a
      number of factors, including our success in commercializing PCT in the area
      of
      sample preparation, our view regarding the cost and the value of these markets
      to us, and the level of scale-up and funding required to enter these markets.
      Below is a brief explanation of each of these other applications and areas
      and
      how we believe PCT may be used to improve scientific progress.





*Control
      of Chemical (Particularly Enzymatic) Reactions*





Chemical
      reactions encompass many interactions in nature, such as the formation and
      cleavage of covalent and ionic bonds; the association or dissociation of two
      or
      more chemical compounds; and changes in the primary, secondary, tertiary, and
      quaternary structure of compounds. Chemical reactions include non-enzymatic
      and
      enzymatic reactions. Whether or not enzymes are present, a chemical reaction
      is
      usually made of several mechanistic steps or molecular interactions, including
      conformational changes, transition state formation, electron and proton
      donation/acceptance, and electron rearrangement. A series of chemical reactions
      may provide a useful chemical product; therefore, any method used to control
      a
      chemical reaction may have a positive effect on the quality, speed, and overall
      result of the reaction. The control and detection of chemical reactions is
      particularly useful in the biotechnology field for synthesizing and
      characterizing such molecules as nucleic acids and polypeptides. We believe
      that
      PCT offers distinct advantages in controlling chemical reactions over current
      methods, since PCT can provide precise, automated control over the timing and
      synchronization of chemical reactions, particularly enzymatic reactions.





*Protein
      Purification*





We
      believe that the technically difficult problem of isolating and recovering
      biopharmaceuticals can be greatly simplified through precise bio-molecular
      control using PCT. Additionally, through the close control of enzymatic
      reactions, we believe that we will be able to isolate therapeutically powerful
      isomers from isomeric mixtures. One of the more common and effective
      biopharmaceutical purification techniques employs affinity chromatography to
      separate compounds according to their affinity to bind to a specific binding
      partner and thus form a new bio-molecular complex. Currently, the existing
      means
      of controlling this binding interaction are not sufficient to enable recovery
      of
      the target molecule without causing some degree of degradation (loss). We
      believe PCT provides a distinct competitive advantage in this area. PCT could
      prove to be attractive because it may enable manufacturers to more efficiently
      purify drugs with limited redesign of their current process. It may also be
      possible to replace currently used toxic additives with PCT, thus increasing
      safety. Since PCT has unique properties, it may also contribute to
      pharmaceutical development by offering a novel method of purification.
      Furthermore, drugs or therapeutics that have already been developed but could
      not be commercialized due to difficulties in purification may be
      resurrected.





*Pathogen
      Inactivation*





We
      believe that existing inactivation methods for blood and blood plasma are
      inadequate because of the significant safety and cost concerns associated with
      them. We further believe that an inactivation method is needed that can rapidly
      and inexpensively inactivate pathogens in plasma or plasma fractions without
      the
      need for chemical or other potentially toxic additives, while maintaining the
      integrity of therapeutic proteins. We have successfully generated
      proof-of-concept that PCT can be a valuable solution, in our opinion, to this
      large need. We believe that compared to current procedures, a process that
      uses
      PCT has the potential to increase safety and yield, lower cost, and decrease
      the
      potential side effects of plasma-derived protein therapeutics such as
      IntraVenous Immune Globulin (IVIG).





*Immunodiagnostics*





We
      believe that PCT may be used to control bio-molecular interactions between
      antigens and antibodies to improve immunoassay effectiveness. Through the
      application of PCT, we have successfully induced association between antigens
      and antibodies, and also successfully dissociated pre-existing antigen-antibody
      complexes. Such forced immune complex dissociation may have many beneficial
      applications, including reducing the possibility of false positive results
      by
      revealing the presence of antigens or antibodies that were not previously
      detected. We believe this capability can provide a greater degree of sensitivity
      and quantitative accuracy in immunodiagnostics, including tests for infectious
      diseases, cancer, and therapeutic drug monitoring. PCT’s ability to force both
      antigen/antibody dissociation and association could enable manipulation of
      existing disease markers and therapeutic drugs in patient samples, resulting
      in
      greater accuracy of immunodiagnostic-based tests, which has historically been
      difficult to do.




-
          6 -




*DNA
      Sequencing*





We
      have
      generated proof of concept that PCT can be used to control the activity of
      DNA
      modifying enzymes. Through rapid cycling between inhibitory and active
      conditions, our scientists have shown that PCT is able to control the activity
      of enzymes such as exonuclease (cleaves nucleotides at a rate of about 275
      base
      pairs per second under normal conditions) so that it should be possible to
      read
      each nucleotide base pair that is released in sequential order. We believe
      that
      this technology has considerable commercial potential because it enables
      base-by-base sequencing of very long fragments of DNA. In addition, sequencing
      DNA by PCT may also have applications for sequencing oligonucleotides.
      Oligonucleotides are short (typically 10-30 bases) single strands of DNA,
      usually made on a synthesizer. Synthetic oligonucleotides are used in
      biotechnology for sequencing other strands of DNA, for capture and reporter
      probes, and are even being developed for therapy in vivo. Sequencing, and
      therefore the quality control of oligonucleotides, is difficult because of
      their
      short length and because they are single-stranded. PCT used in combination
      with
      capillary electrophoresis (CE) or MALDI-TOF spectrophotometry could provide
      a
      fully automated system to rapidly sequence oligonucleotides.





*Food
      Safety*





The
      Centers for Disease Control (CDC) estimates that more than 5,000 people die
      each
      year due to food borne diseases. In addition to these deaths, hundreds of
      thousands of people are hospitalized annually and millions more become ill,
      all
      due to food borne pathogens. In an effort to reduce this debilitating economic
      cost and loss of lives, food processors continue to work on the development
      of
      novel, new methods aimed at improving the safety, quality, and shelf-life of
      the
      foods we eat. One such method is high pressure processing (HPP), already
      accepted by both the USDA and the FDA as an appropriate food processing method.
      With HPP, foods are subjected to high hydrostatic pressures (constant not
      cycled), which can kill many disease-causing pathogens while concomitantly
      having no deleterious effects on flavor, nutritional value, odor, or appearance.
      HPP is already being used in the food industry for the safe processing of a
      number of different kinds of food, including shellfish, orange juice, and
      guacamole. We believe that PCT offers distinct advantages over current HPP
      methods, since such methods all use constant pressure while PCT uses cycled
      pressure, and data generated in our laboratory and in the laboratories of our
      collaborators indicate that cycled pressure can be more effective in
      inactivating food borne pathogens than constant pressure.





**Company
      Products and Services**





*Products*





Our
      current instrument, the Barocycler NEP3229, is a high pressure laboratory
      instrument designed to fit on a bench top, inside a biological safety cabinet,
      or on the shelf of a cold room. The Barocycler NEP3229 is capable of processing
      up to three samples simultaneously using our specially designed, single-use
      PULSE Tubes. The Barocycler NEP3229 has an external chiller hook-up (to control
      temperature during the PCT process), automatic fill and dispensing valves,
      and
      an integrated micro-processor with an easy-to-use keypad. We believe the
      Barocycler NEP3229 fills an important and growing need in the sample preparation
      market for the safe, rapid, robust, versatile, reproducible, and quantitative
      extraction of nucleic acids, proteins, and small molecules from a wide variety
      of plant and animal cells and tissues. The NEP3229 was released for use in
      our
      collaboration programs in the third quarter of 2005 and twelve of these
      instruments have been sold, or leased, to our collaboration partners since
      that
      time.





We
      are
      investing a significant amount of our engineering resources towards the further
      improvement of the NEP3229 as well as toward the development of future
      generations of instrumentation. Future generation instrumentation may include
      portable units that can be taken into the field as well as larger,
      high-throughput, fully-automated instruments that could process several thousand
      samples per day.





Our
      current consumable, the PULSE Tube, is used with each and every sample that
      is
      processed by PCT. We believe that if PCT becomes widely accepted, this
      consumable could provide us with a significant stream of recurring, high
      gross-margin revenue. Our current PULSE Tube product is a plastic, single-use,
      processing container with two chambers separated by a small disk with about
      sixty small holes (“Lysis Disk”). PULSE
      Tubes transmit the power of PCT from the Barocycler instrument to the sample.
      In
      sample extraction, the specimen is placed on the Lysis Disk, the PULSE Tube
      is
      placed in the pressure chamber of the Barocycler instrument, pressure chamber
      fluid is added, and pressurization begins. As pressure increases, a small
      moveable piston (the Ram) pushes the specimen from the top (sample) chamber,
      through the Lysis Disk and into the bottom (fluid retention) chamber. When
      pressure is released, the sample (now partially homogenized) is pulled back
      through the Lysis Disk by the receding Ram. The combination of physical passage
      through the Lysis Disk, rapid pressure changes, and other biophysical mechanisms
      breaks up the cellular structures of the specimen to quickly and efficiently
      release nucleic acids, proteins, and small molecules .




-
          7 -




We
      plan
      to invest a significant amount of our research and development resources towards
      the continued development of our PULSE Tube, as well as in the development
      of
      other consumables that can be used with the PCT Sample Preparation
      System.





*Services*





In
      September 2006, we received notification of an award of a National Institutes
      of
      Health (“NIH”) Small Business Innovation Research (“SBIR”) Phase I Grant to fund
      experiments to demonstrate the feasibility of using pressure cycling technology
      in the development of a novel method for the extraction of clinically important
      protein biomarkers, sub-cellular molecular complexes, and organelles from cells
      and tissues. The grant was for a total of approximately $150,000. During 2006,
      we did not work on this project and thus did not bill any costs to this grant;
      consequently, we expect to work on the research project and subsequently bill
      the government for the entire grant during the first half of 2007.





In
      March
      2007, we received notification of an award for a second NIH SBIR Phase I Grant,
      this one for the purification of nucleic acids using PCT. We expect work on
      this
      grant to commence in April 2007 and to continue during the second and third
      quarters of 2007. This grant is also for approximately $150,000.





We
      view
      federal agency grants such as these to be an important part of our business
      plan. Such grants allow us to be reimbursed for work that we are planning to
      perform as part of the development of our technology, and we expect that such
      work will support our commercialization efforts. Additionally, if our work
      in
      Phase I SBIR grants is successful, then we will have the opportunity to apply
      for larger Phase II grants. Such larger grants are typically in excess of
      $750,000 and can support significant research projects in areas that we would
      expect to support with internal funds should Phase II SBIR grants not be
      awarded.





We
      offer
      extended service contracts on our instrumentation to all of our customers.
      These
      service contracts allow a customer who purchases a Barocycler NEP3229 to receive
      on-site scheduled preventative maintenance, on-site repair and replacement
      of
      all worn or defective component parts, and telephone support, all at no
      incremental cost, for the life of the service contract. We typically offer
      one-year and four-year extended service contracts to customers who purchase
      Barocycler instruments. As of December 31, 2006 we had sold two of these
      contracts to our customers.





Occasionally,
      we will perform PCT services on a fee-for-service basis. We will enter into
      an
      arrangement such as this if we believe that the customer has a high likelihood
      of purchasing a PCT Sample Preparation System or if we believe that the customer
      will publish or present results of the work performed in scientific journals
      or
      in scientific meetings.





**Customers**





Our
      current customers are strategic collaborators who decided to purchase or lease
      the PCT SPS during or after their collaboration program. These customers include
      academic laboratories, government agencies, and biotechnology companies. Our
      goal in 2007 is to expand our customer base in the sample preparation market
      from these strategic collaborators to also include researchers in academic,
      government, biotech, and pharmaceutical laboratories throughout the US who
      require sample preparation in their every day research and development
      activities. Furthermore, if we are successful in commercializing PCT in other
      applications in the life sciences field, our potential customer base would
      expand to include hospitals, reference laboratories, blood banks and transfusion
      centers, plasma collection centers, pharmaceutical manufacturing plants, and
      other sites involved in each specific application.




-
          8 -




**Competition**





We
      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 grinding, sonication, rotor-stator
      homogenization, French Press, bead beating, freezer milling, enzymatic
      digestion, and chemical dissolution.  We believe that there are a number of
      significant issues related to the use of these methods, including: complexity,
      sample containment, cross-contamination, shearing of bio-molecules of interest,
      limited applicability to different sample types, ease-of-use,
      non-reproducibility, and cost.  We believe that the PCT Sample Preparation
      System offers a number of major advantages over these methods, including labor
      reduction, temperature control, precision, reproducibility, versatility,
      efficiency, simplicity, and safety.  To compete, we must be able to clearly
      and conclusively demonstrate to potential customers that our products provide
      these improved performance capabilities.





We
      believe that our PCT Sample Preparation System is a novel and enabling system
      for genomic and proteomic sample preparation.  As such, many users of
      current manual techniques will need to accept a “paradigm shift” to adopt our
      technology.  We are also aware that the cost of the PCT Sample Preparation
      System may be greater than the cost of many of the manual techniques currently
      employed.  Consequently, we will focus our sales efforts on those product
      attributes that we believe will be most important and appealing to potential
      customers, namely versatility, reproducibility, and safety.





*PCT
      Compared to Existing Technologies*





There
      are
      several incumbent technologies that offer scientists varying degrees of success
      in sample preparation. For several years our in-house scientists have been
      performing comparative studies with hundreds of samples in order to better
      understand how pressure cycling technology compares with these competitive
      technologies. Depending on the area of research and the type of material a
      scientist may be working with, there is a different level of importance placed
      on each attribute. Below is an illustration of how pressure cycling technology,
      in our opinion, compares to several existing technologies across the key
      attributes that we have assessed (with a - denoting a negative attribute, and
      a
      + denoting a positive attribute).




Incumbent
                  TechnologiesKey
                  Attributes
              Sonication
              Bead
                  Beating
              Tissue
                  Homogenizer
              Mortar
                  Pestle
              French
                  Press
              **PCT**Safety
              Closed
                  System
              **-**
              **+**
              **-**
              **-**
              **-**
              **+**Storage,
                  Transport
              **-**
              **+**
              **-**
              **-**
              **-**
              **+**Versatility
              **-**
              **-**
              **-**
              **-**
              **-**
              **+**Reproducibility
              **-**
              **-**
              **-**
              **-**
              **-**
              **+**Efficiency
              **-**
              **-/+**
              **-**
              **-**
              **-**
              **+**Shearing
                  Molecules
              Yes
              Yes
              Yes
              Min
              Yes
              **Min**


We
      believe that with continued investment of time and resources into our
      collaboration program, our more aggressive marketing campaign, and the expansion
      of our sales force in 2007, we will be able to successfully penetrate the sample
      preparation market. As our collaborators continue to use our technology for
      their own research, and continue to present data to their peers that support
      the
      attributes of PCT in the table above, we believe that we will begin to realize
      success in the commercialization of our technology.





**Relationship
      with 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 (“Source Scientific”). At the time of the
      transfer, we owned 100% of the ownership interests of Source Scientific. We
      subsequently sold 70% of our ownership interests of Source Scientific 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. Under the Source Scientific
      Agreement, we 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 offers Mr. Henson and Mr. Sargeant the
      opportunity to purchase our 30% ownership interest in Source Scientific until
      May 31, 2007, at an escalating premium (10-50%) over our initial ownership
      value, provided that they have first paid off the Notes in their
      entirety.




-
          9 -




**Manufacturing
      and Supply**





Throughout
      2005 and 2006, Source Scientific, a California-based company, provided all
      of
      the manufacturing and assembly services for our instrumentation products. With
      the April 2006 hiring of Dr. Edmund Ting as our Senior Vice President of
      Engineering, we established an engineering capability that allows us to have
      a
      greater impact on the manufacture of our instruments. During 2006, we initiated
      several engineering initiatives that will position us for greater independence
      from any one supplier. We plan to continue to utilize Source Scientific as
      our
      primary assembler and contract manufacturer of our current, and future,
      Barocycler instruments. We are however in the process of developing a network
      of
      manufacturers and sub-contractors to reduce our reliance on any single supplier.





**Research
      and Development**





Our
      research and development activities are split into two functional areas: (1)
      applications research and development, which is currently focused exclusively
      on
      the maximization of the commercial opportunities of our pressure cycling
      technology within the genomic and proteomic sample preparation application,
      and
      (2) engineering research and development, which supports the applications group
      and the marketing function with instrumentation and consumables design,
      development, and expertise.





*Applications
      Research and Development*





Our
      applications research and development function currently focuses on the
      development of genomic, proteomic, and small molecule sample preparation methods
      using PCT. Our highly educated and trained staff have years of experience in
      molecular and cellular biology, virology, and proteomics. Our applications
      research and development staff is responsible for the technical review of all
      scientific collaborations, and in support of our marketing department with
      the
      generation of internal data in a number of areas of interest (such as cancer,
      microbe detection, counter-bioterrorism, forensics, etc.).





*Engineering
      Research and Development*





Since
      his
      hiring as our Senior Vice President of Engineering in April 2006, Dr. Ting
      has
      focused a great deal of his time and attention toward the continued improvement
      of our current Barocycler NEP3229 instrument. During 2006, he led the effort
      that successfully reengineered one of the critical component parts of our
      Barocycler, the intensifier. The implementation of our newly engineered
      intensifier has reduced the weight of the Barocycler NEP3229 by more than 40
      pounds (approximately 15%). Additionally, based on initial testing, we believe
      that the new intensifier will improve the reliability of the instrument. The
      cost of goods of the intensifier has also been reduced by several thousand
      dollars. Dr. Ting has also been leading the development of early prototypes
      of
      new instrumentation that we believe will support our future growth.





**Sales
      and Marketing**





Our
      sales
      and marketing efforts are centered on the independent data that are developed
      and disseminated by our collaboration partners. The development of such
      scientific data by our partners, and by our internal researchers, provides
      our
      sales and marketing staff with additional tools that are essential in selling
      a
      paradigm-shifting technology such as PCT.





*Marketing*





To
      build
      upon the successes of our internal research efforts and our collaboration
      program, we initiated a formal marketing and advertising program during the
      second half of 2006. Our marketing team includes our Vice President of Marketing
      and Sales and a marketing associate. Our marketing department oversees and
      directs recently initiated marketing activities such as: increased trade show
      attendance and sponsorship, on-line advertising, website enhancements for
      increased visibility, search engine optimization, creation and dissemination
      of
      a PCT Newsletter, market research initiatives, and the arrangement of
      on-location seminars, lectures, and demonstrations of PCT capabilities.




-
          10 -




*Direct
      US Sales Force*





Throughout
      2006, we had a direct sales force of one employee at the director level. In
      early 2007, we hired our second sales director and we are actively recruiting
      three additional director level sales professionals. We believe that hiring
      seasoned sales professionals, with at least 15 - 20 years of industry
      experience, will allow us to more effectively penetrate the market with a small,
      focused sales force. Throughout 2007, we will monitor this strategy and may
      increase the number of sales professionals if we believe that doing so will
      accelerate our commercialization efforts.





*Foreign
      Distributor Network*





In
      December 2005, we signed a one-year distribution agreement with Veritas
      Corporation of Tokyo, Japan. Under the terms of the Agreement, we granted
      Veritas exclusive distribution rights to all our products in Japan until
      December 31, 2006, including the Barocycler NEP3229 Bench Top model. On December
      29, 2006, this distribution agreement was extended until June 30, 2007.





In
      September 2006, we signed a 16 month initial distribution agreement with
      Disruptive Technologies, Inc., of Villecresnes, France. Under the terms of
      the
      Agreement, we granted Disruptive Technologies exclusive distribution rights
      to
      all of our products in France, Belgium, and Switzerland. Pursuant to the
      Agreement, we are supplying Disruptive Technologies with a Barocycler NEP3229
      instrument for training and demonstration purposes. We are collecting a minimal
      rental fee for the use of this instrument .





We
      currently plan to expand our foreign distributor network in Europe and the
      rest
      of the world during 2008. To this end we will begin to interview and qualify
      potential partners in strategic locations throughout 2007.





**Intellectual
      Property**





We
      believe that protection of our patents and intellectual property is essential
      to
      our business.  Our practice is to file patent applications to protect
      technology, inventions, and improvements to inventions that are important to
      our
      business development.  We also rely on trade secrets, know-how, and
      technological innovations to develop and maintain our potential competitive
      position.  To date, we have been granted thirteen United States patents,
      three European patents, one Australian patent and one Japanese patent.  Our
      issued patents expire between 2015 and 2024. Our failure to obtain adequate
      patent protection may adversely affect our ability to enter into, or affect
      the
      terms of, any arrangement for the marketing or sale of any of our PCT products.
      It may also allow our competitors to duplicate our products without our
      permission and without compensation.





**Employees**





As
      of
      March 23, 2007 we had 18 employees, led by Mr. Richard T. Schumacher, our
      Founder, President, and Chief Executive Officer. During 2006, we made
      significant progress in developing our senior executive management team and
      company infrastructure.





Our
      18
      employees include five employees in the Selling and Marketing and technical
      support function; four employees in General and Administrative, including Mr.
      Schumacher, and Mr. Edward H. Myles, our Senior Vice President of Finance and
      Chief Financial Officer. We employ eight people in Applications Research and
      Development, encompassing expertise in proteomics and genomics, and we employ
      Dr. Edmund Ting as our Senior Vice President of Engineering, who heads up our
      Engineering Research and Development efforts.




-
          11 -




**ITEM
                2.**
            **DESCRIPTION
                OF PROPERTY**





Our
      corporate offices are currently located at 321 Manley Street, West Bridgewater,
      Massachusetts 02379.  We are leasing this space on a month-to-month basis
      as a tenant-at-will, for $1,000 per month.





On
      June
      1, 2006, we entered into a lease agreement with Scheer Partners and the Maryland
      Economic Development Corporation, pursuant to which we have agreed to lease
      laboratory and office space in Rockland, MD. The lease period will expire on
      May
      31, 2007. We pay $2,600 per month for the use of these facilities.





On
      March
      1, 2006 we entered into a sub-lease agreement with Proteome Systems, pursuant
      to
      which we have agreed to lease approximately 650 square feet of laboratory space
      plus 100 square feet of office space from Proteome Systems in Woburn,
      Massachusetts. The current lease expired on December 31, 2006 and we are
      currently negotiating an extension of this agreement. While we negotiate for
      an
      extension, we are leasing the space as a tenant-at-will, on a month-to-month
      basis. We have paid $2,350 per month for the use of these facilities.





**ITEM
                3.**
            **LEGAL
                PROCEEDINGS.**





We
      are
      not currently involved in any legal proceedings.





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





None.





**PART
      II**





**ITEM
                5.**
            **MARKET
                FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
                ISSUER
                PURCHASES OF EQUITY
                SECURITIES.**





Our
      common stock, par value $0.01 per share, was traded on the NASDAQ National
      Market (now known as the Nasdaq Global Market) from October 1996 through March
      29, 2005.  On March 30, 2005, we transferred the listing of our common
      stock from the NASDAQ National Market to the NASDAQ Capital Market.  Our
      common stock commenced trading on the NASDAQ Capital Market on March 30, 2005,
      under the current trading symbol “PBIO”.





The
      following table sets forth, for the periods indicated, the high and low sales
      price per share of common stock, as reported by the NASDAQ National Market
      through March 29, 2005 and by the NASDAQ Capital Market through December 31,
      2006.




**Common
                  Stock Price****Fiscal
                  Year Ended December 31, 2005**
              
              **High**
              
              **Low**First
                  Quarter
              
              $
              3.68
              
              $
              2.70Second
                  Quarter
              
              
              3.65
              
              
              2.28Third
                  Quarter
              
              
              6.70
              
              
              2.50Fourth
                  Quarter
              
              
              5.72
              
              
              4.15**Fiscal
                  Year Ended December 31, 2006**
              
              
              **High**
              
              
              **Low**First
                  Quarter
              
              $
              4.80
              
              $
              3.67Second
                  Quarter
              
              
              4.10
              
              
              3.04Third
                  Quarter
              
              
              3.48
              
              
              2.88Fourth
                  Quarter
              
              
              5.80
              
              
              3.01




As
      of
      February 28, 2007, there were 20,000,000 shares of common stock authorized
      of
      which 2,065,425 shares were issued and outstanding, and held by 93 stockholders
      of record.




-
          12 -




We
      have
      never declared or paid any cash dividends on our common stock and do not plan
      to
      pay any cash dividends in the foreseeable future.  We intend to retain any
      future earnings to finance our growth.





**Recent
      Sales of Unregistered Securities**





During
      the year ended December 31, 2006, we did not sell any securities that were
      not
      registered under the Securities Act of 1933, as amended.





**Repurchases
      by Pressure BioSciences**





On
      September 25, 2006, we announced a stock buy-back program (the “Stock Buy-Back
      Program”) pursuant to which we are authorized to use up to $500,000 of our cash
      resources to repurchase shares of the Company’s common stock in the open market
      or in privately negotiated transactions.





In
      addition, on December 29, 2006, Richard T. Schumacher, President and Chief
      Executive Officer, delivered to the Company 249,875 shares of his common stock
      of the Company in full and complete satisfaction and payment of all outstanding
      amounts, including all principal and accrued interest, of Mr. Schumacher’s loan
      receivable to the Company (“Mr. Schumacher’s Loan Repayment”). The loan amount
      consisted of $1,000,000 in principal and $25,487 in interest accrued in the
      fourth quarter of 2006. The number of shares was determined based upon a value
      of $4.10 per share, the volume weighted average trading price of the shares
      of
      our common stock on the NASDAQ Capital Market during the 60 trading days ending
      on December 29, 2006. In connection with the payment of the loan, the Company
      terminated its security interest in Mr. Schumacher’s shares of common stock, and
      released to Mr. Schumacher the remaining 229,782 shares of common stock
      previously held as collateral.





The
      following table below sets forth the results of our Stock Buy-Back Program
      and
      Mr. Schumacher’s Loan Repayment.





**Period**
            
            **Total
                Number of Shares**
              **Purchased**
            
            **Average
                Price Paid per**
              **Share**
            
            **Total
                Number of Shares**
              **Purchased
                as Part of**
              **Publicly
                Announced**
              **Plans
                or Programs**
            
            **Maximum
                Number of**
              **Shares
                (or Approximate Dollar Value) that May Yet Be**
              **Purchased
                Under the**
              **Plans
                or Programs**October
                1, 2006 - October 31, 2006
            
            
            106,600
            
            $
            2.90
            
            
            106,600
            
            $
            190,860(1
            )November
                1, 2006 - November 30, 2006
            
            
            4,289
            
            $
            3.33
            
            
            4,289
            
            
            176,842(1
            )December
                1, 2006 - December 31, 2006
            
            
            249,875(2
            )
            $
            4.10(2
            )
            
            0
            
            
            176,842(1
            )Total
            
            
            360,764
            
            $
            3.74
            
            
            110,889
            
            $
            176,842(1
            )





(1)
            Of
                the $500,000 authorized for the Stock Buy-Back Program, $176,842
                of
                authorized cash resources remain available for additional purchases.


(2)
            Pursuant
                to Mr. Schumacher’s Loan Repayment.





**Equity
      Compensation Plan Information**





The
      information required by this Item 5 with respect to securities authorized for
      issuance under equity compensation plans is set forth in Part III, Item 11
      of
      this Form 10-KSB.




-
          13 -




**ITEM
                6.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OR PLAN OF
                OPERATION.**





**OVERVIEW**





We
      are an
      early-stage life sciences company focused on the development and
      commercialization of a novel, enabling, platform technology called Pressure
      Cycling Technology (“PCT”). PCT uses cycles of hydrostatic pressure between
      ambient and ultra-high levels (up to 35,000 psi and greater) to control
      bio-molecular interactions.





Our
      pressure cycling technology uses internally developed instrumentation that
      is
      capable of cycling pressure between ambient and ultra-high levels at controlled
      temperatures to rapidly and repeatedly control the interactions of
      bio-molecules. Our instrument, the Barocycler, and our internally developed
      disposable PULSE (Pressure Used to Lyse Samples for Extraction) Tubes together
      make up the PCT Sample Preparation System (“PCT SPS”).





Our
      pressure cycling technology employs a unique approach that has the potential
      for
      broad applications in a number of established and emerging life sciences areas,
      including;





-
            sample
                preparation for genomic, proteomic and small molecule
                studies;


-
            control
                of chemical (enzymatic) reactions;


-
            protein
                purification;


-
            pathogen
                inactivation;


-
            immunodiagnostics;


-
            DNA
                sequencing; and


-
            food
                safety.





Since
      we
      began significant operations as Pressure BioSciences in February 2005, we have
      been focusing substantially all of our research and development and
      commercialization efforts on sample preparation for genomic, proteomic, and
      small molecule studies.





Our
      business strategy to commercialize our technology within the sample preparation
      market has been initially centered on our collaboration program. Since
      initiating our collaboration program in late 2005, we have placed
      instrumentation with researchers in approximately 20 independent laboratories.
      Twelve of our collaboration programs have resulted in the sale or lease of
      the
      PCT Sample Preparation System, which includes our Barocycler instrument and
      our
      single-use PULSE Tubes. Some of our other collaborations have resulted in the
      withdrawal of the instrument, an extension of time to use the instrument,
      expansion of the scope of research being performed with the instrument, and
      the
      publication and presentation of favorable third party data. In all cases, we
      gained valuable knowledge about our technology, our instrumentation, and various
      aspects of the markets that we are trying to penetrate. We believe that the
      ultimate drivers of our commercialization efforts will be the continued
      dissemination of favorable third-party data about our technology and our
      increasing sales and marketing efforts.





If
      we are
      successful commercializing our technology in the sample preparation market,
      we
      believe that our financial results will be positively effected by a combination
      of the sale and lease of the Barocycler instrument and a recurring revenue
      stream from the sale of the single-use PULSE Tubes.





We
      also
      derive revenues from Small Business Innovation Research (“SBIR”) grants awarded
      to us by the National Institutes of Health. In September 2006, and in March
      2007, we received SBIR Phase I grants in the aggregate amount of $300,000.
      These
      grants are funding experiments to demonstrate the feasibility of using pressure
      cycling technology in various contexts. If our work in SBIR Phase 1 grants
      is
      successful, then we will have the opportunity to apply for larger Phase II
      grants. Additionally, if our work with the SBIR grants is successful, the
      publication of application notes in specific areas of research should further
      support our commercialization efforts.





Another
      source of revenue is derived from the sale of extended service contracts on
      our
      instrumentation. These extended service contracts allow a customer who purchases
      a Barocycler NEP3229 to receive on-site scheduled preventative maintenance,
      on-site repair and replacement of all worn or defective component parts, and
      telephone support, all at no incremental cost, for the life of the service
      contract. As of December 31, 2006 we had sold two of these contracts to our
      customers.




-
          14 -




**RESULTS
      OF OPERATIONS**





**Years
      Ended December 31, 2006 as compared to 2005**





*Revenue*





We
      had
      total revenue of $210,289 in the year ended December 31, 2006, as compared
      to
      $105,526 in the prior year, an increase of $104,763. This
      increase in revenue in 2006 was driven primarily by the sale of six Barocycler
      NEP3229 instruments as compared to three in the prior year.





We
      are
      accelerating our sales and marketing plan due primarily to the early success
      we
      have seen through the sale, or lease, of the Barocycler NEP3229 to prestigious
      institutions such as the United States Department of Agriculture, the Centers
      for Disease Control, Johns Hopkins University, and the Federal Bureau of
      Investigation. To this end, we have initiated our advertising campaign,
      increased the number of trade shows that we attend and sponsor, and we expect
      to
      hire a sales force of five seasoned, director level professionals to cover
      the
      United States during the first half of 2007. In addition to this US sales force,
      we have signed two distributor agreements pursuant to which we licensed the
      marketing rights to independent firms in Japan and France, Belgium and
      Switzerland. We believe that these efforts, combined with the early success
      of
      our collaboration program, will allow us to realize a higher level of commercial
      success during 2007.





*Cost
      of PCT Products and Services*





The
      cost
      of PCT products and services was $165,233 for the year ended December 31, 2006
      compared to $177,350 for the comparable period in 2005. This decrease was
      primarily the result of a shift in the type of activities performed by our
      technical services department during 2006. During 2006, a significant portion
      of
      the technical services department activities related to the support of sales
      and
      marketing, accordingly we accounted for these departmental costs within the
      Selling and Marketing line item in the statement of operations. During 2005
      the
      majority of effort from the technical services department related more directly
      to the servicing of instruments already in the field and the preparation of
      instruments to be placed in the field.





Cost
      of
      PCT products and services included $9,955 of non-cash, stock-based compensation
      expense related to our 2006 adoption of Statement of Financial Accounting
      Standards (“SFAS”) 123R “ *Share-Based
      Payment”* (“SFAS
      123R”). In accordance with our modified prospective adoption we did not record
      any such expense during 2005.





*Research
      and Development*





Research
      and development expenditures increased to $1,429,711 during 2006 from $498,584
      in the year ended December 31, 2005. This increase was due to a number of
      factors, most notably, a significant increase in headcount from three research
      and development employees in 2005 to six in 2006. The newly hired employees
      include our Senior Vice President of Engineering and our Vice President of
      Research and Development. This increase in research and development has allowed
      us to provide more support to our collaboration partners and to conduct
      significantly more experiments within our own laboratories.





Research
      and development expense included $181,609 of non-cash, stock-based compensation
      expense related to our adoption of SFAS 123R. In accordance with our modified
      prospective adoption, we did not record any such expense during 2005.





In
      support of our plans to develop and commercialize PCT, we plan to continue
      to
      increase our investment in research and development throughout 2007. This
      increased level of investment is expected to come in the form of additional
      staff, more aggressive research and development programs, and continued
      investment in our intellectual property portfolio.




-
          15 -




*Selling
      and Marketing*





Selling
      and marketing expenses increased to $528,265 in 2006 from $157,493 for the
      year
      ended December 31, 2005. In 2006, we expanded our selling and marketing function
      from one full time employee to three, including the newly created position
      of
      Vice President of Marketing and Sales, to lead and direct our increasing
      activity. In addition to the hiring of additional personnel during the year,
      we
      also increased all of our selling and marketing activities, particularly the
      initiation of our advertising campaign and a significant increase in the number
      of trade shows attended and sponsored during 2006. The allocation of a portion
      of our technical services department during 2006 also contributed to increased
      selling and marketing costs.





Sales
      and
      marketing expense included $44,086 of non-cash, stock-based compensation expense
      related to our adoption of SFAS 123R. In accordance with our modified
      prospective adoption, we did not record any such expense during 2005.




We
      expect
      that selling and marketing expense will continue to increase throughout 2007
      in
      support of our commercialization efforts. In addition to the expansion of our
      sales force from one US director level professional to five during the first
      half of 2007, we also plan to continue the expansion of our marketing programs
      and the continued development of our overseas distributor network.





*General
      and Administrative*





General
      and administrative costs totaled $2,145,196 in the year ended December 31,
      2006,
      as compared to $1,691,214 in the comparable period. For the year ended December
      31, 2005, general and administrative costs included a $400,000 compensation
      charge related to payments made to Mr. Schumacher for reimbursement of costs
      and
      expenses, as well as lost wages and benefits, resulting from his termination
      of
      employment in February 2003, and a bonus payment for his success in
      restructuring and repositioning the Company during 2003 and 2004. Excluding
      these charges, general and administrative costs increased by $853,982, of which
      $429,354 related to increased investor relations activities and an increase
      in
      corporate infrastructure to support our expected growth, and the remaining
      $424,628 consisted of non-cash, stock-based compensation expense related to
      our adoption of SFAS 123R. In accordance with our modified prospective
      adoption, we did not record any such non-cash, stock-based compensation expense
      during 2005.





We
      expect
      that general and administrative costs will be maintained at approximately the
      same level in 2007 as we continue to invest our resources in selling and
      marketing and research and development activities.





*Operating
      Loss from Continuing Operations*





The
      operating loss from continuing operations was $4,058,116 in 2006, as compared
      to
      $2,419,115 in the year ended December 31, 2005. The $1,639,001 increase relates
      to our operational scale up in support of our development and commercialization
      of PCT.





Included
      in our operating loss was $660,278 of non-cash, stock-based compensation expense
      related to our adoption of SFAS 123R. In accordance with our modified
      prospective adoption, we did not record any such expense during 2005.





We
      expect
      our operating loss to increase in 2007 as we continue to invest in our selling
      and marketing activities in support of our efforts to successfully commercialize
      PCT. We will also continue to increase our research and development expenditures
      in order to further develop the data regarding PCT in many areas of scientific
      research.





*Realized
      gain of sale of securities held for sale*





During
      2006, we recorded a realized gain of $517,938 in connection with the sale of
      57,900 shares of Panacos Pharmaceuticals common stock. During the same period
      in
      2005, we recorded a gain of $3,829,677, on the sale of 441,086 shares of Panacos
      Pharmaceuticals common stock. As of December 31, 2006, we held 513,934 shares
      of
      freely-tradable Panacos Pharmaceuticals common stock. Based on the closing
      price
      of $4.01 on December 31, 2006 these shares have a carrying value on our balance
      sheet of $2,060,875. As of December 31, 2006, we classified this investment
      as
      current, in accordance with SFAS 115, because it is management’s intent to sell
      these shares within the next twelve months. We plan to use any proceeds from
      the
      sale of these shares to fund the development and commercialization of PCT.




-
          16 -




*Other
      Operating (Charges), net*





Other
      operating (charges), net reflect the operating results of Source Scientific,
      LLC. Source Scientific, LLC generated an operating profit of approximately
      $21,000 during the twelve months ended December 31, 2006; however, we did not
      reflect any of this profit in our consolidated financial statements. In
      accordance with the provisions of SEC SAB Topic No. 5E, we only recognize an
      operating loss generated from Source Scientific, LLC to the extent such loss
      exceeds net profit in the same fiscal year. For the same period in 2005, we
      recorded an operating charge of $477,154.





*Interest
      Income*





Interest
      income totaled $381,713 for the year ended December 31, 2006, as compared to
      interest income of $269,535 in 2005.  The increase in interest income is
      the result of higher average cash balances during the current year, in addition
      to higher average annual yields on our invested cash.





*Income
      Tax Benefit (Provision) from Continuing Operations*





For
      the
      year ended December 31, 2006 we recorded a benefit for income taxes of $745,354.
      Despite our history of operating losses, we recorded this benefit due to our
      expected ability under federal income tax law to carry back current operating
      losses to offset taxable income that was recorded in 2004. During 2005, we
      recorded taxable income due to the gain on the sale of Panacos Pharmaceuticals
      common stock and therefore recorded an income tax provision of
      $352,694.





Our
      ability to carry back losses to offset federal income tax paid in 2004 expired
      at the end of 2006. We expect to carry back losses incurred in 2007, against
      federal income taxes paid in 2005. We expect our 2007 losses to exceed the
      income taxes paid in 2005; therefore, we expect that our benefit recorded during
      2007 will be less favorable than that recorded during 2006.





*Income
      from Discontinued Operations*





For
      the
      year ended December 31, 2005, the net income from discontinued operations was
      $50,574. We had no income from discontinued operations in 2006.





*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 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
      our
      70% interest in Source Scientific, LLC.





*Net
      (Loss) Income*





Our
      net
      loss in 2006 was $2,413,111 as compared to net income of $1,604,092 in 2005.
      This swing from net income to net loss relates to the $3,829,677 gain we
      realized from the sale of Panacos Pharmaceuticals common stock during 2005
      and
      the increase in costs related to significant aspects of our business during
      2006.





Our
      2006
      net loss also included $660,278 of non-cash, stock-based compensation expense
      related to our adoption of SFAS 123R. In accordance with our modified
      prospective adoption, our net income in 2005 did not include any such
      expense.





We
      expect
      that our net loss in 2007 will exceed that of 2006 due to our further scale-up
      of many elements of our business. Additionally, during 2006, we utilized
      significant federal tax carry-backs that allowed us to record a benefit for
      federal income taxes in 2006, and as noted above, we expect our benefit for
      income taxes to be recorded in 2007 will be less favorable than that recorded
      in
      2006. The level of net loss that we ultimately realize in 2007 will also depend
      on the price per share that we realize as we liquidate our position in Panacos
      Pharmaceuticals common stock during 2007.




-
          17 -




**LIQUIDITY
      AND FINANCIAL CONDITION**





As
      of
      December 31, 2006, our working capital position was $5,770,086, the primary
      components of which were cash and cash equivalents, income tax receivable,
      prepaid expenses and other current assets, partially offset by accounts payable,
      accrued employee compensation, other accrued expenses, and accrued income taxes.
      The December 31, 2006 working capital balance excludes the $2,060,875 of
      investment in marketable securities, and the related deferred tax liability
      of
      $669,520, that we have classified as current. This balance represents our
      investment of 513,934 shares of Panacos Pharmaceuticals common stock. We have
      classified this investment as a current asset because we expect to sell these
      shares in the coming year. As of December 31, 2005, our working capital balance
      was $7,740,736, the primary components of which were cash and cash equivalents,
      escrow deposits and income taxes receivable. This decrease in working capital
      of
      $1,970,650 in 2006 compared to 2005 was primarily a result of the use of cash
      to
      fund our operations during 2006 and the repurchase of 110,889 shares of our
      common stock, for a total of $323,158, pursuant to our stock buy-back program.
      These expenditures were partially offset by the proceeds generated from the
      sale
      of 57,900 shares of Panacos Pharmaceuticals common stock, interest income earned
      during the year and the receipt of the remaining escrow funds from SeraCare
      Life
      Sciences. We expect our working capital position to decline as we fund our
      operations from our cash and cash equivalents. Considering our intent to
      liquidate our position in Panacos Pharmaceuticals common stock during 2007,
      we
      believe that we have sufficient liquidity to fund our operations at their
      current level, and with planned increases in many areas of our business, into
      the second half of 2008. The extent to which we increase our operational costs
      is dependent upon our view of the investment required to successfully
      commercialize PCT.





Net
      cash
      used in continuing operations during 2006 was $2,112,076 as compared to net
      cash
      used in continuing operations of $2,829,829 during 2005. The cash used in
      operations in 2006 included our net loss, an increase in income taxes
      receivable, prepaid income taxes, prepaid expenses and other current assets,
      partially offset by an increase in accounts payable and accrued expenses. We
      expect net cash used in continuing operations to increase in 2007 as we increase
      our selling and marketing and research and development activities.




Net
      cash
      provided by investing activities during 2006 was $452,854 as compared to cash
      generated of $3,512,807 for the same period in the prior year. The cash
      generated in 2006 was entirely from the sale of 57,900 shares of Panacos
      Pharmaceuticals common stock, partially offset by minimal purchases of fixed
      assets. The cash generated in the same period in 2005 was entirely from the
      sale
      of 441,086 shares of Panacos Pharmaceuticals common stock, also partially offset
      by purchases of fixed assets. We intend to liquidate our position in Panacos
      Pharmaceuticals during 2007. We expect that our investment in fixed assets
      will
      increase in future quarters as we continue to increase our staff and operating
      facilities.




Net
      cash
      used in financing activities during 2006 was $317,758, primarily relating to
      the
      use of $323,158 to purchase 110,889 shares of our common stock from unaffiliated
      shareholders for an average price of $2.91 per share, partially offset by
      proceeds generated by the exercise of options to purchase 2,000 shares of our
      common stock by a Director. The stock purchase from the unaffiliated
      shareholders was made pursuant to the authorization of our board of directors
      in
      September 2006, to repurchase up to $500,000 of our shares of common stock
      in
      the open market or in privately negotiated transactions. During 2005, we used
      cash in financing activities of $16,303,863, primarily related to the February
      2005 issuer tender offer.





Net
      cash
      from discontinued operations was $895,490 during 2006 compared with net cash
      from discontinued operations of $835,867 during 2005. Essentially all of net
      cash from discontinued operations in 2006 relates to the March 2006 receipt
      of
      the remaining escrow funds from the September 2004 sale of the Boston Biomedica,
      Inc., core business units to Seracare Life Sciences.




*Investment
      in Panacos Pharmaceuticals*





As
      of
      December 31, 2006, we held 513,934 shares of common stock of Panacos
      Pharmaceuticals, a publicly traded company listed on the NASDAQ Global Market.
      We account for this investment in accordance with SFAS 115 *“Accounting
      for Certain Investments in Debt and Equity Securities”* as
      securities available for sale. On December 31, 2006, our balance sheet reflected
      the fair value of our investment in Panacos Pharmaceuticals to be approximately
      $2.1 million, based on the closing price of Panacos Pharmaceuticals shares
      of
      $4.01 per share on that day. The carrying value of our investment in Panacos
      Pharmaceuticals common stock held will change from period to period based on
      the
      closing price of the common stock of Panacos Pharmaceuticals as of the balance
      sheet date. This change in market value will be recorded by us on a quarterly
      basis as an unrealized gain or loss in Comprehensive Income or Loss. As of
      December 31, 2006, we classified this investment as a current asset because
      management has the ability and the intent to sell these shares over the next
      twelve months. We plan to use any proceeds from the sale of these shares to
      fund
      the development and commercialization of PCT.




-
          18 -




*Related
      Party Transaction*





On
      December 29, 2006, Richard T. Schumacher, President and Chief Executive Officer,
      delivered to the Company 249,875 shares of his common stock of the Company
      in
      full and complete satisfaction and payment of all outstanding amounts, including
      all principal and accrued interest, of Mr. Schumacher’s loan receivable to the
      Company. The loan amount consisted of $1,000,000 in principal and $25,487 in
      interest accrued in the quarter ended December 31, 2006. The number of shares
      was determined based upon a value of $4.10 per share, the volume weighted
      average trading price of the shares of the Company’s common stock on the NASDAQ
      Capital Market during the 60 trading days ending on December 29, 2006. In
      connection with the payment of the loan, the Company terminated its security
      interest in Mr. Schumacher’s shares of common stock, and released to Mr.
      Schumacher the remaining 229,782 shares of common stock previously held as
      collateral.





**CONTRACTUAL
      OBLIGATIONS**





The
      following is a summary of our future contractual obligations as of December
      31,
      2006:





**Contractual
                Obligations**
            
            **Total**
            
            **Less
                than**
              **1
                year**
            
            **More
                than**
              **1
                year**Lease
                for Maryland operating office (1)
            
            $
            13,000
            
            $
            13,000
            
            $
            0Obligations
                relating to Discontinued Operations (2)
            
            
            6,294
            
            
            2,040
            
            
            4,254Total
                Contractual Obligations
            
            $
            19,294
            
            $
            15,040
            
            $
            4,254




(1) 
                On June 1, 2006 we entered into a lease agreement with Scheer Partners
                and
                the Maryland Economic Development Corporation, pursuant to which
                we lease
                laboratory and office space in Rockville, Maryland. The lease expires
                on
                May 31, 2007. We pay $2,600 per month for the use of these facilities.(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 $6,294 as of December 31, 2006.





**CRITICAL
      ACCOUNTING POLICIES**





*Use
      of Estimates*





To
      prepare our consolidated financial statements in conformity with generally
      accepted accounting principles, we are required to make significant estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      reporting period. In addition, significant estimates were made in projecting
      future cash flows to quantify impairment of assets, on determining the gain
      on
      the disposition of our discontinued operations including post-closing
      adjustments, deferred tax assets, the costs associated with fulfilling our
      warranty obligations for the instruments that we sell, and the estimates
      employed in our calculation of fair value of stock options awarded. We base
      our
      estimates on historical experience and on various other assumptions that we
      believe to be reasonable under the circumstances, the results of which form
      the
      basis for making judgments about the carrying values of assets and liabilities
      that are not readily apparent from other sources. Actual results could differ
      from the estimates and assumptions used.





-
          19 -




*Revenue
      Recognition*





We
      recognize revenue in accordance with the Securities and Exchange Commission’s
      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





Our
      current instrument, the Barocycler NEP3229, requires a basic level of
      instrumentation expertise to set-up for initial operation. In order to support
      a
      favorable first experience for our customers, we send a technical representative
      to the customer site to “commission **”** every
      NEP3229 that we sell. The “commissioning” process includes uncrating and setting
      up the instrument and delivering an introductory user training course. In
      accordance with SAB 104, we have adopted a policy to recognize revenue after
      this “commissioning” process has been completed. Generally the commissioning
      occurs within a couple of weeks of product shipment. Future instruments may
      not
      require a commissioning process and for these instruments we may determine
      that
      it is appropriate to record revenue upon shipment of these products.





We
      record
      revenue on PULSE Tube sales upon shipment of these products through a common
      carrier.





Grant
      Revenue





Revenue
      from government grants is recorded when expenses are incurred under the grant
      in
      accordance with the terms of the grant award.





Service
      Revenue





We
      offer
      extended service contracts on our instrumentation to all of our customers.
      These
      service contracts allow a customer who purchases a Barocycler NEP3229 to receive
      on-site scheduled preventative maintenance, on-site repair and replacement
      of
      all worn or defective component parts, and telephone support, all at no
      incremental cost, for the life of the service contract. We offer one-year and
      four-year extended service contracts to customers. We recognize revenue under
      these arrangements over the life of the contracts. As of December 31, 2006
      we
      have sold two of these contracts.





Revenue
      from fee-for-service arrangements is recorded when the services are complete,
      generally documented by the delivery of scientific results.




*Correction
      of an Accounting Error*





In
      May
      2005, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 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
      No. 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 No.
      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 No. 154 to correct
      an error made during the quarter ended September 30, 2005 and discovered during
      the quarter ended March 31, 2006.




On
      March
      15, 2006, we received $1,094,162 from Wells Fargo Corporate Trust Escrow
      Services, representing the remaining principal and interest held in escrow
      from the 2004 sale of the assets and certain liabilities of our BBI Core
      Businesses to SeraCare Life Sciences Inc. (“SeraCare”). The receipt of these
      funds triggered the recognition of taxable income, accounted for as an
      installment sale for federal income tax purposes. During the financial statement
      closing process for the quarter ended March 31, 2006, we determined that a
      deferred tax liability of approximately $220,000 should have been established
      during the quarter ended September 30, 2005, the period in which we filed our
      federal income tax return. Upon re-examining our accounting for income taxes
      in
      entirety we further determined that the deferred tax liability in connection
      with the unrealized gain on Panacos Pharmaceuticals should be reduced by
      approximately $60,000, and that the income tax provision from continuing
      operations should be increased by approximately $23,000. We also determined
      that
      the accounting for deferred tax assets needed to be adjusted; however,
      there was no impact from this adjustment as deferred tax assets are fully
      reserved for.




-
          20 -




We
      elected to remedy these errors by restating our Annual Report on Form 10-KSB
      for
      the year ended December 31, 2005 and our Quarterly Report on Form 10-QSB for
      the
      quarter ended September 30, 2005.





These
      adjustments reduced income from discontinued operations by approximately
      $220,000. These adjustments did not change our reported pre-tax results from
      continuing operations, but income from continuing operations after income taxes
      for the year ended December 31, 2005 was reduced from approximately $873,000
      to
      approximately $850,000.





*Intangible
      Assets*





We
      have
      classified as intangible assets, 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, 2006
      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 related to
      the
      long-lived assets. 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
      performed an impairment analysis at December 31, 2006 and determined that such
      long-lived assets were not impaired.





*Assets
      and Liabilities Transferred Under Contractual Arrangements*





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. Under the Source Scientific Agreement,
      we 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 offers Mr. Henson and Mr. Sargeant the opportunity to
      purchase our 30% ownership interest in Source Scientific, LLC until May 31,
      2007, at an escalating premium (10-50%) over our initial ownership value,
      provided that they have first paid off the Notes in their entirety.





Despite
      our intent to exit the laboratory instrumentation business, we may be viewed
      as
      having a continuing involvement in the business of Source Scientific, LLC.
      Because of this and other factors, even though the transaction is treated as
      a
      divestiture for legal purposes, we have not recognized the transaction as a
      divestiture for accounting purposes in accordance with SEC SAB Topic 5E, *“Accounting
      for Divestiture of a Subsidiary or Other Business Operation”* . 
      In accordance with SAB Topic 5E, we have recorded the assets and liabilities
      associated with the Source Scientific, LLC operation on our consolidated balance
      sheet as of December 31, 2006 under the captions “Assets transferred under
      contractual arrangements” and “Liabilities transferred under contractual
      arrangements”.




During
      the twelve months ended December 31, 2006, Source Scientific, LLC recognized
      net
      income of approximately $21,000. In accordance with SAB Topic 5E, we excluded
      this net income from our Consolidated Statement of Operations and made no
      adjustment to the accounts captioned “Assets transferred under contractual
      arrangements” and “Liabilities transferred under contractual arrangements”. SAB
      Topic 5E requires that we recognize the losses of Source Scientific, LLC to
      the
      extent such losses exceed profits in the same fiscal year. In accordance with
      SAB Topic 5E, we will continue this accounting treatment until circumstances
      have changed or until the net assets of the Source Scientific, LLC business
      have
      been written down to zero (or a net liability is recognized in accordance with
      GAAP). During the year ended December 31, 2005, Source Scientific, LLC recorded
      a net loss of $477,154.




-
          21 -




***Recent
      Accounting Standards***





In
      June
      2006, the FASB issued FASB Interpretation No. 48, *“Accounting
      for Uncertainty in Income Taxes”* (“FIN
      48”), which applies to all tax positions accounted for under SFAS
      No. 109. FIN 48 prescribes a recognition threshold and measurement
      attribute for the financial statement recognition and measurement of a tax
      position taken or expected to be taken in a tax return. FIN 48 also provides
      guidance on de-recognition of such tax positions, classification, interest
      and
      penalties, accounting in interim periods and disclosure. FIN 48 is applicable
      to
      the Company as of January 1, 2007. We do not expect that the implementation
      of FIN 48 will have a material impact on our consolidated financial statements.





In
      September 2006, FASB issued SFAS 157, *“Fair
      Value Measurements”* .
      SFAS
      No. 157 establishes a formal framework for measuring fair value under GAAP
      and
      expands on disclosure of fair value measurements. Although SFAS No. 157 applies
      to and amends the provisions of existing FASB and AICPA pronouncements, it
      does
      not, of itself, require any new fair value measurements, nor does it establish
      valuation standards. SFAS No. 157 applies to all other accounting pronouncements
      requiring or permitting fair value measurements, except for; SFAS No. 123R,
      share based payment and related pronouncements, the practicability exceptions
      to
      fair value determinations allowed by various other authoritative pronouncements,
      and AICPA Statements of Position 97-2 and 98-9 that deal with software revenue
      recognition. This statement is effective for financial statements issued for
      fiscal years beginning after November 15, 2007, and interim periods within
      those
      fiscal years.





In
      September 2006, the SEC staff released Staff Accounting Bulletin No. 108, *"Considering
      the Effects of Prior Year Misstatements When Quantifying Misstatements in
      Current Year Financial Statements,"* or SAB
      108.  SAB 108 provides for a "one-time" special transition provision for
      correcting certain prior year misstatements that were uncorrected as of the
      beginning of the fiscal year of adoption. SAB 108 permits existing public
      companies to initially apply its provisions either by (i) restating prior
      financial statements as if the dual approach had always been used or (ii)
      recording the cumulative effect of initially applying the dual approach as
      adjustments recorded to the opening balance of retained earnings.  SAB 108
      is effective for fiscal years ending after November 15, 2006.  The adoption
      of SAB 108 did not have a material impact on our consolidated financial
      statements.




-
          22 -


**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 ensure 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. As of December 31,
      2006, we had available cash of approximately $5.3 million.





***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:***





*•*  the
      amount, if any, we receive in payment of the $900,000 in aggregate principal,
      plus approximately $200,000 in accrued interest, on the promissory notes that
      we
      received in connection with the Source Scientific Agreement; to date, there
      have
      been no payments made;





*•*  the
      amount, if any, we may realize on our intended sale of Panacos Pharmaceuticals
      stock during 2007;





*•*  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
      if
      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 collaboration 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.***





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. 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.




-
          23 -




***Our
      instrumentation operates at high pressures and is therefore subject to certain
      regulation in the US and overseas. This regulation of high pressure equipment
      may limit or hinder our development and sale of future instrumentation.***





Due
      to
      the various regulatory agencies that oversee the manufacture of high pressure
      equipment, we may incur additional costs in developing and selling our
      instrumentation. The regulations vary from jurisdiction to jurisdiction.
      Therefore we may incur additional costs, and production and selling delays,
      as
      we enter new jurisdictions in foreign countries.





***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.***





Many
      of
      our current and potential customers have required several months 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.





***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 and one in Japan. 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 2024.





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





*•*  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.




-
          24 -




***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.





***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 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
      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,
      manufactures our products, provides a great deal of engineering expertise,
      and
      manages the majority of our sub-contractor supplier relationships. 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 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.




-
          25 -




***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.***





Our
      indemnification obligations for breaches of some 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. If we are required to pay any
      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.





***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, and it is possible that we may
      be
      unable to recover the net carrying basis of our investment in Source Scientific,
      LLC of $378,503.***





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 notes are secured by
      pledges of the purchasers’ ownership interests in Source Scientific, LLC.





Based
      upon our discussions with Source Scientific, LLC and our analysis of the
      financial condition of Source Scientific, LLC, we believe that our notes will
      be
      repaid by May 31, 2007 and it is also possible that our remaining 30% interest
      in Source Scientific, LLC will be repurchased. The repayment of our notes and
      any purchase of our remaining 30% interest in Source Scientific, LLC would
      result in a significant gain to our operations. We cannot guarantee that our
      notes will be repaid or that we will sell our remaining 30% interest in Source
      Scientific, LLC. Conversely, if the financial or business circumstances of
      Source Scientific, LLC suffer any adverse changes, it is possible that Source
      Scientific, LLC may not 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 than we anticipate.
      Further, under such circumstances, we may be unable to recover the net carrying
      basis of our investment in Source Scientific, LLC and may be required to record
      a pre-tax loss of $378,503. This will have a negative impact on our results
      of
      operations.





***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.***





Due
      to
      the relatively 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, may also affect our
      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.





***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.***




-
          26 -




Our
      Amended and Restated Articles of Organization, as amended, and Amended and
      Restated Bylaws, as amended, contain provisions that may make it 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.





Our
      shareholders rights 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 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 will or
      may
      become applicable to us in the future.  These new rules and regulations
      will 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.




-
          27 -




**ITEM
                7.**
            **FINANCIAL
                STATEMENTS**





**PRESSURE
      BIOSCIENCES, INC., AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEET**


**DECEMBER
      31, 2006**





ASSETSCURRENT
                  ASSETSCash
                  and cash equivalents
              
              $
              5,335,282Accounts
                  receivable
              
              
              37,495Inventories
              
              
              19,658Prepaid
                  income taxes
              
              
              38,687Income
                  tax receivable
              
              
              710,013Prepaid
                  expenses, deposits, and other current assets
              
              
              246,776Investments
                  in marketable securities
              
              
              2,060,875Total
                  current assets
              
              
              8,448,786PROPERTY
                  AND EQUIPMENT, NET
              
              
              207,696OTHER
                  ASSETSIntangible
                  assets, net
              
              
              376,922Assets
                  transferred under contractual arrangements
              
              
              1,420,996Total
                  other assets
              
              
              1,797,918TOTAL
                  ASSETS
              
              $
              10,454,400LIABILITIES
                  AND STOCKHOLDERS' EQUITYCURRENT
                  LIABILITIESAccounts
                  payable
              
              $
              174,289Accrued
                  employee compensation
              
              
              242,497Other
                  accrued expenses
              
              
              150,978Income
                  taxes payable
              
              
              45,962Deferred
                  tax liability
              
              
              669,520Deferred
                  revenue
              
              
              4,099Total
                  current liabilities
              
              
              1,287,345LONG
                  TERM LIABILITIESDeferred
                  revenue
              
              
              9,126Liabilities
                  transferred under contractual arrangements
              
              
              1,042,493Total
                  long term liabilities
              
              
              1,051,619TOTAL
                  LIABILITIES
              
              
              2,338,964COMMITMENTS
                  (NOTE 9)STOCKHOLDERS'
                  EQUITYCommon
                  stock, $.01 par value; 20,000,000 shares authorized;2,315,300
                  issued and 2,065,425 outstanding
              
              
              20,654Additional
                  paid-in capital
              
              
              5,347,641Accumulated
                  other comprehensive income
              
              
              1,384,876Retained
                  earnings
              
              
              1,362,265Total
                  stockholders' equity
              
              
              8,115,436TOTAL
                  LIABILITIES & STOCKHOLDERS' EQUITY
              
              $
              10,454,400




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




-
          28 -




**PRESSURE
      BIOSCIENCES, INC., AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**





2006
            
            2005(restated)REVENUE:PCT
                Products, services, other
            
            $
            210,289
            
            $
            105,526Total
                revenue
            
            
            210,289
            
            
            105,526COSTS
                AND EXPENSES:Cost
                of PCT products & services
            
            
            165,233
            
            
            177,350Research
                and development
            
            
            1,429,711
            
            
            498,584Selling
                and marketing
            
            
            528,265
            
            
            157,493General
                and administrative
            
            
            2,145,196
            
            
            1,691,214Total
                operating costs and expenses
            
            
            4,268,405
            
            
            2,524,641Operating
                loss from continuing operations
            
            
            (4,058,116
            )
            
            (2,419,115
            )OTHER
                INCOME (EXPENSE):Realized
                gain on securities available for sale
            
            
            517,938
            
            
            3,829,677Other
                operating, net
            
            
            -
            
            
            (477,154
            )Interest
                income
            
            
            381,713
            
            
            269,535Total
                other income
            
            
            899,651
            
            
            3,622,058(Loss)
                income from continuing operations before income taxes
            
            
            (3,158,465
            )
            
            1,202,943Income
                tax benefit (provision) from continuing operations
            
            
            745,354
            
            
            (352,694
            )(Loss)
                income from continuing operations
            
            
            (2,413,111
            )
            
            850,249Discontinued
                operations:Income
                from discontinued operations (net of income taxprovision
                of $35,054)
            
            
            -
            
            
            50,574Gain
                on sale of net assets related to discontinued operations(includes
                effect of income taxes of $703,269)
            
            
            -
            
            
            703,269Net
                income from discontinued operations
            
            
            -
            
            
            753,843Net
                (loss) income
            
            $
            (2,413,111
            )
            $
            1,604,092(Loss)
                income per share from continuing operations - basic
            
            $
            (1.01
            )
            $
            0.29Income
                per share from discontinued operations - basic
            
            $
            -
            
            $
            0.25Net
                (loss) income per share - basic
            
            $
            (1.01
            )
            $
            0.54(Loss)
                income per share from continuing operations - diluted
            
            $
            (1.01
            )
            $
            0.27Income
                per share from discontinued operations - diluted
            
            $
            -
            
            $
            0.25Net
                (loss) income per share - diluted
            
            $
            (1.01
            )
            $
            0.52Weighted
                average number of shares used to calculate net (loss) income per
                share -
                basic
            
            
            2,396,077
            
            
            2,972,662Weighted
                average number of shares used to calculate net (loss) income per
                share -
                diluted
            
            
            2,396,077
            
            
            3,107,973





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




-
          29 -




**PRESSURE
      BIOSCIENCES, INC., AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF COMPREHENSIVE INCOME (LOSS)**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**








Other
                Comprehensive Income (Loss):
            
            2006
            
            2005(restated)Net
                (loss) income
            
            $
            (2,413,111
            )
            $
            1,604,092Holding
                (loss) gain
            
            
            (1,383,417
            )
            
            7,787,303Reclassification
              of unrealized gain to realized gain on securities sold during the
              period
            
            
            (517,938
            )
            
            (3,829,677
            )Unrealized
                (loss) gain on marketable securities
            
            
            (1,901,355
            )
            
            3,957,626Income
                tax benefit (provision) related to items of other comprehensive (loss)
                income
            
            
            748,268
            
            
            (1,419,663
            )Total
                other comprehensive (loss) income, net of taxes
            
            
            (1,153,087
            )
            
            2,537,963Comprehensive
                (loss) income
            
            $
            (3,566,198
            )
            $
            4,142,055




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




-
          30 -




**PRESSURE
      BIOSCIENCES, INC., AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**





Common
                StockShares
            
            $.01
                Par
              Value
            
            Additional
              Paid-In
              Capital
            
            Accumulated
                Other Comprehensive Income
            
            Loan
                Receivable from Officer/Director
            
            Retained
              Earnings
            
            Total
                Stockholders' EquityBALANCE,
                December 31, 2004
            
            
            6,872,915
            
            $
            68,729
            
            $
            22,286,395
            
            $
            -
            
            $
            (1,134,262
            )
            $
            2,171,284
            
            $
            23,392,146Stock
                options and other warrants exercised
            
            
            761,275
            
            
            7,543
            
            
            2,142,141
            
            
            -
            
            
            -
            
            
            -
            
            
            2,149,684Proceeds
                from interest onloan
                receivable from CEO/Director
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            134,262
            
            
            -
            
            
            134,262Repurchase
                shares via tender offer
            
            
            (5,210,001
            )
            
            (52,030
            )
            
            (18,401,516
            )
            
            -
            
            
            -
            
            
            -
            
            
            (18,453,546
            )Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            -
            
            
            1,604,092
            
            
            1,604,092Unrealized
                gain on investments (net of tax)
            
            
            -
            
            
            -
            
            
            -
            
            
            2,537,963
            
            
            -
            
            
            -
            
            
            2,537,963BALANCE,
                December 31,2005
            
            
            2,424,189
            
            $
            24,242
            
            $
            6,027,020
            
            $
            2,537,963
            
            $
            (1,000,000
            )
            $
            3,775,376
            
            $
            11,364,601Stock
                options and other warrants exercised
            
            
            2,000
            
            
            20
            
            
            5,380
            
            
            -
            
            
            -
            
            
            -
            
            
            5,400Interest
                accrued on loanreceivable
                from CEO/Director
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (25,487
            )
            
            -
            
            
            (25,487
            )Exchange
                of shares for payoff ofloan
                receivable from CEO/Director
            
            
            (249,875
            )
            
            (2,499
            )
            
            (1,022,988
            )
            
            -
            
            
            1,025,487
            
            
            -
            
            
            -Repurchase
                shares via stock buy-back program
            
            
            (110,889
            )
            
            (1,109
            )
            
            (322,049
            )
            
            -
            
            
            -
            
            
            -
            
            
            (323,158
            )Stock-based
                compensation
            
            
            -
            
            
            -
            
            
            660,278
            
            
            -
            
            
            -
            
            
            -
            
            
            660,278Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,413,111
            )
            
            (2,413,111
            )Unrealized
                loss on investments (net of tax)
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,153,087
            )
            
            -
            
            
            -
            
            
            (1,153,087
            )BALANCE,
                December 31, 2006
            
            
            2,065,425
            
            $
            20,654
            
            $
            5,347,641
            
            $
            1,384,876
            
            $
            -
            
            $
            1,362,265
            
            $
            8,115,436




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




-
          31 -




**PRESSURE
      BIOSCIENCES, INC., AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**





2006
            
            2005CASH
                FLOWS FROM OPERATING ACTIVITIES:
            
            
            
            (restated)Net
                (loss) income
            
            $
            (2,413,111
            )
            $
            1,604,092Less
                income from discontinued operations
            
            
            -
            
            
            753,843(Loss)
                income from continuing operations
            
            
            (2,413,111
            )
            
            850,249Adjustments
                to reconcile (loss) income from continuing operations to net
                cashused
                in operating activities :Depreciation
                and amortization
            
            
            146,256
            
            
            106,552Non-cash,
                stock-based, compensation expense
            
            
            660,278
            
            
            -Loss
                on disposal of property and equipment
            
            
            42,781
            
            
            -Assets
                and liabilities transferred under contractual arrangements,
                (net)
            
            
            -
            
            
            442,348Realized
                gain on sale of marketable securities
            
            
            (517,938
            )
            
            (3,829,677
            )Interest
                receivable on loan outstanding from Director / CEO
            
            
            -
            
            
            134,263Interest
                received with exchange of stock from Director/CEO
            
            
            (25,487
            )
            
            -Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            21,303
            
            
            152,500Inventories
            
            
            65,549
            
            
            72,610Investments
                - other
            
            
            -
            
            
            6,016Income
                tax receivable
            
            
            (178,891
            )
            
            (531,123
            )Prepaid
                income taxes
            
            
            (38,687
            )
            
            -Escrow
                deposits and deferred costs related to tender offer
            
            
            -
            
            
            110,529Prepaid
                expenses and other current assets
            
            
            (171,490
            )
            
            (43,103
            )Restricted
                cash payable to SeraCare
            
            
            (9,100
            )
            
            (225,796
            )Accounts
                payable
            
            
            117,894
            
            
            15,120Accrued
                employee compensation
            
            
            148,143
            
            
            7,830Other
                accrued expenses
            
            
            44,966
            
            
            (205,320
            )Deferred
                revenue
            
            
            13,225
            
            
            -Income
                taxes payable
            
            
            (17,767
            )
            
            (111,281
            )Accrued
                expenses due to SeraCare
            
            
            -
            
            
            218,454Net
                cash used in operating activities
            
            
            (2,112,076
            )
            
            (2,829,829
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Payments
                for additions to property and equipment
            
            
            (65,609
            )
            
            (320,905
            )Proceeds
                from sale of marketable securities
            
            
            518,463
            
            
            3,833,712Net
                cash provided by investing activities
            
            
            452,854
            
            
            3,512,807CASH
                FLOWS FROM FINANCING ACTIVITIES:Use
                of funds to repurchase common stock
            
            
            (323,158
            )
            
            (18,453,547
            )Proceeds
                from the issuance of common stock
            
            
            5,400
            
            
            2,149,684Net
                cash used in financing activities
            
            
            (317,758
            )
            
            (16,303,863
            )CASH
                FLOW FROM DISCONTINUED OPERATIONS:Cash
                flows from operating activities, net of taxes
            
            
            (1,866
            )
            
            (4,035
            )Cash
                flows from investing activities
            
            
            1,117,305
            
            
            839,902Deferred
                tax liability on installment sale gain
            
            
            (219,949
            )
            
            -Net
                cash provided by discontinued operations
            
            
            895,490
            
            
            835,867DECREASE
                IN CASH AND CASH EQUIVALENTS:
            
            
            (1,081,490
            )
            
            (14,785,018
            )Cash
                and cash equivalents, beginning of year
            
            
            6,416,772
            
            
            21,201,790Cash
                and cash equivalents, end of year
            
            $
            5,335,282
            
            $
            6,416,772SUPPLEMENTAL
                INFORMATION:Income
                Taxes Paid
            
            $
            230,863
            
            $
            23,508Interest
                Paid
            
            
            21,281
            
            
            -




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




-
          32 -




**PRESSURE
        BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
        OF DECEMBER 31, 2006**


**(1)  Business
      Overview**





Pressure
      BioSciences, Inc., a Massachusetts corporation, 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.  Our pressure cycling technology uses an
      instrument that is capable of cycling pressure between ambient and ultra-high
      levels at controlled temperatures to rapidly and repeatedly control the
      interactions of bio-molecules. PCT utilizes our BarocyclerTM instrument and
      disposable PULSETM Tubes to release nucleic acids, proteins, and small molecules
      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., and its wholly-owned subsidiaries, PBI Biotech Research Laboratories,
      Inc., PBI Source Scientific, Inc., and PBI BioSeq, Inc.





***(ii) Use
      of Estimates***





To
      prepare our consolidated financial statements in conformity with generally
      accepted accounting principles, we are required to make significant estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      reporting period. In addition, significant estimates were made in projecting
      future cash flows to quantify impairment of assets, on determining the gain
      on
      the disposition of our discontinued operations including post-closing
      adjustments, deferred tax assets, the costs associated with fulfilling our
      warranty obligations for the instruments that we sell, and the estimates
      employed in our calculation of fair value of stock options awarded. We base
      our
      estimates on historical experience and on various other assumptions that we
      believe to be reasonable under the circumstances, the results of which form
      the
      basis for making judgments about the carrying values of assets and liabilities
      that are not readily apparent from other sources. Actual results could differ
      from the estimates and assumptions used.





***(iii) Revenue
      Recognition***





We
      recognize revenue in accordance with the Securities and Exchange Commission’s
      (“SEC”) Staff Accounting Bulletin (“SAB”) 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.





Our
      current instrument, the Barocycler NEP3229 requires a basic level of
      instrumentation expertise to set-up for initial operation. In order to support
      a
      favorable first experience for our customers, we send a technical representative
      to the customer site to “commission **”** every
      NEP3229 that we sell. The “commissioning” process includes uncrating and setting
      up the instrument and delivering an introductory user training course. Product
      revenue related to current Barocycler instrumentation is generally recognized
      upon the “commissioning” of our instrumentation at the customer location.
      Product revenue related to disposable PULSE Tubes is recorded upon shipment
      through a common carrier.





Revenue
      from government grants is recorded when expenses are incurred under the grant
      in
      accordance with the terms of the grant award. Revenue from extended service
      contracts is recorded over the life of the contracts.




-
          33 -




**PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2006**


***(iv) Cash
      and Cash Equivalents***





Our
      policy is to invest available cash in short-term, investment grade,
      interest-bearing obligations, including money market funds, and bank and
      corporate debt instruments. Securities purchased with initial maturities of
      three


months
      or
      less are valued at cost plus accrued interest, which approximates fair market
      value, and are classified as cash equivalents.





***(v) 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 that are expensed as incurred. Our
      research activities are performed at our laboratories in Woburn, Massachusetts
      and Rockville, Maryland and in conjunction with the collaboration partner
      sites.  In support of our research and development activities we utilize
      our Barocycler instruments that are capitalized as fixed assets and depreciated
      over their expected useful life.





***(vi) Inventories***





Inventories
      are valued at the lower of cost or market.  The composition of inventory as
      of December 31, 2006 is as follows:




Raw
                materials
            
            $
            3,158Finished
                goods
            
            
            16,500Total
            
            $
            19,658




***(vii) Property
      and Equipment***





Property
      and equipment are stated at cost, less accumulated depreciation. For financial
      reporting purposes, depreciation is recognized using the straight-line method,
      allocating the cost of the assets over their estimated useful lives of three
      years for certain laboratory equipment, from three to five years for management
      information systems and office equipment, and three years for all PCT finished
      units capitalized as fixed assets.





***(viii) Intangible
      Assets***





We
      have
      classified as intangible assets, costs associated with the fair value of
      acquired intellectual property.  Intangible assets including patents are
      being amortized on a straight-line basis over sixteen years.  We perform a
      quarterly review of 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 was performed as of December
      31, 2006. Based on this analysis, we have concluded that no impairment of
      intangible assets had occurred.





***(ix) Long-Lived
      Assets and Deferred Costs***





In
      accordance with the Financial Accounting Standards Board (“FASB”) Statements of
      Financial Accounting Standards (“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 performed an impairment test for impairment at
      December 31, 2006 and determined that such long-lived assets were not
      impaired.




-
          34 -




**PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2006**


***(x) Concentrations***





*Credit
      Risk*





Financial
      instruments that potentially subject us to concentrations of credit risk consist
      primarily of cash and cash equivalents to the extent these exceed federal
      insurance limits. Risks associated with cash and cash equivalents are mitigated
      by our investment policy which mandates that our cash reserves are invested
      in
      high credit quality financial instruments.





*Product
      Supply*





Source
      Scientific, LLC has been our sole contract manufacturer for all of our PCT
      instrumentation. A disruption in our relationship with Source would have a
      significant adverse effect on our current commercialization
      efforts.





***(xi) 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 anti-dilutive are excluded from
      the calculation.





Potentially
      dilutive securities having a net effect of 118,751 for the year ended 2006
      were
      not included in the computation of diluted loss per share because to do so
      would
      have been anti-dilutive for income from continuing operations.





For
                the Year Ended
              December
                31,2006
            
            2005Numerator:(Loss)
                income from continuing operations, basic and diluted
            
            $
            (2,413,111
            )
            $
            850,249Demoninator:Weighted
                Average Shares Outstanding, basic
            
            
            2,396,077
            
            
            2,972,662Net
                effect of dilutive common stock equivalents-based on treasury stock
                method
                using average market price
            
            
            -
            
            
            135,311Weighted
                Average Shares Outstanding, diluted
            
            
            2,396,077
            
            
            3,107,973(Loss)
                income per share from continuing operations - basic
            
            $
            (1.01
            )
            $
            0.29(Loss)
                income per share from continuing operations - diluted
            
            $
            (1.01
            )
            $
            0.27




***(xii) Recent
      Accounting Standards***




*Accounting
      for Income Taxes*





In
      June
      2006, the FASB issued FASB Interpretation No. 48, *“Accounting
      for Uncertainty in Income Taxes”* (“FIN
      48”), which applies to all tax positions accounted for under SFAS No. 109 *“Accounting
      for Income Taxes”* . FIN
      48 prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. FIN 48 also provides guidance on
      de-recognition of such tax positions, classification, interest and penalties,
      accounting in interim periods and disclosure. FIN 48 is applicable to the
      Company as of January 1, 2007. We do not expect the implementation of FIN
      48 to have a material impact on our consolidated financial statements.




-
          35 -
 
  **PRESSURE
            BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
            OF DECEMBER 31, 2006**


*Fair
      Value Measurements*





In
      September 2006, FASB issued SFAS 157, *“Fair
      Value Measurements”* .
      This
      Statement establishes a formal framework for measuring fair value under GAAP
      and
      expands on disclosure of fair value measurements. Although SFAS
      No.
      157 applies to and amends the provisions of existing FASB and AICPA
      pronouncements, it does not, of itself, require any new fair value measurements,
      nor does it establish valuation standards. SFAS No 157 applies to all other
      accounting pronouncements requiring or permitting fair value measurements,
      except for; SFAS No. 123R, share based payment and related pronouncements,
      the
      practicability exceptions to fair value determinations allowed by various other
      authoritative pronouncements, and AICPA Statements of Position 97-2 and 98-9
      that deal with software revenue recognition. This statement is effective for
      financial statements issued for fiscal years beginning after November 15, 2007,
      and interim periods within those fiscal years.





*Effects
      of Prior Year Misstatements*





In
      September 2006, the SEC staff released Staff Accounting Bulletin No. 108, *"Considering
      the Effects of Prior Year Misstatements When Quantifying Misstatements in
      Current Year Financial Statements,"* or SAB
      108.  SAB 108 provides for a "one-time" special transition provision for
      correcting certain prior year misstatements that were uncorrected as of the
      beginning of the fiscal year of adoption. SAB 108 permits existing public
      companies to initially apply its provisions either by (i) restating prior
      financial statements as if the dual approach had always been used or (ii)
      recording the cumulative effect of initially applying the dual approach as
      adjustments recorded to the opening balance of retained earnings.  SAB 108
      is effective for fiscal years ending after November 15, 2006.  The adoption
      of SAB 108 did not have a material impact on our consolidated financial
      statements.





***(xiii) Accounting
      for Stock-Based Compensation***





On
      January 1, 2006, we adopted SFAS No. 123 (revised 2004), *“Share-Based
      Payment”* ,
      or SFAS
      123R, and its related implementation guidance as promulgated by both the FASB,
      and the SEC SAB 107, associated with the accounting for stock-based compensation
      arrangements of our employees and directors. These pronouncements require that
      equity-based compensation cost be measured at the grant date (based upon an
      estimate of the fair value of the compensation granted) and recorded to expense
      over the requisite service period, which generally is the vesting period. We
      adopted SFAS 123R using the modified prospective method in the first quarter
      of
      2006. Under this method, stock-based compensation expense recognized during
      2006
      includes: (a) compensation expense for all equity-based payments granted prior
      to, but not yet vested as of January 1, 2006, based on the grant date fair
      value
      estimated in accordance with the original provisions of FASB Statement No.
      123, *“Accounting
      for Stock-Based Compensation”* (“SFAS
      123”), and (b) compensation expense for all equity-based payments granted
      between January 1, 2006 and December 31, 2006, based on the grant date fair
      value estimated using the Black-Scholes option pricing model. Results for
      periods prior to January 1, 2006 do not include, and have not been restated
      to
      reflect amounts associated with the requirements of SFAS 123R.




We
      estimate the fair value of equity-based compensation utilizing the Black-Scholes
      option pricing model. This model requires the input of several factors such
      as
      the expected option term, expected volatility of our stock price over the
      expected term, expected risk-free interest rate over the expected option term,
      expected dividend yield rate over the expected option term, and an estimate
      of
      expected forfeiture rates, and is subject to various assumptions. We believe
      this valuation methodology is appropriate for estimating the fair value of
      stock
      options granted to employees and directors which are subject to SFAS 123R
      requirements. These amounts are estimates and thus may not be reflective of
      actual future results, nor amounts ultimately realized by recipients of these
      grants. These amounts, and the amounts applicable to future quarters, are also
      subject to future quarterly adjustments based upon a variety of factors. The
      following table summarizes the assumptions we utilized for grants of stock
      options to the two sub-groups of our stock option recipients during the twelve
      months ended December 31, 2006:




-
          36 -




**PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2006**


Assumptions
              
              Outside
                  Board Members
              
              CEO
                  and other Officers & EmployeesExpected
                  Life
              
              5.0
              
              6.0Expected
                  Volatility
              
              74.6%
                  - 77.9%
              
              88.2%
                  - 92.5%Risk-Free
                  Interest Rate
              
              4.94%
              
              4.94%Expected
                  Dividend Yield
              
              0.0%
              
              0.0%


We
      developed the above referenced assumptions based on the following rationale.
      We
      utilized the simplified method provided by SAB No. 107 to develop our estimate
      of expected term of the stock options granted. Under this method, stock options
      granted to outside board members are estimated to have an expected term of
      5
      years and stock options granted to our CEO and all other officers and employees
      are estimated to have an expected term of 6 years. All stock options granted
      have a 10 year contractual life. The stock options granted to outside directors
      vest immediately and the stock options granted to the CEO and all other officers
      and employees vest annually, on an equal basis over three years. SAB No. 107
      provides a simplified approach to developing the estimate of expected term
      based
      on the average of the midpoint of the vesting period and the contractual life.
      The expected volatility is assumed to approximate the historical volatility
      that
      was observed during the corresponding expected term for each sub-group of option
      recipients. The risk-free interest rate is a weighted average approximation
      based on the U.S. Treasury yields in effect at the time of the grants. We used
      a
      dividend yield of zero for the calculation because we have
      never paid cash dividends and we have no intention to begin paying dividends
      in
      the foreseeable future. While we believe these estimates are reasonable, the
      compensation expense recorded would increase if the assumed expected term was
      increased or a higher expected volatility was used.





As
      a
      result of adopting SFAS 123R on January 1, 2006 we recognized stock-based
      compensation expense of $660,278 for the twelve months ended December 31, 2006.
      The following table summarizes the effect of this stock-based compensation
      expense within each of the line items within our Consolidated Statement of
      Operations:





Cost
                of PCT products & services
            
            $
            9,955Research
                and development
            
            
            181,609Selling
                and marketing
            
            
            44,086General
                and administrative
            
            
            424,628Total
                stock-based compensation expense
            
            $
            660,278





The
      provisions of SFAS 123R require that we make an estimate of our forfeiture
      rate
      and adjust the expense that we recognize to reflect the estimated number of
      stock options that will go unexercised. Due to our early stage of development
      as
      a newly focused company and our limited workforce of fourteen employees as
      of
      December 31, 2006, including executive officers, we are challenged to develop
      an
      appropriate estimate of forfeitures. Based on these circumstances we have opted
      for a conservative position in that we are estimating forfeitures to be 0%
      at
      this time. We will continue to assess this position as our company develops
      and
      our workforce expands. When we feel that we have sufficient data on which to
      base an assumption, we will adjust the expense recognized, if
      necessary.





During
      2006, the total fair value of stock options awarded was $1,089,400. During
      2005,
      the total fair value of stock options awarded was $566,304.





As
      of
      December 31, 2006, the total estimated fair value of unvested stock options
      to
      be amortized over their remaining vesting period was $804,593. The non-cash,
      stock based compensation expense associated with the vesting of these options
      will be $404,089 in 2007 and the remainder will vest in 2008 and 2009.





Prior
      to
      January 1, 2006, we accounted for our stock-based compensation under the
      recognition and measurement provisions of APB No. 25, and related
      Interpretations, as permitted by SFAS 123, as amended by SFAS No. 148
“Accounting for Stock-Based Compensation - Transition and Disclosure”. No
      stock-based compensation cost was recognized in the Consolidated Statements
      of
      Operations for the twelve months ended December 31, 2005, as all stock options
      granted under our stock option plans had an exercise price equal to the fair
      market value of the underlying common stock on the date of grant.




-
          37 -




**PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2006**


The
      following table illustrates the effect on the net income and the net income
      per
      share for the year ended December 31, 2005 as if we had applied the fair value
      recognition provisions of SFAS 123 to stock options granted under our stock
      option plans in effect at that time. For purposes of this pro forma disclosure,
      the value of the stock options is estimated using the Black-Scholes option
      pricing model and amortized to expense over the stock options’ vesting periods:




For
                the Year EndedDecember
                31, 2005Net
                income - as reported
            
            $
            1,604,092Add
                back: Stock-based compensationin
                net income, as reported
            
            
            -Deduct:
                Stock-based employee compensationexpense
                determined under fair value based methodfor
                all awards, net of related tax effects
            
            
            (151,982
            )Net
                income - pro forma
            
            $
            1,452,110Basic
                net income per share - as reported
            
            $
            0.54Basic
                net income per share - pro forma
            
            $
            0.49Diluted
                net income per share - as reported
            
            $
            0.52Diluted
                net income per share - pro forma
            
            $
            0.47




***(xiv)  Investment
      in Marketable Securities***





As
      of
      December 31, 2006, we held 513,934 shares of common stock of Panacos
      Pharmaceuticals Inc., a publicly traded company listed on the NASDAQ Global
      Market. We account for this investment in accordance with SFAS 115 *“Accounting
      for Certain Investments in Debt and Equity Securities”* as
      securities available for sale. On December 31, 2006, our balance sheet reflected
      the fair value of our investment in Panacos Pharmaceuticals to be approximately
      $2.1 million, based on the closing price of Panacos Pharmaceuticals shares
      of
      $4.01 per share on that day. The carrying value of our investment in Panacos
      Pharmaceuticals common stock held will change from period to period based on
      the
      closing price of the common stock of Panacos Pharmaceuticals as of the balance
      sheet date. This change in market value will be recorded by us on a quarterly
      basis as an unrealized gain or loss in Comprehensive Income or Loss. As of
      December 31, 2006 we classified this investment as a current asset to reflect
      our ability and intent to liquidate this position during 2007.





***(xv)  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.





***(xvi)
      Correction of an Error***





In
      May
      2005, the FASB issued SFAS 154, *“Accounting
      Changes and Error Corrections”* ,
      which
      replaces APB 20, *“Accounting
      Changes”* ,
      and
      SFAS 3, *“Reporting
      Accounting Changes in Interim Financial Statements - An Amendment of APB Opinion
      No. 28”* .
      SFAS
      154 provides guidance on the accounting for and the reporting of accounting
      changes and error corrections. It establishes retrospective application, or
      the
      latest practicable date, as the required method for reporting a change in
      accounting principle and the reporting of a correction of an error. SFAS 154
      is
      the required method for reporting a change in accounting principle and the
      reporting of a correction of an error. We have adopted SFAS 154 to correct
      an
      error made during the quarter ended September 30, 2005 and discovered during
      the
      quarter ended March 31, 2006.




On
      March
      15, 2006, we received $1,094,162 from Wells Fargo Corporate Trust Escrow
      Services, representing the remaining principal, and interest, held in
      escrow from the 2004 sale of the assets and certain liabilities of our BBI
      Core
      Businesses to SeraCare Life Sciences Inc. (“SeraCare”). The receipt of these
      funds triggered the recognition of taxable income, accounted for as an
      installment sale for federal income tax purposes. During the financial statement
      closing process for the quarter ended March 31, 2006, we determined that a
      deferred tax liability of
      approximately $220,000 should have been established during the quarter ended
      September 30, 2005, the period in which we filed our federal income tax return.
      Upon re-examining our accounting for income taxes in entirety we further
      determined that the deferred tax liability in connection with the unrealized
      gain on Panacos Pharmaceuticals should be reduced by approximately $60,000,
      and
      that the income tax provision from continuing operations should be increased
      by
      approximately $23,000. We also determined that the accounting for deferred
      tax
      assets needed to be adjusted; however, there was no impact from this
      adjustment as deferred tax assets are fully reserved for.




-
          38 -




**PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2006**


We
      elected to remedy these errors by restating our Annual Report on Form 10-KSB,
      for the year ended December 31, 2005 and our Quarterly Report on Form 10-QSB
      for
      the quarter ended September 30, 2005.





These
      adjustments reduced income from discontinued operations by approximately
      $220,000. These adjustments did not change our reported pre-tax results from
      continuing operations, but income from continuing operations after income taxes
      for the year ended December 31, 2005 was reduced from approximately $873,000
      to
      approximately $850,000.





***(xvii)
      Reclassifications***





Certain
      prior year amounts have been reclassified to conform to our current year
      presentation.





**(3)  Discontinued
      Operations**





On
      September 14, 2004, we completed the sale of substantially all of the
      assets and selected liabilities of the BBI Diagnostics and BBI Biotech divisions
      of our legacy company Boston Biomedica, Inc. to SeraCare. Pursuant to the Asset
      Purchase Agreement, the businesses were sold for $30 million in cash of
      which $27.5 million was paid at the closing and the remaining
      $2.5 million was deposited in escrow pursuant to an escrow agreement
      expiring in March 2006. In December 2004, and again in February 2005, we
      settled disagreements with SeraCare regarding the value of the inventory and
      accounts receivable in the closing balance sheets by releasing approximately
      $1.4 million from the escrow account. On March 15, 2006, we received
      approximately $1.1 million in remaining escrow funds.





**(4)  Assets
      and Liabilities Transferred Under Contractual Arrangements**





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. Under the Source Scientific Agreement,
      we 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 offers Mr. Henson and Mr. Sargeant the opportunity to
      purchase our 30% ownership interest in Source Scientific, LLC until May 31,
      2007, at an escalating premium (10-50%) over our initial ownership value,
      provided that they have first paid off the Notes in their entirety.





Despite
      our intent to exit the laboratory instrumentation business, we may be viewed
      as
      having a continuing involvement in the business of Source Scientific, LLC.
      Because of this and other factors, even though the transaction is treated as
      a
      divestiture for legal purposes, we have not recognized the transaction as a
      divestiture for accounting purposes in accordance with SEC SAB Topic 5E, *“Accounting
      for Divestiture of a Subsidiary or Other Business Operation”* . 
      In accordance with SAB Topic 5E, we have recorded the assets and liabilities
      associated with the Source Scientific, LLC operation on our consolidated balance
      sheet as of December 31, 2006 under the captions “Assets transferred under
      contractual arrangements” and “Liabilities transferred under contractual
      arrangements”.




During
      the year ended December 31, 2006, Source Scientific, LLC recognized net income
      of approximately $21,000. In accordance with SAB Topic 5E, we excluded this
      net
      income from our Consolidated Statement of Operations and made no adjustment
      to
      the accounts captioned “Assets transferred under contractual arrangements” and
“Liabilities transferred under contractual arrangements”. SAB Topic 5E requires
      that we recognize the losses of Source Scientific, LLC to the extent such losses
      exceed profits in the same fiscal year. In accordance with SAB Topic 5E, we
      will
      continue this accounting treatment until circumstances have changed or until
      the
      net assets of the Source Scientific, LLC business have been written down to
      zero
      (or a net liability is recognized in accordance with GAAP). During the year
      ended December 31, 2005, Source Scientific, LLC recorded a net loss of
      $477,154.




-
          39 -




**PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2006**


**(5)  Property
      and Equipment**





Property
      and equipment at December 31, 2006 consisted of the following
      components:




Laboratory
                and manufacturing equipment
            
            $
            43,986Office
                equipment
            
            
            64,496PCT
                collaboration / demo / lease systems
            
            
            227,708336,190Less
                accumulated depreciation
            
            
            (128,494
            )Net
                book value
            
            $
            207,696








Depreciation
      expense for the years ended December 31, 2006 and 2005 was $97,621 and $57,917,
      respectively.





**(6)  Intangible
      Assets**





Intangible
      assets as of December 31, 2006 reflect an estimate of purchase price
      attributable to patents in connection with the 1998 acquisition of BioSeq,
      Inc.
      and the 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 of approximately 8 years. Intangible assets at December
      31, 2006 consisted of the following:




PCT
                Patents
            
            $
            778,156Less
                accumulated amortization
            
            
            (401,234
            )Net
                book value
            
            $
            376,922




Amortization
      expense for each of the years ended December 31, 2006 and 2005 was
      $48,635.





**(7)  Retirement
      Plan**





We
      provide all of our employees with the opportunity to participate in our
      retirement savings plan. The Plan 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. During 2006 and 2005 we contributed $9,565
      and
      $3,544, respectively, in the form of discretionary company matching
      contributions.





**(8)  Income
      Taxes**





The
      components of the benefit (provision) for income taxes from continuing
      operations are as follows:





-
          40 -




**PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2006**


For
                the Year EndedDecember
                31,2006
            
            2005Current
                benefit (provision): federal
            
            $
            929,961
            
            $
            (239,023
            )Current
                (provision): state
            
            
            (184,607
            )
            
            (113,671
            )Total
                current benefit (provision)
            
            
            745,354
            
            
            (352,694
            )Deferred
                provision: federal
            
            
            -
            
            
            -Deferred
                provision: state
            
            
            -
            
            
            -Total
                deferred provision
            
            
            -
            
            
            -Total
                benefit (provision) for income taxes from continuing
                operations
            
            $
            745,354
            
            $
            (352,694
            )




Significant
      items making up the deferred tax assets and deferred tax liabilities as of
      December 31, 2006, are as follows:




Current
                deferred taxes:Inventories
            
            $
            24,512Other
                accruals
            
            
            31,536Unrealized
                gain on marketable securities
            
            
            (669,520
            )Less:
                valuation allowance
            
            
            (56,048
            )Total
                current deferred tax assets (liabilities)
            
            $
            (669,520
            )Long
                term deferred taxes:Accelerated
                tax depreciation
            
            $
            (721
            )Source
                Scientific Note, OID
            
            
            57,989Non-cash,
                stock-based compensation, NQ
            
            
            156,035Goodwill
                and intangibles
            
            
            (151,787
            )Operating
                loss carryforwards
            
            
            1,359,572Less:
                valuation allowance
            
            
            (1,421,088
            )Total
                long term deferred tax assets (liabilities), net
            
            
            -Total
                net deferred tax liabilities
            
            $
            (669,520
            )




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 2006 and 2005 for the full amount of
      our
      deferred tax assets due to the uncertainty of realization.  We believe
      based on our projection of future taxable operating 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, 2006.





We
      have
      not reserved for our deferred tax liability of $669,520 which is related to
      the
      unrealized gain on our investment in marketable securities of Panacos
      Pharmaceuticals shares held for sale. This deferred tax liability was classified
      to current to be consistent with our treatment of the investment in Panacos
      Pharmaceuticals shares.





We
      had
      net operating loss carry-forwards for federal income tax purposes of
      approximately $577,000 as of December 31, 2006.  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.  We had
      net operating loss carry-forwards for state income tax purposes of approximately
      $13,507,000 at December 31, 2006.  These net operating loss carry-forwards
      expire at various dates from 2007 through 2024.





Our
      effective income tax (benefit) provision rate for continuing operations was
      different than the statutory federal income tax (benefit) provision rate as
      follows:




-
          41 -




**PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2006**


For
                the Year EndedDecember
                31,2006
            
            
            2005Federal
                tax benefit (provision) rate
            
            
            34
            %
            
            
            (34
            )%Permanent
                differences
            
            
            (2
            )%
            
            
            2
            %State
                tax expense
            
            
            (4
            )%
            
            
            (6
            )%Valuation
                allowance
            
            
            (4
            )%
            
            
            9
            %Effective
                income tax benefit (provision) rate from continuing
                operations
            
            
            24
            %
            
            
            (29
            )%




**(9)  Commitments
      and Contingencies**





*Operating
      Leases*





On
      March
      1, 2006 we entered into a sub-lease agreement with Proteome Systems, pursuant
      to
      which we have agreed to lease approximately 650 square feet of laboratory space
      plus 100 square feet of office space from Proteome Systems in Woburn,
      Massachusetts. The current lease expired on December 31, 2006 and we are
      currently negotiating an extension of this agreement. While we negotiate for
      an
      extension, we are leasing the space as a tenant-at-will, on a month-to-month
      basis. We are paying $2,350 per month for the use of these facilities.





On
      June
      1, 2006 we entered into a lease agreement with Scheer Partners and the Maryland
      Economic Development Corporation, pursuant to which we have agreed to lease
      laboratory and office space in Rockville, Maryland. The lease will expire on
      May
      31, 2007. We are currently paying $2,600 per month for the use of these
      facilities.





*Royalty
      Commitments*





In
      1998,
      we acquired all of the remaining common stock outstanding of BioSeq Inc., a
      development stage company involved with PCT. In accordance with the provisions
      of a technology transfer agreement assumed in the transaction, we are obligated
      to pay a 5% royalty on net sales until March 2016. For purposes of the royalty
      calculation, net sales include the trade revenues related to units sold or
      leased as well as PULSE Tube revenues. During 2006 and 2005, our royalty expense
      was $9,809 and $4,674, respectively.





*Purchase
      Commitments*





In
      April
      2006, we executed a purchase order with Source under which we agreed to purchase
      25 Barocycler NEP3229 units. In connection with this purchase order, we
      submitted a deposit to Source for $200,000. Instruments manufactured under
      this
      purchase order were first available for sale in mid-March 2007. It was expected
      that the manufacturing time required for this number of instruments should
      have
      been, and should be in the future, about three months. This initial order has
      taken much longer than expected because of the added time required to
      incorporate into these instruments a number of improvements that resulted from
      the use of the instrument by our collaboration sites, by our internal use,
      and
      by a thorough review of the Barocycler product by Dr. Ting, Senior Vice
      President of Engineering, during the first six months after he joined the
      Company in April 2006. In accordance with the terms of the agreement, and due
      to
      the time required to accommodate instrument improvements, we expect that the
      remaining units will be completed during the first half of 2007. As of December
      31, 2006 there were 21 units outstanding under this purchase order.





**(10)  Stockholders’
      Equity**





*Preferred
      Stock*





In
      1996,
      our Board of Directors authorized the issuance of 1,000,000 shares of preferred
      stock with a par value of $0.01. As of December 31, 2006 none of these shares
      have been issued.




-
          42 -




**PRESSURE
          BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF DECEMBER 31, 2006**


*Common
      Stock*





*Shareholders
      Purchase Rights Plan*





On
      March
      3, 2003, our Board of Directors adopted a shareholder purchase rights plan
      (“the
      Rights Plan”) and declared a distribution of one Right for each outstanding
      share of our 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 our 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 which will only occur if a person or group acquires beneficial
      ownership of 15% or more of our 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 our Common Stock, the Rights will not become exercisable unless
      and
      until such person or group acquires beneficial ownership of additional shares
      of
      Common Stock.





Subject
      to certain limited exceptions, if a person or group acquires beneficial
      ownership of 15% or more of our 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 our 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
      our Common Stock, we are 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.





Our
      Board
      of Directors 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 our Common Stock, the
      Board of Directors may redeem the Rights in whole, but not in part, at a price
      of $0.001 per Right.





*Options
      and Warrants*





On
      June
      16, 2005, our stockholders approved our 2005 Equity Incentive Plan (the “Plan”),
      pursuant to which an aggregate of 1,000,000 shares of our common stock was
      reserved for issuance upon exercise of stock options or other equity awards
      made
      under the Plan.  Under the Plan, we may award stock options, stock
      issuances, and other equity interests in the Company to employees, officers,
      directors, consultants, and advisors, and to any other persons the Board of
      Directors deems appropriate. As of December 31, 2006, options to acquire 692,000
      shares have been granted under the Plan.





We
      also
      have 244,000 stock options outstanding under our 1999 Non-qualified Plan and
      9,500 stock options outstanding under our 1994 Incentive Stock Option Plan.
      As
      of December 31, 2006, there were 4,800 shares available for future grant under
      the 1999 Non-qualified Plan. The 1994 Incentive Stock Option Plan expired;
      therefore, there are no shares available for future grants under this plan.


The
        following tables summarize information concerning options outstanding and
        exercisable:


-
          43 -


**PRESSURE
        BIOSCIENCES, INC., AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
        OF DECEMBER 31, 2006**


Stock
                    Options
                
                Warrants
                
                TotalShares
                
                Weighted
                    Average price per share
                
                Shares
                
                Weighted
                    Average price per share
                
                Shares
                
                ExercisableBalance
                    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
                
                
                385,000Granted
                
                
                382,000
                
                
                3.91
                
                
                
                
                
                
                
                
                382,000Exercised
                
                
                (2,000
                )
                
                2.70
                
                
                
                
                
                
                
                
                (2,000
                )Expired
                
                
                (19,500
                )
                
                4.11
                
                
                
                
                
                
                
                
                (19,500
                )Forfeited
                
                
                -
                
                
                
                
                
                
                
                
                
                
                
                -Balance
                    outstanding, 12/31/2006
                
                
                945,500
                
                $
                3.32
                
                
                -
                
                
                
                
                
                945,500
                
                
                524,000






Options
                  Outstanding
              
              
              Options
                  ExercisableRange
                  of Exercise Prices
              
              
              Number
                  of
                Options
              
              
              Remaining
                  Contractual Life (yrs)
              
              
              Exercise
                Price
              
              
              Number
                  of
                Options
              
              
              Remaining
                  Contractual Life (yrs)
              
              
              Exercise
                Price$2.50
                  - $2.70
              
              
              159,000
              
              
              5.7
              
              $
              2.64
              
              
              159,000
              
              
              5.7
              
              $
              2.642.71
                  - 3.08
              
              
              343,000
              
              
              7.7
              
              
              2.96
              
              
              209,000
              
              
              7.1
              
              
              2.983.09
                  - 3.95
              
              
              316,500
              
              
              9.1
              
              
              3.77
              
              
              29,000
              
              
              8.0
              
              
              3.473.96
                  - 4.25
              
              
              127,000
              
              
              8.9
              
              
              4.05
              
              
              127,000
              
              
              8.9
              
              
              4.05$2.50
                  - $4.25
              
              
              945,500
              
              
              8.0
              
              $
              3.32
              
              
              524,000
              
              
              7.2
              
              $
              3.17




The
      aggregate intrinsic value of options outstanding as of December 31, 2006 was
      $347,410. The aggregate intrinsic value of options exercisable as of December
      31, 2006 was $274,355.




*Stock
      Buy-back Program*





During
      the quarter ended September 30, 2006 our board of directors approved a stock
      buy-back program pursuant to which we are authorized to use up to $500,000
      of
      our cash resources to purchase shares of the Company’s common stock in the open
      market or in privately negotiated transactions. As of December 31, 2006, we
      have
      purchased 110,889 shares of Company common stock from unaffiliated shareholders
      for approximately $2.91 per share. As of December 31, 2006 all of these shares
      had been retired.





**(11)  Related
      Party Transaction**





On
      December 29, 2006, Richard T. Schumacher, President and Chief Executive Officer,
      delivered to the Company 249,875 shares of his common stock of the Company
      in
      full and complete satisfaction and payment of all outstanding amounts, including
      all principal and accrued interest, of Mr. Schumacher’s loan receivable to the
      Company. The loan amount consisted of $1,000,000 in principal and $25,487 in
      interest accrued in the fourth quarter of 2006. The number of shares was
      determined based upon a value of $4.10 per share, the volume weighted average
      trading price of the shares of our common stock on the NASDAQ Capital Market
      during the 60 trading days ending on December 29, 2006. In connection with
      the
      payment of the loan, the Company terminated its security interest in Mr.
      Schumacher’s shares of common stock, and released to Mr. Schumacher the
      remaining 229,782 shares of common stock previously held as
      collateral.




-
          44 -


***Report
      of Independent Registered Public Accounting Firm***




To
      the
      Board of Directors of


Pressure
      BioSciences, Inc. and Subsidiaries:





We
      have
      audited the consolidated balance sheet of Pressure BioSciences Inc., and
      Subsidiaries (the “Company”) as of December 31, 2006, and the related
      consolidated statements of operations, comprehensive income (loss), changes
      in
      stockholders’ equity, and cash flows for the year then ended. These financial
      statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. The Company
      is not required to have, nor were we engaged to perform, an audit of its
      internal control over financial reporting. Our audit included consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company’s internal control
      over financial reporting. Accordingly, we express no such opinion. An audit
      also
      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 audit provides 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, 2006, and the results of their operations
      and their cash flows for the year then ended in conformity with accounting
      principles generally accepted in the United States of America.




As
      discussed in Note 2 to the consolidated financial
      statements, effective January 1, 2006, the Company adopted Financial Accounting
      Standards Board Statement No. 123 (Revised 2004) - “Share-Based
      Payments.”








/s/
      UHY
      LLP


March
      24,
      2007


Boston,
      Massachusetts




-
          45 -




***REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM***




To
      the
      Board of Directors of


Pressure
      BioSciences, Inc. and Subsidiaries:




We
      have
      audited the accompanying consolidated statements of operations, comprehensive
      income, changes in stockholders' equity and cash flows of Pressure BioSciences,
      Inc. and Subsidiaries (the "Company") for the year ended December 31, 2005.
      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 audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit 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 audit provide a reasonable basis for our
      opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the results of operations and cash flows of Pressure
      BioSciences, Inc. and Subsidiaries for the year ended December 31, 2005 in
      conformity with accounting principles generally accepted in the United States
      of
      America.





As
      more
      fully described in Note 2 (xvi) 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 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.







/s/
      WEINBERG & COMPANY, P.A.





Boca
      Raton, Florida


March
      23,
      2006, except for Note 2 (xvi), as to which the date is May 22, 2006




-
          46 -




**ITEM
                8.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE**




None




**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 of 1934
      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 our Senior Vice President and Chief Financial Officer (Principal
      Financial Officer), as appropriate, to allow timely decisions regarding required
      disclosure. In designing and evaluating the disclosure controls and procedures,
      management recognized that any controls and procedures, no matter how well
      designed and operated, can provide only reasonable assurance of achieving the
      desired control objectives, as ours are designed to do, and management
      necessarily was required to apply its judgment in evaluating the cost-benefit
      relationship of possible controls and procedures.





As
      of
      December 31, 2006, we carried out an evaluation, under the supervision and
      with
      the participation of our management, including our President (Principal
      Executive Officer) and our Senior Vice President of Finance 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
      our
      Senior Vice President of Finance and Chief Financial Officer (Principal
      Financial Officer) concluded that our disclosure controls and procedures are
      effective in enabling us to record, process, summarize, and report information
      required to be included in our periodic SEC filings within the required time
      period.





There
      have been no changes in our internal control over financial reporting that
      occurred during the fourth quarter of 2006 that have materially affected, or
      are
      reasonably likely to materially affect, our internal control over financial
      reporting.





**ITEM
                8B.**
            **OTHER
                INFORMATION.**




None
  -
            47 -




**PART
      III**





**ITEM
                9.**
            **DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERANCE;
                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
            
            56
            
            President,
                Chief Executive Officerand
                DirectorEdward
                H. Myles
            
            35
            
            Senior
                Vice President of Finance and Chief Financial OfficerEdmund
                Ting, Ph.D.
            
            52
            
            Senior
                Vice President of EngineeringNathan
                P. Lawrence, Ph.D.
            
            52
            
            Vice
                President of Marketing and SalesAlexander
                Lazarev, Ph.D.
            
            42
            
            Vice
                President of Research and
                Development





*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 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 and was promoted to the position of Senior Vice President of
      Finance and Chief Financial Officer on February 12, 2007. 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 2006.
      At
      EMD, Mr. Myles held a wide variety of responsibilities in the areas of
      accounting and licensing and 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. 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 BSBA, with honors, in accounting and finance from the University of Hartford,
      and an MBA from Washington University in St. Louis.




*Dr.
      Ting* joined
      as Senior Vice President of Engineering on April 24, 2006. Prior to joining,
      Dr.
      Ting served
      as
      the Chief Research Officer of Avure Technologies, a leading worldwide
      manufacturer of high pressure hydrostatic processing equipment for the food
      and
      materials processing industry, where he worked from 2001 to 2006. From 1990
      to
      2001, Dr. Ting was employed by Flow International Corporation, a world leader
      in
      the ultrahigh pressure waterjet cutting technology market, and the parent
      company of Avure Technologies until November 2005. Dr. Ting last held the
      position of VP of Engineering Research and Development at Flow International
      Corporation. From 1984 to 1990, Dr. Ting was a research scientist, then a group
      leader at Grumman Aerospace Corporation. Dr. Ting earned a Bachelor of Science
      degree in mechanical engineering from Northeastern University and a Science
      Doctorate in materials science and engineering from the Massachusetts Institute
      of Technology.





*Dr.
      Lawrence* was
      appointed Vice President of Marketing and Sales on April 1, 2006.  Dr.
      Lawrence joined Pressure BioSciences Inc. in 2005, serving as Director of
      Research and Development until his promotion to Vice President of Marketing
      and
      Business Development in 2006.  Dr. Lawrence was responsible for the
      development of protocols based on Pressure Cycling Technology (PCT).  From
      2004 through 2005, Dr. Lawrence worked for 454 Life Sciences in product
      development.  Prior to 454 Life Sciences, Dr. Lawrence was Director of
      Research and Development for Boston Biomedica, Inc. from 1998-2004.  He was
      responsible for the development of PCT, as well as the development of nucleic
      acid-based diagnostic assays.  Prior to joining Boston Biomedica, Inc., Dr.
      Lawrence held several positions with increasing responsibility in Research
      and
      Development and manufacturing at Becton Dickinson and Gene Trak Systems. 
Dr. Lawrence holds a BA from the University of Miami, an M.S. from Southern
      Connecticut State University, and a Ph.D. from Yale University.




-
          48 -




*Dr.
      Lazarev* was
      promoted to the position of Vice President of Research and Development,
      effective March 20, 2007. Prior to his promotion he served as the Company’s
      Director of Research and Development, since joining the Company on April 3,
      2006. Prior to joining Pressure BioSciences, Inc., Dr. Lazarev worked as a
      Visiting Scientist at the Barnett Institute of Chemical and Biological Analysis
      at Northeastern University in 2005, and served as a Director of New Technology
      Development at Proteome Systems, Inc., where he was involved in research and
      development of innovative proteomic analysis applications from 2001 until early
      2006. From 1998 to 2001, Dr. Lazarev was employed as Senior Scientist at the
      Proteomics Division of Genomic Solutions, Inc. Prior to his employment at
      Genomic Solutions, Inc., Dr. Lazarev was employed in an analytical contract
      service startup company, PhytoChem Technologies, Inc., which was founded as
      a
      spin-off from ESA, Inc. in 1997. Previously, Dr. Lazarev held various scientific
      positions at the Ohio State University School of Medicine and the Uniformed
      Services University of Health Sciences. Most of his scientific career has been
      dedicated to development of methods and applications for biochemical analysis.
      Since 2005, Dr. Lazarev has been elected as an Executive Board member of the
      MASSEP.org, a non-profit scientific discussion forum dedicated to the promotion
      and improvement of chromatography and other analytical technologies. Dr. Lazarev
      earned his undergraduate and graduate degrees at the University of Kazan,
      Russian Federation.





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.




-
          49 -




**ITEM
                10.**
            **EXECUTIVE
                COMPENSATION**





The
      information required by this Item 10 is hereby incorporated by reference to
      our
      definitive proxy statement to be filed within 120 days after the close of our
      fiscal year.





**ITEM
                11.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS.**





We
      maintain a number of equity compensation plans for employees, officers,
      directors and other entities and individuals whose efforts contribute to our
      success. The table below sets forth certain information as of our fiscal year
      ended December 31, 2006 regarding the shares of our common stock available
      for
      grant or granted under our equity compensation plans.





**Plan
                category**
            
            **Number
                of securities**
              **to
                be issued upon**
              **exercise
                of**
              **outstanding
                options,**
              **warrants
                and rights**
              **(a)**
            
            **Weighted
                average**
              **exercise
                price of**
              **outstanding
                options,**
              **warrants
                and rights**
              **(b)**
            
            **Number
                of securities**
              **remaining
                available**
              **for
                future issuance**
              **under
                equity**
              **compensation
                plans**
              **(a)/(c)**Equity
                compensation plans approved by security holders (1)
            
            
            945,500
            
            $
            3.32
            
            
            312,800Equity
                compensation plans not approved by security holders
            
            
            0
            
            
            0
            
            
            0Total
            
            
            945,500
            
            $
            3.32
            
            
            312,800




(1)
            Includes
                the following plans: 1994 ISO Stock Option Plan, 1999 Non-Qualified
                Stock
                Option Plan, and 2005 Equity Incentive
                Plan.





The
      additional information required by this Item 11 is hereby incorporated by
      reference to our definitive proxy statement to be filed within 120 days after
      the close of our fiscal year.





**ITEM
                12.**
            **CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS; AND DIRECTOR
                INDEPENDENCE.**





The
      information required by this Item 12 is hereby incorporated by reference to
      our
      definitive proxy statement to be filed within 120 days after the close of our
      fiscal year.




-
          50 -




**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
            B**3.3
            
            Amended
                and Restated Bylaws of the Company
            A**3.4
            
            Amendment
                to Amended and Restated Bylaws of the Company
            C**4.1
            
            Specimen
                Certificate for Shares of the Company’s Common Stock
            D4.2
            
            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.
            E**4.4
            
            Amendment
                No. 1 to Rights Agreement dated April 16, 2004 between Boston Biomedica,
                Inc. and Computershare Trust Company, Inc.
            F**10.1
            
            1994
                Employee Stock Option Plan*
            A**10.2
            
            1999
                Non-Qualified Stock Option Plan*
            G**10.3
            
            1999
                Employee Stock Purchase Plan*[Let’s Discuss Deleting This]
            G**10.4
            
            Asset
                Purchase Agreement dated February 20, 2001, by and between BBI Clinical
                Laboratories, Inc., Boston Biomedica, Inc., and Specialty Laboratories,
                Inc.
            H**10.5
            
            Description
                of Compensation for Certain Directors [Confirm No Changes]
            I**




-
          51 -




10.6
            
            LLC
                Membership Interest Purchase Agreement dated June 8, 2004 by and
                between
                BBI Source Scientific Inc., Boston Biomedica, Inc., and Source Scientific,
                LLC.
            J**10.7
            
            Asset
                Purchase Agreement dated April 16, 2004 between the Company, BBI
                Biotech
                Research Laboratories, Inc. and SeraCare Life Sciences,
                Inc.
            F**10.8
            
            License
                Agreement dated as of October 7, 1996 by and between BioMolecular
                Assays,
                Inc. and BioSeq, Inc.; and the Company
            K**10.9
            
            Flex
                Space Office Lease dated May 5, 2005 by and between Saul Holding
                Limited Partnership and the registrant.
            L**10.10
            
            Letter
                Agreement dated June 30, 2005 by and between the registrant and Richard
                T.
                Schumacher.*
            M**10.11
            
            2005
                Equity Incentive Plan.*
            N**10.12
            
            Agreement
                for Research Services dated February 1, 2006 by and between the registrant
                and the University of New Hampshire
            O**10.13
            
            Loan
                Repayment Agreement with Richard T. Schumacher dated December 29,
                2006
            P10.14
            
            Purchase
                Order with Source Scientific dated April 3, 2006
            Q16
            
            Letter
                from Weinberg & Co. to the Securities and Exchange Commission dated
                September 15, 2006
            R23.1
            
            Consent
                of Independent Registered Public Accounting Firm - UHY LLP
            Filed
                herewith23.2
            
            Consent
                of Independent Registered Public Accounting Firm - Weinberg & Company
            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 and Accounting 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 and Accounting 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
            S**





-
          52 -




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 Quarterly Report on Form 10-Q filed for
                the fiscal quarter ended September 30, 2004.C
            Incorporated
                by reference to the registrant’s Annual Report on Form 10-K for the fiscal
                year ended December 31, 2002.D
            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.E
            Incorporated
                by reference to Exhibit 4 of the registrant’s Current Report on Form 8-K
                filed  with the Commission March 12, 2003.F
            Incorporated
                by reference to the registrant’s Current Report on Form 8-K filed with the
                Commission April 16, 2004.G
            Incorporated
                by reference to the registrant’s proxy statement filed June 14,
                1999.H
            Incorporated
                by reference to the registrant’s Report on Form 8-K filed with the
                Commission March 8, 2001.I
            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.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 amendment to the Registration Statement
                filed on Form S-1/A on October 8, 1996.L
            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.M
            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.N
            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.O
            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.P
            Incorporated
                by reference to Exhibit 10.1 to the registrant’s Current Report on Form
                8-K filed with the Commission on December 29, 2006.Q
            Incorporated
                by reference to Exhibit 10.1 to the registrant’s Current Report on Form
                8-K filed with the Commission on April 5, 2006.R
            Incorporated
                by reference to Exhibit 16.1 to the registrant’s Current Report on Form
                8-K filed with the Commission on September 20, 2006.S
            Included
                as part of Exhibit 32.1 filed herewith.*
            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.




-
          53 -




**ITEM
                14.**
            **PRINCIPAL
                ACCOUNTANT FEES AND
                SERVICES**





The
      information required by this Item 14 is hereby incorporated by reference to
      our
      definitive proxy statement to be filed within 120 days after the close of our
      fiscal year.




-
          54 -




In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




Date: 
March
              24, 2007
            Pressure
                BioSciences, Inc.By:
            */s/
                Richard T. Schumacher*Richard
                T. SchumacherPresident
                and Chief Executive Officer




In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.




**SIGNATURES**
              
              **TITLES**
              
              **DATE***/s/**Richard
                  T. Schumacher*
                Richard T. Schumacher
              
              President,
                  Chief Executive Officer (Principal Executive Officer )
              
              March
                  24, 2007*/s/**Edward
                  H. Myles*
                Edward H. Myles
              
              Senior
                  Vice President and Chief Financial Officer (Principal Financial
                  and
                  Principal Accounting Officer
              
              March
                  24, 2007*/s/
                  R. Wayne Fritzsche*
                R. Wayne Fritzsche
              
              Director
                  and Chairman of the Board
              
              March
                  24, 2007*/s/**J.
                  Donald Payne*
                J. Donald Payne
              
              Director
              
              March
                  24, 2007*/s/
                  Calvin A. Saravis, Ph.D.*
                Calvin A. Saravis, Ph. D.
              
              Director
              
              March
                  24, 2007*/s/
                  P. Thomas Vogel*
                P. Thomas Vogel
              
              Director
              
              March
                  24, 2007







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          55 -