UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





Form
10-K


(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, 2009 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.


(Exact
Name of Registrant as Specified in its Charter)





Massachusetts
              
              04-2652826(State
      or Other Jurisdiction of Incorporation or Organization)
              
              (I.R.S.
      Employer Identification No.)14 Norfolk Avenue
                South Easton, Massachusetts
              
              02375(Address
      of Principal Executive Offices)
              
              (
      Zip  Code)(508) 230-1828(Registrant’s
      Telephone Number, Including Area Code)





Securities registered pursuant to Section 12(b) of
      the Act:Title of Each Class
                
                Name of Each Exchange on Which
      RegisteredCommon
      Stock, par value $.01 per share
                  Preferred
      Share Purchase Rights
                
                The
      Nasdaq Stock Market,
LLC





Securities registered pursuant to Section 12(g) of the
Act:











(Title of
Class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes
     ̈  
No  x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.  Yes      ̈  
No  x





Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes  
x
    No    ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that registrant was required to submit and
post such files.


Yes  ̈ No  ̈





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. x





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):


Large accelerated filer  ̈
              Accelerated filer  ̈Non-accelerated filer  ̈
              Smaller reporting company x(Do not check if smaller reporting company)





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





The
aggregate market value of the voting and non-voting common stock held by
non-affiliates of the registrant as of June 30, 2009 was $3,256,650 based on the
closing price of the common stock as quoted on the NASDAQ Capital Market on that
date.





As of
March 26, 2010, there were 2,350,186 shares of the registrant’s common stock
outstanding.





Documents
Incorporated by Reference




Part III
of this Form 10-K 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.







TABLE OF
CONTENTS





PagePART
      IItem
      1.
                                                        Business
                                                        1Item
      1A.
                                                        Risk
      Factors
                                                        15Item
      1B.
                                                        Unresolved
      Staff Comments
                                                        22Item
      2.
                                                        Properties
                                                        22Item
      3.
                                                        Legal
      Proceedings
                                                        22Item
      4.
                                                        Reserved
                                                        22PART
      IIItem
      5.
                                                        Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                                                        23Item
      6.
                                                        Selected
      Financial Data
                                                        25Item
      7.
                                                        Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
                                                        25Item
      7A.
                                                        Quantitative
      and Qualitative Disclosures About Market Risk
                                                        35Item
      8.
                                                        Financial
      Statements and Supplementary Data
                                                        37Item
      9.
                                                        Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                                                        60Item
      9A(T).
                                                        Controls
      and Procedures
                                                        60Item
      9B.
                                                        Other
      Information
                                                        61PART
      IIIItem
      10.
                                                        Directors,
      Executive Officers and Corporate Governance
                                                        62Item
      11.
                                                        Executive
      Compensation
                                                        63Item
      12.
                                                        Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                                                        63Item
      13.
                                                        Certain
      Relationships and Related Transactions, and Directors
      Independence
                                                        63Item
      14.
                                                        Principal
      Accountant Fees and Services
                                                        64PART
      IVItem
      15.
                                                        Exhibits
      and Financial Statement Schedules
                                                        65










Introductory
Comment





Throughout
this Annual Report on Form 10-K, 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-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”).  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
      ability to raise additional equity or debt financing on acceptable terms,
      if at all;-
              our
      belief that we have sufficient liquidity to finance operations into the
      first quarter of 2011;-
              our
      need to take additional cost reduction measures, cease operations or sell
      our operating assets, if we are unable to obtain sufficient additional
      financing in the future;-
              the
      amount of cash necessary to operate our business;-
              the
      anticipated uses of grant revenue and increased grant revenue in future
      periods;-
              our
      plans and expectations with respect to our pressure cycling technology
      (PCT) operations;-
              our
      belief that PCT has achieved significant market acceptance in the mass
      spectrometry market;-
              the
      expected development and success of new product
  offerings;-
              the
      potential applications for PCT in, and the demonstration of
      proof-of-concept of PCT for, pathogen inactivation, protein purification,
      control of chemical reactions and immunodiagnostics, among
      others;-
              the
      expected benefits and results from our research and development
      efforts;-
              the
      expected benefits and results from our collaboration program, strategic
      alliances and joint ventures;-
              our
      expectation of obtaining additional research grants from the government in
      the future;-
              our
      expectations of the results of our development activities funded by
      government research grants;-
              general
      economic conditions; and-
              the
      anticipated future financial performance and business operations of our
      company.-
              our
      reasons for focusing our resources in the market for genomic, proteomic
      and small molecule sample preparation;-
              the
      importance of mass spectrometry as a laboratory tool;-
              the
      advantages of PCT over other current technologies as a method of sample
      extraction and for other applications, including pathogen inactivation,
      protein purification, control of chemical reactions and
      immunodiagnostics;-
              sample
      preparation may be an impediment to research and
  discovery;-
              the
      capabilities and benefits of our PCT sample preparation system and
      consumable products;-
              that
      other laboratory scientists will achieve results comparable to those
      reported to date by certain research scientists who have published or
      presented publicly on PCT; and-
              our
      ability to expand our customer base in sample preparation and for other
      applications of PCT.





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 I, Item 1A of this Report as
well as those discussed elsewhere in this Report. We qualify all of our
forward-looking statements by these cautionary statements.








ITEM 1.
                  BUSINESS.





Throughout
this document we use the following terms: Barocycler®, PULSE®, and BioSeq®,
which are registered trademarks of the Company.  We also use the terms
ProteoSolveTM,
ProteoSolveLRSTM, the
Power of PCTTM, the
PCT ShredderTM, all of
which are unregistered trademarks of the Company.





Overview





We are a
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
consumables product line, which includes PULSE (Pressure Used to Lyse Samples
for Extraction) Tubes as well as application specific kits (which include
consumable products and reagents) together make up the PCT Sample Preparation
System (“PCT SPS”).





We have
experienced negative cash flows from operations with respect to our pressure
cycling technology business since our inception.  During 2008, we
undertook a number of cost reduction measures including a comprehensive
restructuring program, to significantly reduce costs, centralize core
operations, and refocus business strategy in specific areas where our products
have found significant initial market acceptance.  The restructuring
program included: a reduction in personnel of eight full-time employees (40% of
the workforce), reduction in travel and meeting attendance for all personnel,
decreases in the base salary of most of our employees and all of our executive
officers, a shutdown of our R&D facility in Rockville, MD, a consolidation
of our R&D activities in Massachusetts, and delay of several research &
development and marketing programs.  These initiatives have
significantly decreased cash utilization, from just under $1 million per quarter
in the second half of 2008 to an average of approximately $635,000 per quarter
during 2009.  As of December 31, 2009, we had a total cash balance of
approximately $1,630,000.  In March 2010, we closed on a second
tranche of our private placement of units of Series B Convertible Preferred
Stock and Series B Warrants to purchase shares of Series B Convertible Preferred
Stock with gross proceeds of approximately $500,000.  Based on our
current projections, we believe our current cash resources, which includes the
funds we received from the private placements we completed in 2009 and 2010, are
sufficient to fund our normal operations into the first quarter of
2011.  Depending upon the results of the Company’s financing and
partnering activities and sales efforts, we may make additional cost reductions
as required to accomplish this goal.





Despite
the difficulty in the capital markets and the necessity to implement a very
challenging restructuring program, we are quite proud of the number of
accomplishments that we realized during 2009.  These activities
included the following:





·
            Sale of Series A Convertible
      Preferred Stock in a Private Placement – On February 12, 2009, we
      received $1.8 million from the sale of 156,980 units, consisting of shares
      of Series A Convertible Preferred Stock and warrants, in a private
      placement to 35 accredited
investors.





·
            Sale of Series B Convertible
      Preferred Stock in a Private Placement – On November 18, 2009, we
      received $1.2 million from the sale of 62,039 units, consisting of shares
      of Series B Convertible Preferred Stock and warrants, in a private
      placement to 20 accredited
investors.





·
            Collaboration with Protein
      Forest, a division of Cell BioSciences – On September 30, 2009,we
      entered into a strategic co-marketing/selling and research &
      development agreement with Protein Forest, Inc., a division of Cell
      BioSciences.  The companies intend to co-market their respective
      product lines, including in industry publications, at scientific meetings,
      on each company’s website, through common collaborator studies, and at key
      industry trade shows.  PBI and Protein Forest also intend to
      explore ways to co-develop new instrumentation, accessories/modules for
      existing instrumentation, and consumables that combine the protein
      fractionation/software products of Protein Forest with the extraction and
      protein digestion enhancement products of
PBI.




- 1
-


·
            Significant Improvements in
      DNA Yield From Challenging Forensic Samples Reported With Pressure Cycling
      Technology – Scientists from the University of North Texas Health
      Science Center at Fort Worth, Texas ("UNTHSC") reported notable
      improvements in the yields of DNA from challenging forensic samples, such
      as human hair and bone samples, when the Company's pressure cycling
      technology was added to the DNA extraction workflow, as compared to the
      workflow without PCT.





·
            PCT Highlighted at the
      American Phytopathological Society’s 2009 Annual Meeting -
      Scientists from three separate U.S. Department of Agriculture (USDA)
      laboratories presented data generated through the use of
      PCT.  The presentations related to innovative, plant pathology
      studies of various pathogens that can significantly and adversely affect
      important food crops, such as strawberries, wheat, peas, lentil, barley,
      canola, and especially citrus.





·
            Launch of New Products
      –





o
            PCT
      MicroTube Adapter Kit - The PCT MicroTube Adapter Kit includes an
      ergonomically designed, space-saving Workstation, PCT MicroTubes and
      MicroCaps, and specialized tools to enable the user to process up to
      forty-eight samples simultaneously in the Company's primary product, the
      PCT Sample Preparation System, as compared to three samples
      currently.


o
            ProteoSolve-CE
      NATIVE and ProteoSolve-CE STRINGENT, two novel, pressure cycling
      technology dependent kits for the extraction of proteins from the nematode
      (“worm”) Caenorhabditis elegans (“C. elegans”).  C. elegans is
      one of the most widely used model organisms in laboratory research
      today.





·
            Receipt of IRS tax
      refund - We received $623,262 due to provisions in the American
      Recovery and Reinvestment Act of 2009 relating to net operating loss
      carry-backs.





In
January 2010, we moved our research and development department to new state of
the art laboratories at the Venture Development Center of the University of
Massachusetts Boston.  The Umass VDC offers us a number of advantages,
including: the opportunity to work with other life science development stage
companies, the opportunity to network with life science departments within the
university of Massachusetts system, and access to part-time help from the
students enrolled in the Biology program at Umass Boston.





Since we
began operations as Pressure BioSciences in February 2005, we have installed 128
Barocycler instruments.  Our customers include researchers at academic
laboratories, government agencies and biotechnology, pharmaceutical and other
life sciences companies in the United States, and six foreign distribution
partners.





2005
                  
                  
                  2006
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2009Installed
      units
                  
                  
                  5
                  
                  
                  
                  8
                  
                  
                  
                  20
                  
                  
                  
                  41
                  
                  
                  
                  54





We hold
13 United States and 6 foreign patents covering multiple applications of PCT in
the life sciences field. Our pressure cycling technology employs a unique
approach that we believe has the potential for broad use in a number of
established and emerging life sciences areas, including;





-
              sample
      preparation for genomic, proteomic, and small molecule
      studies;-
              pathogen
      inactivation;-
              protein
      purification;-
              control
      of chemical (particularly enzymatic) reactions; and-
              immunodiagnostics.





Corporate
Information





We were
incorporated in the Commonwealth of Massachusetts in August 1978 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. Following this
change in business strategy, we changed our legal name from Boston Biomedica,
Inc. to Pressure BioSciences, Inc., or PBI, and commenced operations as Pressure
BioSciences in February 2005.


- 2
-





Available
Information





Our
Internet website address is http://www.pressurebiosciences.com. Through our
website, we make available, free of charge, this annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments
to those reports, as soon as reasonably practicable after we electronically file
such material with, or furnish it to, the Securities and Exchange Commission
(“SEC”). These SEC reports can be accessed through the investor relations
section of our website. The information found on our website is not part of this
or any other report we file with or furnish to the SEC.





You may
read and copy any materials we file with the SEC at the SEC’s Public Reference
Room at 100 F Street, NE, Washington, DC 20549.  You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.  The SEC also maintains an Internet website that
contains reports, proxy and information statements, and other information
regarding Pressure BioSciences and other issuers that file electronically with
the SEC.  The SEC’s Internet website address is
http://www.sec.gov.





Sample
Preparation for Genomic, Proteomic, and Small Molecule Studies





The
Market





Since
February 2005, we have focused substantially all of our research &
development and commercialization efforts on sample preparation for genomic,
proteomic, and small molecule studies.  This market is comprised of
academic and government research institutions, biotechnology and pharmaceutical
companies, and other public and private laboratories that are engaged in
studying genomic, proteomic and small molecule material within plant and animal
cells and tissues.





We
elected to initially focus our resources in the market of genomic, proteomic,
and small molecule sample preparation 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, which are 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 strong patent
    protection.





We
believe that our existing Barocycler instrumentation, and PCT consumable
products, fill an important and growing need in the sample preparation market
for the safe, rapid, versatile, reproducible, and quality extraction of nucleic
acids, proteins, and small molecules from a wide variety of plant and animal
cells and tissues.





Mass
Spectrometry





Mass
spectrometry is one of the most powerful laboratory tools used today, and is
frequently used by research scientists to evaluate proteins and nucleic acids
(DNA and RNA).  It is playing an increasingly important role in the
analysis of biological samples in life sciences research.  A number of
important companies and research laboratories in this market are currently our
customers, or are in the process of evaluating our technology for use in their
laboratories.





Our plan
is tofocus
primarily on the application of PCT-enhanced protein digestion for the mass
spectrometry market and the advantages of PCT in this market, and the use of PCT
in biomarker discovery, soil and plant biology, counter bio-terror and tissue
pathology applications.





Sample Extraction
Process





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 compared to other available technologies or procedures, and can thus
significantly improve the quality of sample preparation.


- 3
-





Collaboration
Program





Our
collaboration program is an important element of our business
strategy.  Initiating a collaboration with a researcher usually
involves the installation of a Barocycler instrument for an agreed upon period
of time, generally three to six months, and the execution of an agreed upon work
plan.  Our primary objectives for entering into a collaboration
agreement include:





-
            the
      development of a new application for PCT in sample
      preparation;


-
            the
      advancement and validation of our understanding of PCT within an area of
      life sciences in which we already have
products;


-
            the
      demonstration of the effectiveness of PCT to specific research scientists
      whom we believe can have a positive impact on market acceptance of PCT;
      and


-
            the
      expectation of peer-reviewed publications and/or presentations at
      scientific meetings by a third party on the merits of
  PCT.





Since we
initiated our collaboration program in June 2005, we have placed Barocycler
instruments in multiple sites, resulting in increasing number of publications
and presentations by third party researchers.  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.  Below is a list of selected publications that have been made
by various researchers based on their experiences with PCT:





Title
                                
                                Authors
                                
                                Category
                                
                                Affiliation
                                
                                ReferencePressure
      Cycling for Sample Preparation
                                  PCT
      System Provides Automated Alternative to Manual Methods
                                
                                Richard
      T. Schumacher
                                  Vera
      Gross, Ph.D.
                                  Edmund
      Y. Ting, ScD.
                                  Alexander
      Lazarev, Ph.D.
                                
                                Paper
                                
                                Pressure
      BioSciences
                                
                                Genetic
      Engineering News (GEN) Dec 1 2009 (Vol. 29, No. 21)Pressure
      Cycling Technology (PCT) Applications for DNA Extractions from Challenging
      Forensic Samples
                                
                                Suzanne
      Gonzalez, Elizabeth Feller, Dixie Peters, Bruce Budowle, and Arthur
      Eisenberg
                                
                                Oral
      Presentation
                                
                                University
      of North Texas Center for Human Identification
                                
                                20th
      International Symposium on
                                  Human
      IdentificationPhosphopeptide
      isolation from Caenorhabditis
                                  elegans
      using the CE PrEP, PCT, and PhosphoScan Technologies
                                
                                Gabrielle
      E. Giese, Gary B. Smejkal. Feixia Chu3, John J. Collins1, and Winston P.
      Kuo
                                
                                Poster
                                
                                University
      of New Hampshire
                                
                                Human
      Proteome Organization
                                  (HUPO)
      2009 8th World CongressIncidence
      and spatial distribution of Rhizoctonia and Pythium species determined
      with real-time PCR
                                
                                K.
      L. Schroeder, T. C. Paulitz, and P. A. Okubara
                                
                                Poster
                                
                                USDA
                                
                                American
      Phytopathological Society's 2009 Annual MeetingHigh-pressure
      assisted in-gel tryptic digest: qualitative and
                                  quantitative
      aspects
                                
                                Michail
      Alterman, Melkamu Getie-Kebtie; Alexander Lazarev; and Vera S.
      Gross
                                
                                Poster
                                
                                FDA,
      CBER
                                
                                American
      Society for Mass Spectrometry (ASMS) Annual Meeting
2009


Proteomics
      Under Pressure: Rapid Extraction and Digestion in a Single
      Tube
                    
                    Alexander
      V. Lazarev; Emily Freeman; Vera S. Gross; Greta Carlson; Edmund Ting;
      Alexander R. Ivanov
                    
                    Poster
                    
                    Pressure
      BioSciences
                    
                    American
      Society for Mass Spectrometry (ASMS) Annual Meeting
2009Searching
      for efficient and high throughput
                      alternatives
      for essential sample preparation techniques in mass spectrometry-based
      functional proteomics
                    
                    Emily
      Freeman; Yelena Margolin; and Alexander R. Ivanov
                    
                    Poster
                    
                    Harvard
      School of Public Health, Department of Genetics and Complex
      Disease
                    
                    The
      Association of BioMolecular Resources Facilities (ABRF)
    2009




- 4
-




Company
Products





We
believe our PCT products allow researchers to improve scientific research
studies in the life sciences field.  All of our products are developed
with the expectation of meeting or exceeding the needs of research scientists
while enhancing the safety, speed, and quality that is available to them with
existing sample preparation technology.





Barocycler
Instrumentation





Our
Barocycler product line consists of laboratory instrumentation that subjects a
sample to cycles of pressure from ambient to ultra-high levels and then back to
ambient, all in a precisely controlled manner.  Our instruments, the
Barocycler NEP3229 and Barocycler NEP2320, use cycles of high hydrostatic
pressure to quickly and efficiently break up the cellular structures of a
specimen to release nucleic acids, proteins, lipids and small molecules from the
specimen into our consumable processing tube, referred to as our PULSE
Tubes.  Our Barocycler instrumentation is designed to fit on a
laboratory bench top, inside a biological safety cabinet, or on the shelf of a
laboratory cold room.  Our instruments have an external chiller
hook-up (to control temperature during the PCT process), automatic fill and
dispensing valves, and an integrated micro-processor keypad.  The
microprocessor is capable of saving up to 99 specific PCT protocols, so the
researcher can achieve maximum reproducibility for the extraction of nucleic
acids, proteins, lipids, or small molecules from various biological samples. Our
Barocycler instruments, together with our consumable products described below,
make up our current PCT Sample Preparation System (“PCT SPS”).





Barocycler NEP3229 –
The Barocycler NEP3229 contains two units, an upper, user interface and a lower,
power source, comprised primarily of a 1.5 horsepower motor and pump assembly
(hydraulic).  Combined, the two components of the NEP3229 weigh
approximately 350 pounds.  The Barocycler NEP3229 is capable of
processing up to three samples simultaneously using our specially designed,
single-use PULSE Tubes.





Barocycler NEP2320 –
The Barocycler NEP2320 is a smaller and more compact version of our NEP3229
unit.  It weighs approximately 75 pounds, processes one sample at a
time, and works on compressed air (pneumatic) and not hydraulics like the larger
NEP3229 unit.  Because this instrument is pneumatic, the NEP2320 can
be easily attached by an air hose to a typical 85 psi air compressor found in
most scientific laboratories, to many consumer-sold portable compressors, or
even to bottled gas.  This instrument is currently being used by our
sales directors as a demonstration instrument and is being marketed as a second
instrument alternative to our PCT SPS.





PCT MicroTube Adapter
Kit - The PCT MicroTube Adapter Kit includes an ergonomically designed,
space-saving Workstation, PCT MicroTubes and MicroCaps, and specialized tools to
enable the user to process up to forty-eight samples simultaneously in the
Company's primary product, the PCT SPS, as compared to three with the Barocycler
NEP3229.


- 5
-




PCT Shredder–The patent-pending "PCT
Shredder" is designed to help research scientists safely, rapidly, and
conveniently disrupt very tough samples - such as ticks, muscle, and seeds, that
require homogenization prior to PCT or other sample preparation
methods.  The PCT Shredder uses a similar PULSE Tube as the PCT SPS,
and allows scientists to homogenize tough samples prior to extraction with the
PCT SPS, but without the need to transfer the sample into a second processing
container between steps.




Consumable
Products





PULSE Tubes (FT500) –
The FT500 PULSE Tube is a specially-designed, plastic, single-use, processing
container with two chambers separated by a small disk with about sixty small
holes.  This small disk is referred to as a 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, buffers are added to the PULSE tube, the PULSE Tube is capped and 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 related to cycled
pressure break up the cellular structures of the specimen to quickly and
efficiently release nucleic acids, proteins, lipids, and small
molecules.





Non-Disk PULSE Tubes
(FT500-ND) – The FT500-ND PULSE Tube is a specially-designed, plastic,
single-use, processing container with one chamber separated by a small disk with
about sixty small holes.  The FT500-ND is similar to the FT500 in look
and feel, except there is no Lysis Disk separating the body of the processing
container into two chambers, as in the FT500-ND.  The design change
was based on strong market demand for a new PCT consumable for the rapid and
reproducible processing of solutions and suspensions that do not require partial
homogenization by passage through a Lysis Disk, and for a consumable that could
accept smaller sample volumes. It is the result of more than a year of testing
in several laboratories using various sample sizes and
types.   The FT500-ND offers variable sample volumes (5x the
range of the existing FT500).





ProteoSolve - LRS –
(ProteoSolve for Lipid Rich Samples)  is
a PCT-dependent method for the safe, rapid, efficient, and reproducible
extraction of proteins from lipid-rich samples, including adipose and brain
tissues, organelles, and membrane preparations. Proteomic analysis of these
types of samples is widely used in the study of diabetes, cancer, ALS, heart
disease, and a number of other serious human disorders related to obesity. We
believe that this PCT-dependent method of protein extraction from lipid-rich
samples offers significant advantages over current extraction techniques,
primarily due to the ability to use certain organic solvents instead of harsh
detergents in the extraction process.  Harsh detergents are known to
compromise the integrity of many proteins; therefore the use of these detergents
requires a very careful and time consuming removal
process.  ProteoSolve-LRS includes 12 specially-designed PULSE Tubes,
certain organic solvents, other reagents, and an instruction sheet on how to
utilize this patent-pending process to enhance the extraction of proteins from
lipid-rich samples.





ProteoSolve - SB –
(ProteoSolve for Systems Biology) is a
PCT-dependent method for the simultaneous extraction, isolation, and
fractionation of nucleic acids (DNA and RNA), proteins, and lipids from animal
and plant samples routinely used in laboratory research. This patent-pending kit
contains proprietary reagents, consumable processing containers (PULSE Tubes),
and instructions for use, and is intended to be used with the Company's patented
PCT Sample Preparation System. The kit is based on the unique approach to a
"systems biology" sample preparation method that was first unveiled during early
2008, in collaboration with Dr. Alexander Ivanov of the Harvard School of Public
Health.





ProteoSolve – CE –
(ProteoSolve for Conventional Extraction) is a
PCT-dependent kit for the extraction of proteins from a variety of samples using
optimized detergent-based reagent system compatible with two-dimensional
electrophoresis or two-dimensional chromatographic separation for proteomic
analysis.  The kit contains all of the reagents and instructions
necessary for the extraction of either denatured or non-denatured proteins,
which can then be used for the analysis of protein structure and
function.





We
believe our development of these products has helped, and will continue to help,
drive the adoption of PCT within the life sciences market.


- 6
-





Company Services





Government Grants –
We view federal agency grants to be an important part of our business plan.
These types of grants allow us to bill the federal agency for work that we are
planning to perform as part of the development and commercialization of our
technology.  We generally start by submitting initial grant requests
that are in response to requests for proposals or “RFPs” from the federal
government through their Small Business Innovation Research (“SBIR”)
program.  Initial grants (“SBIR I”) are meant to fund approved
research projects for six months, and generally have budgets of approximately
$100,000 to $150,000.  Additionally, our work in SBIR Phase I grants
has been successful and we have applied, and may in the future apply, for larger
NIH SBIR Phase II grants. Such larger grants are typically for a two year period
and are in excess of $750,000 to support significant research projects in areas
we would otherwise expect to support with internal funds should SBIR Phase II
grants not be awarded.  To date we have been awarded two National
Institutes of Health (“NIH”) Small Business Innovation Research Phase I grants
and one SBIR Phase II grant.  Both of our Phase I grants have been
completed.  The data on one of the Phase I grants was the basis for
the submission, and subsequent award, of our Phase II award of approximately
$850,000 in August 2008.  The Phase II grant is for work in the area
of using PCT to extract protein biomarkers, sub-cellular molecular complexes,
and organelles, with the expectation that these studies will ultimately lead to
the release of a new, commercially available PCT-based system, with validated
protocols, end-user kits, and other consumables intended for the extraction of
clinically important protein biomarkers, sub-cellular molecular complexes, and
organelles from human and animal tissues.  As of December 31, 2009,
the amount of the Phase II SBIR grant available to fund future research was
approximately $337,000.





Extended Service
Contracts - We offer extended service contracts on our laboratory
instrumentation to all of our customers. These service contracts allow a
customer who purchases a Barocycler instrument 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 who purchase Barocycler instruments.





Fee-for-Service – We
will occasionally perform PCT services on a fee-for-service basis. We may enter
into these types of arrangements 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.





Other
Applications of Pressure Cycling Technology





PCT is an
enabling, platform technology based on a bio-physical process that had not
previously been used to control bio-molecular interactions. During its early
development, under the legacy business of Boston Biomedica, Inc., our scientists
were researching and developing applications of pressure cycling technology in
many areas of the life sciences, including genomic, proteomic, and small
molecule sample preparation. The data generated during these early years,
combined with the data generated since PBI began significant PCT operations in
February 2005, form the basis of knowledge that we believe will allow us to
successfully commercialize PCT both within and outside of the sample preparation
market.




Our
research and development efforts have shown that, in addition to genomic,
proteomic and small molecule sample preparation, PCT is potentially beneficial
in a number of other areas of the life sciences, including pathogen
inactivation, protein purification, control of chemical (particularly enzymatic)
reactions, and immunodiagnostics. Our pursuit of these markets, however, depends
on a number of factors, including our success in commercializing PCT in the area
of sample preparation, our judgment regarding the investment required to be
successful in these areas, and the value of these markets to our company. Below
is a brief explanation of each of these additional potential applications and a
short description of why we believe PCT can be used to improve scientific
studies in these areas.





Pathogen
Inactivation





Biological
products manufactured for human use, such as blood, vaccines, and drugs, are put
through rigorous processing protocols in an effort to minimize the potential of
that product to transmit disease.  These protocols may include methods
to remove infectious materials (such as pre-processing testing, filtration, or
chromatography), or methods to inactivate infectious materials that are not
captured in the removal steps (such as pasteurization, irradiation, and solvent
detergent inactivation). Notwithstanding current diligence in both the removal
and inactivation steps, significant concern remains that some bacteria and
viruses capable of transmitting infection to recipients may not be removed or
inactivated with current procedures. In addition, some removal and inactivation
methods may not be useful because of cost, safety, ease-of-use, or other
practical concerns.  To that end, we believe that a new inactivation
method is needed that can safely, rapidly and inexpensively inactivate pathogens
in blood, vaccines, and drugs without the need for chemical or other potentially
toxic additives.   We believe we have successfully generated
proof-of-concept that PCT can satisfy this 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 current
methods.  We have been issued US, European, and Japanese patents for
this PCT-dependent inactivation technology.


- 7
-





Protein
Purification





Many
vaccines and drugs are comprised of proteins. These proteins need to be purified
from complex mixtures as part of the manufacturing process. Current purification
techniques often result in the loss of a significant amount of the
protein.  Therefore, any method that could increase the amount of
protein being recovered in the purification step, could subsequently lead to a
reduction in cost to the manufacturer.  We believe we have
successfully generated proof-of-concept that PCT can satisfy this need. We
believe that compared to current purification procedures, a process that uses
PCT has the potential to increase protein recovery, increase the quality of the
product, and lower production costs. We have been issued US and European patents
in this area.





Control
of Chemical (Particularly Enzymatic) Reactions





Chemical
reactions encompass many important interactions in nature.  Methods
used to control chemical reactions could 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.  We have been issued US and European patents in this
area.





Immunodiagnostics





Many
tests used in the clinical laboratory today are based on the formation of a
complex between two proteins, such as an antigen and an
antibody.  Such “immunodiagnostic” methods are used for the detection
of infectious agents (such as HIV, hepatitis viruses, and West Nile virus), as
well as for endocrine, drug testing, and cancer diagnostics.  We have
generated proof-of-concept that PCT may be used to control bio-molecular
interactions between proteins, such as antigens and antibodies.  We
believe this capability may provide a greater degree of sensitivity and
quantitative accuracy in immunodiagnostic testing than that offered by methods
that are available today.  We have been issued US and European patents
in this area.





Customers





Our
customers include researchers at academic laboratories, government agencies, and
biotechnology, pharmaceutical, and other life science companies in the United
States.  Our customers also include five foreign distribution
partners.  During 2009, we continued to commercialize PCT with sales,
and/or leases of our instrumentation to customers in all of these
categories.  Our goal in 2010 is to continue our market penetration in
these target groups.  We also feel that there is a significant
opportunity to sell and/or lease additional Barocycler instrumentation to
additional laboratories at current customer institutions.





If we are
successful in commercializing PCT in applications beyond our current focus area
of genomic, proteomic, and small molecule sample preparation, and if we are
successful in our attempts to attract additional capital, our potential customer
base could 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.





Competition





We
compete with companies that have existing technologies for the extraction of
nucleic acids, proteins, and small molecules 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,
reproducibility, and cost.  We believe that the PCT Sample Preparation
System offers a number of significant 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.


- 8
-





We
believe that our PCT Sample Preparation System is a novel and enabling system
for genomic, proteomic, and small molecule sample preparation.  As such,
many users of current manual techniques will need to be willing to challenge
their existing methods of sample preparation and invest time to evaluate a
method that could change their overall workflow in the sample preparation
process, prior to adopting 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
other techniques currently employed.  Consequently, we are focusing our
sales efforts on those product attributes that we believe will be most important
and appealing to potential customers, namely versatility, reproducibility,
quality, 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, PBI scientists have been performing
comparative studies with hundreds of samples 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, and “Min” denoting minimized or reduced).





Incumbent TechnologiesBead
                                    
                                    
                                    Tissue
                                    
                                    
                                    Mortar
                                    
                                    
                                    FrenchKey Attributes
                                    
                                    Sonication
                                    
                                    
                                    Beating
                                    
                                    
                                    Homogenizer
                                    
                                    
                                    Pestle
                                    
                                    
                                    Press
                                    
                                    
                                    PCTClosed
      System
                                    
                                    -
                                    
                                    
                                    +
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    +Storage,
      Transport
                                    
                                    -
                                    
                                    
                                    +
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    +Versatility
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    +Reproducibility
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    +Efficiency
                                    
                                    -
                                    
                                    
                                    -/+
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    +Shearing
      Molecules
                                    
                                    Yes
                                    
                                    
                                    Yes
                                    
                                    
                                    Yes
                                    
                                    
                                    Min
                                    
                                    
                                    Yes
                                    
                                    
                                    Min





Manufacturing
and Supply





Source
Scientific, LLC currently provides all of the manufacturing and assembly
services for our instrumentation products.  We plan to continue to
utilize Source Scientific, LLC as our primary assembler and contract
manufacturer of our current, and future, Barocycler instruments.  We
have initiated several engineering initiatives to position us for greater
independence from any one supplier, and we are in the process of developing a
network of manufacturers and sub-contractors to reduce our reliance on any
single supplier.  Until we develop a broader network of manufacturers
and subcontractors, obtaining alternative sources of supply or manufacturing
services could involve significant delays and other costs and challenges, and
may not be available to us on reasonable terms, if at all. The failure of a
supplier or contract manufacturer to provide sufficient quantities, acceptable
quality and timely products at an acceptable price, or an interruption of
supplies from such a supplier could harm our business and
prospects.





Research
and Development





Our
research and development expenses were approximately $1.2 million and $1.8
million for the years ended December 31, 2009 and 2008,
respectively.  Our research and development activities are split into
two functional areas, applications and engineering.


- 9
-





Applications
Research and Development





Our
highly educated and trained staff has years of experience in molecular and
cellular biology, virology, and proteomics. Our team of scientists focuses on
the development of PCT-dependent genomic, proteomic, and small molecule sample
preparation methods that we believe will result in near-term commercial
opportunities. Dr. Alexander Lazarev, our Vice President of Research &
Development, and his team meet regularly with our sales, marketing, and
engineering departments to discuss market needs and trends.  Our
applications research and development staff is responsible for the technical
review of all scientific collaborations, for the support of our marketing and
sales departments through the generation of internal data in a number of areas
of market interest, and in the development of commercially-viable PCT-dependent
products.





Engineering
Research and Development





Our
engineering research and development team is focused on the design and
development of new and improved instrumentation and consumable products to
support the commercialization of PCT.  Our engineering department is
led by Dr. Edmund Ting, our Senior Vice President of Engineering, and is
supported by a full-time senior engineer and third parties.  The
primary focus of our engineering group is to ensure seamless production
processes, perform installations and field service, and work with our
application scientists to complete the development of a high throughput sample
processing system for the mass spectrometry market.





Sales
and Marketing





Our sales
and marketing efforts are centered on using the independent data developed and
disseminated by our collaboration partners to help drive the installed base of
PCT SPS.  The development of scientific data by our partners and our
internal researchers provides our sales and marketing staff with additional
tools that are essential in selling a new technology such as PCT.





Sales





Direct US Sales
Force





Our
domestic sales force is led by our Vice President of Sales, Matthew B.
Potter.  Mr. Potter is responsible for directing the efforts of our
two full-time sales directors, and for covering accounts in the Mid-West and New
England regions.  We believe that hiring seasoned sales professionals,
with significant industry experience, will allow us to more effectively
penetrate the market with a small, focused sales force. Throughout 2010, we plan
to monitor this strategy and may increase the number of sales professionals if
our financial resources permit and if we believe that doing so will accelerate
our commercialization efforts.





Foreign Distributor
Network





In April
2009, we signed a distribution agreement with TouchDown BioMarketing BV
(“TouchDown”), of The Netherlands pursuant to which we granted TouchDown
exclusive distribution rights to all of our products in The
Netherlands.  The agreement is effective from April 1, 2009 through
September 30, 2010.





In June
2008, we signed a distribution agreement with Veritas Corporation (“Veritas”) of
Tokyo, Japan pursuant to which we granted Veritas exclusive distribution rights
to all of our products in Japan.  The agreement is effective from
January 1, 2008 to December 31, 2010.





In
December 2007, we signed a distribution agreement with Disruptive Technologies
(“DT”) of Villecresnes, France pursuant to which we granted DT exclusive
distribution rights to all of our products in France, Belgium, and Switzerland.
The agreement is effective from January 1, 2008 through December 31,
2010.





In
September 2007, we signed a distribution agreement with CM Corporation (“CM”),
of Seoul, South Korea pursuant to which we granted CM exclusive distribution
rights to all of our products in South Korea.  The agreement is
effective from September 1, 2007 through August 31, 2010.


- 10
-





In May
2008, we signed a distribution agreement with the Ivorist Group (“Ivorist”), of
Taipei, Taiwan pursuant to which we granted Ivorist exclusive distribution
rights to all of our products in Taiwan.  The agreement is effective
from May 15, 2008 through June 30, 2010.





In May
2008, we signed a distribution agreement with Analyx Technology Corporation
(“Analyx”), of Beijing, People’s Republic of China, pursuant to which we granted
Analyx exclusive distribution rights to all of our products in the People’s
Republic of China.  The agreement is effective from May 15, 2008
through June 30, 2010.





Marketing





Our
marketing function includes Dr. Nathan Lawrence, our Vice President of
Marketing, and a limited amount of external support from independent service
providers.  Our marketing department oversees and directs marketing
activities such as trade show attendance and sponsorship, on-line advertising,
website maintenance and improvement, 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.Our marketing function is also
responsible for the overall coordination of our collaboration programs, from
initial set-up, research plan design, and training, service, and data
analysis.  Some of these responsibilities are shared with other PBI
departments (such as Research and Development), but marketing drives the
collaborative process.  Our marketing team is also responsible for the
continued coordination and support of our foreign, and domestic, distribution
partners.





Domestic Co-Marketing
Partner





In
December 2008, we entered into a strategic marketing, distribution, and
technology co-development Agreement with Omni International (“Omni”) of
Marietta, Georgia.  Under the terms of the Agreement, we: (1) share
market data, customer leads and technology assessments; (2) co-promote certain
products at industry trade shows beginning in 2009; (3) license Omni to sell
PBI's recently released, patent-pending PCT Shredder to laboratories worldwide;
and (4) co-develop new instrumentation and consumables that combine the
homogenization capabilities of Omni with our extraction capabilities in an
effort to provide research scientists with a targeted approach to better solve
certain sample preparation issues.  Programs intended to be developed
under this agreement have been delayed due to cost cutting measures incurred by
both companies in 2009.





Intellectual
Property





We
believe that protection of our patents and other 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, one Japanese patent, and
one Canadian patent.  Our issued patents expire between 2015 and 2027. Our
failure to obtain and maintain 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.





License
Agreements Relating to Pressure Cycling Technology





BioMolecular Assays,
Inc.





In 1996,
we acquired our initial equity interest in BioSeq, Inc., which at the time was
developing our original pressure cycling technology.  BioSeq, Inc. acquired
its pressure cycling technology from BioMolecular Assays, Inc. under a
technology transfer and patent assignment agreement.  In 1998, we purchased
all of the remaining outstanding capital stock of BioSeq, Inc., and at such
time, the technology transfer and patent assignment agreement was amended to
require us to pay BioMolecular Assays, Inc. a 5% royalty on our sales of
products or services that incorporate or utilize the original pressure cycling
technology that BioSeq, Inc. acquired from BioMolecular Assays, Inc.  We
are also required to pay BioMolecular Assays, Inc. 5% of the proceeds from any
sale, transfer or license of all or any portion of the original pressure cycling
technology.  These payment obligations terminate in 2016.  During the
fiscal years ended December 31, 2009 and 2008, we incurred $30,548 and $29,553
in royalties.


- 11
-





In
connection with our acquisition of BioSeq, Inc., we licensed certain limited
rights to the original pressure cycling technology back to BioMolecular Assays,
Inc.   This license is non-exclusive and limits the use of the
original pressure cycling technology by BioMolecular Assays, Inc. solely for
molecular applications in scientific research and development and in scientific
plant research and development.  BioMolecular Assays, Inc. is required to
pay us a royalty equal to 20% of any license or other fees and royalties, but
not including research support and similar payments, it receives in connection
with any sale, assignment, license or other transfer of any rights granted to
BioMolecular Assays, Inc. under the license. BioMolecular Assays, Inc. must pay
us these royalties until the expiration of the patents held by BioSeq, Inc. in
1998, which we anticipate will be 2016.  We have not received any royalty
payments from BioMolecular Assays, Inc. under this license.





Battelle Memorial
Institute





In
December 2008, we entered into an exclusive patent license agreement with the
Battelle Memorial Institute ("Battelle"). The licensed technology is described
in the patent application filed by Battelle on July 31, 2008 (US serial number
12/183,219). This application includes subject matter related to a method and a
system for improving the analysis of protein samples, including through an
automated system utilizing pressure and a pre-selected agent to obtain a
digested sample in a significantly shorter period of time than current methods,
while maintaining the integrity of the sample throughout the preparatory
process.  Pursuant to the terms of the agreement, we paid Battelle a
non-refundable initial fee of $35,000.  In addition to royalty
payments on net sales on “licensed products”, we are obligated to make minimum
royalty payments for each year that we retain the rights outlined in the patent
license agreement and we are required to have our first commercial sale of the
licensed products within one year following the issuance of the patent covered
by the licensed technology.





Regulation





Many of
our activities are subject to regulation by governmental authorities within the
United States and similar bodies outside of the United States. The regulatory
authorities may govern the collection, testing, manufacturing, safety, efficacy,
labeling, storage, record keeping, transportation, approval, advertising, and
promotion of our products, as well as the training of our
employees.





All of
our commercialization efforts to date are focused in the area of genomic,
proteomic, and small molecule sample preparation.  We do not believe
that our current Barocycler products used in sample preparation are considered
“medical devices” under the United States Food, Drug and Cosmetic Act (the
“Act”) and we do not believe that we are subject to the law’s general control
provisions that include requirements for registration, listing of devices,
quality regulations, labeling, and prohibitions against misbranding and
adulteration.  Nor do we believe that we are subject to regulatory
inspection and scrutiny.  If, however, we are successful in
commercializing PCT in applications beyond our current focus area of genomic,
proteomic, and small molecule sample preparation, such as protein purification,
pathogen inactivation and immunodiagnostics, our products may be considered
“medical devices” under the Act, at which point we would be subject to the law’s
general control provisions and regulation by the U.S. Food and Drug
Administration (the “FDA”) that include requirements for registration listing of
devices, quality regulations, labeling, and prohibitions against misbranding and
adulteration.  The process of obtaining approval to market these
devices in the other potential applications of PCT would be costly and time
consuming and could prohibit us from pursuing such markets.





We may
also become subject to the European Pressure Equipment Directive, which requires
certain pressure equipment meet certain quality and safety
standards.  We do not believe that we are currently subject to this
directive because our Barocycler instruments are below the threshold documented
in the text of the directive.  If our interpretation were to be
challenged, we could incur significant costs defending the challenge, and we
could face production and selling delays, all of which could harm our
business.





Our
Barocycler instrumentation received CE Marking, which means that our Barocycler
instruments meet the essential requirements of the relevant European health,
safety and environmental protection legislation.  In order to maintain
our CE Marking, a requirement to sell equipment in many countries of the
European Union, we are obligated to uphold certain safety and quality
standards.





Employees





As of
March 26, 2010, we had thirteen (13) full-time employees.


- 12
-





Our 13
employees include four employees in the sales and marketing and technical
support functions, three in general and administrative, three in applications
research and development, and three in engineering research and development.





Our
Executive Officers





The
following table sets forth the names, ages and positions of our current
executive officers as of March 26, 2010:





Name
              
              Age
              
              PositionRichard
      T. Schumacher
              
              59
              
              President,
      Chief Executive Officer, Chief Financial Officer, Treasurer, Secretary and
      DirectorEdmund
      Ting, Ph.D.
              
              56
              
              Senior
      Vice President of EngineeringNathan
      P. Lawrence, Ph.D.
              
              55
              
              Vice
      President of MarketingAlexander
      Lazarev, Ph.D.
              
              45
              
              Vice
      President of Research and DevelopmentMatthew
      B. Potter
              
              46
              
              Vice
      President of Sales





Set forth
below is biographical information for each of our executive
officers.




Mr. Richard T.
Schumacher, the founder of our company, has served as one of our
directors since 1978. He has served as our Chief Executive Officer since April
16, 2004 and President since September 14, 2004. He has served as our Chief
Financial Officer and Treasurer since November 18, 2008.  He
previously served as Chief Executive Officer and Chairman of the Board of our
company from 1992 to February 2003. From July 9, 2003 until April 14, 2004 he
served as a consultant to our company pursuant to a consulting agreement. He
served as President of our company 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.





Dr. Edmund Tingjoined 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 and 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. Nathan P.
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.


- 13
-




Dr. Alexander
Lazarev was promoted to the position of Vice President of Research and
Development, effective March 20, 2007. Prior to his promotion he served as our
Director of Research and Development, since joining  us 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.





Mr. Matthew B.
Potter joined PBI as our Vice President of Sales on February 25, 2008 and
was appointed an executive officer on March 6, 2008.  Mr. Potter has worked
in many different disciplines that include molecular biology, chromatography,
personalized medicine, diagnostics, and biophysics.  Prior to joining
PBI Mr. Potter was the Vice President of Sales & Marketing at Abcam, Inc.
from July 2007 to January 2008.  Prior to Abcam, Mr. Potter was the
National Sales Manager: Key Accounts Pharmaceutical at Qiagen, Inc. from July
2005 to May 2007.  Prior to Qiagen, Mr. Potter was Director, Sales and
Marketing at MicroCal, LLC from January 2000 to July 2005.  Mr. Potter
is also a former Treasurer of the New England Scientific Manufacturers
Association and has been cited as a co-author and contributor on assorted
scientific publications during his tenure working at the Worcester Foundation
for Experimental Biology.  Mr. Potter holds a BA in Biology from Clark
University and an MBA from Assumption College, both located in Worcester,
MA.


- 14
-




ITEM
      1A.
                RISK
      FACTORS





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
will 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 from our pressure cycling
technology business since we commenced our pressure cycling technology
operations.  As of December 31, 2009, we had available cash of
approximately $1.6 million.  In March 2010, we closed on a second
tranche of our private placement of units of Series B Convertible Preferred
Stock and warrants to purchase shares of Series B Convertible Preferred Stock
with gross proceeds of approximately $500,000.  Based on our current
projections, we believe our current cash resources, which includes the funds we
received from the private placements we completed in 2009 and 2010, are
sufficient to fund our normal operations into the first quarter of
2011.  We believe we will need substantial additional capital to fund
our current operation beyond the first quarter of 2011.




We will
need additional capital sooner than we currently expect 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
in the sample preparation area, as well as for applications in other areas of
life sciences. Our capital requirements will depend on many factors, including
but not limited to:




·
            the
      problems, delays, expenses, and complications frequently encountered by
      early-stage companies;


·
            market
      acceptance of our pressure cycling technology products and services for
      sample preparation;


·
            the
      success of our sales and marketing programs;
and


·
            changes
      in economic, regulatory or competitive conditions in the markets we intend
      to serve.





To
satisfy our potential capital requirements to cover the cost of the development
and commercialization of our pressure cycling technology products and services
relating to sample preparation and other life science applications, we expect to
raise additional funds in the public or private capital markets.  We
may seek to raise any necessary additional funds through the issuance of
warrants, equity or debt financings or executing collaborative arrangements with
corporate partners or other sources, which may be dilutive to existing
stockholders or otherwise have a material effect on our current or future
business prospects. 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 substantially diluting or
      adversely affecting the holdings or the rights of the holders of our
      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;


·
            implement
      additional cost reduction initiatives;
or


·
            limit
      or cease our operations or otherwise reduce planned expenditures and
      forego other business opportunities, which could harm our
      business.





Our
actual results and performance, including our ability to raise additional
capital, may be adversely affected by current economic conditions.





Our
actual results and performance could be adversely affected by the current
economic conditions in the global economy, which pose a risk to the overall
demand for our products from our customers who may elect to defer or cancel
purchases of, or decide not to purchase, our products in response to continuing
tightness in the credit markets, negative financial news and general uncertainty
in the economy. In addition, our ability to obtain additional financing, on
acceptable terms, if at all, may be adversely affected by the crisis in the
credit markets and the uncertainty in the current economic
climate.


- 15
-




We
have a history of operating losses, anticipate future losses and may never be
profitable.




We have
experienced significant operating losses in the area of pressure cycling
technology in each period since we began investing resources in pressure cycling
technology in 1998.  These losses have resulted principally from
research and development, sales and marketing, and general and administrative
expenses associated with the development of our pressure cycling technology
business.  We expect to continue to incur operating losses until sales
of our pressure cycling technology products increase
substantially.  We cannot be certain when, if ever, we will become
profitable.  Even if we were to become profitable, we might not be
able to sustain such profitability on a quarterly or annual basis.





Our
financial results depend on revenues from our pressure cycling technology
products and services, which has a limited operating history, and from
government grants.




We
currently rely on revenues from our pressure cycling technology products and
services in the sample preparation area and from revenues derived from grants
awarded to us by governmental agencies, such as the National Institutes of
Health.  We only recently commercialized our pressure cycling
technology products and services for sample preparation. Our limited sales and
operating history may not be adequate to enable you to fully assess our ability
to achieve market acceptance of our product offering.  Competition for
government grants is very intense, and we can provide no assurance that we will
continue to be awarded grants in the future.  If we are unable to
increase revenues from sales of our pressure cycling technology products and
services and government grants, our business will fail.





Our
business may be harmed if we encounter problems, delays, expenses, and
complications that often affect early-stage companies.




We are an
early-stage company and our pressure cycling technology business have a
relatively limited operating history.  Early-stage companies may
encounter problems, delays, expenses and complications, many of which may be
beyond our control or may harm our business or prospects. These
include:




·
            unanticipated
      problems and costs relating to the development, testing, production,
      marketing, and sale of our
products;


·
            delays
      and costs associated with our ability to attract and retain key
      personnel;


·
            availability
      of adequate financing; and


·
            competition.





We cannot
guarantee that we will successfully complete the transition from an early-stage
company to the commercialization of our pressure cycling technology products and
services.





We
may be unable to obtain market acceptance of our pressure cycling technology
products and services.




Many of
our initial sales of our pressure cycling technology products and services have
been to our collaborators, following their use of our products in studies
undertaken in sample preparation for genomics, proteomics and small molecules
studies.  Our technology requires scientists and researchers to adopt
a method of sample extraction that is different than existing
techniques.  Our PCT sample preparation system is also more costly
than existing techniques.  Our ability to obtain market acceptance
will depend, in part, on our ability to demonstrate to our potential customers
that the benefits and advantages of our technology outweigh the increased cost
of our technology compared to existing methods of sample
extraction.  If we are unable to demonstrate the benefits and
advantages of our products and technology as compared to existing technologies,
we will not gain market acceptance and our business will fail.





The
sales cycle of our pressure cycling technology products is
lengthy.  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 between three and six months,
or more to test and evaluate our pressure cycling technology
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 marketing, and general and administrative expense
related to customers from whom we have not yet generated any revenue from our
products, and from whom we may never generate the anticipated revenue if a
customer is not satisfied with the results of the evaluation of our products or
if a customer cancels or changes its plans.


- 16
-





Our
business could be harmed if our products contain undetected errors or
defects.




We are
continuously developing new, and improving our existing, pressure cycling
technology products in sample preparation and we expect to do so in other areas
of life sciences depending upon the availability of our
resources.  Newly introduced products can contain undetected errors or
defects.  In addition, these products may not meet their performance
specifications under all conditions or for all applications.  If,
despite internal testing and testing by our collaborators, any of our products
contain errors or defects or fail to meet customer specifications, then we may
be required to enhance or improve those products or technologies.  We
may not be able to do so on a timely basis, if at all, and may only be able to
do so at considerable expense.  In addition, any significant
reliability problems could result in adverse customer reaction, negative
publicity or legal claims and could harm our business and
prospects.





Our
success may depend on our ability to manage growth effectively.




We expect
our operations to grow at a rapid pace as we further commercialize our pressure
cycling technology in sample preparation and other areas of life
sciences.   Our failure to manage growth effectively could harm
our business and prospects.  Given our limited resources and
personnel, growth of the business could place significant strain on our
management, information technology systems, sources of manufacturing capacity
and other resources.  To properly manage our growth, we may need to
hire additional employees and identify new sources of manufacturing
capabilities.  Failure to effectively manage our growth could make it
difficult to manufacture our products and fill orders, as well as lead to
declines in product quality or increased costs, any of which would adversely
impact our business and results of operations.





Our
success is substantially dependent on the continued service of our senior
management.




Our
success is substantially dependent on the continued service of our senior
management.  We do not have long-term employment agreements with our
key employees. The loss of the services of any of these individuals could make
it more difficult to successfully operate our business and achieve our business
goals.  In addition, our failure to retain existing engineering,
research and development and sales personnel could harm our product development
capabilities and customer and employee relationships, delay the growth of sales
of our products and could result in the loss of key information, expertise or
know-how.





We
may not be able to hire or retain the number of qualified personnel,
particularly engineering and sales personnel, required for our business, which
would harm the development and sales of our products and limit our ability to
grow.




Competition
in our industry for senior management, technical, sales, marketing, finance and
other key personnel is intense. If we are unable to retain our existing
personnel, or attract and train additional qualified personnel, either because
of competition in our industry for such personnel or because of insufficient
financial resources, our growth may be limited.  Our success also
depends in particular on our ability to identify, hire, train and retain
qualified engineering and sales personnel with experience in design, development
and sales of laboratory equipment.





Our
reliance on a single third party for all of our manufacturing, and certain of
our engineering, and other related services could harm our
business.




We
currently rely on Source Scientific, LLC, a third party contract manufacturer,
to manufacture our products, provide engineering expertise, and manage the
majority of our sub-contractor supplier relationships.  Because of our
dependence on one manufacturer, our success will depend, in part, on the ability
of Source Scientific to manufacture our products cost effectively, in sufficient
quantities to meet our customer demand, if and when such demand occurs, and
meeting our quality requirements.   If Source Scientific
experiences manufacturing problems or delays, or if Source Scientific 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, there will be a disruption in our business and we would incur
additional costs and delays that would harm our business.





Our
failure to manage current or future alliances or joint ventures effectively may
harm our business.




We have
entered into business relationships with distribution partners, and we may enter
into additional alliances, joint ventures or other business relationships to
further develop, market and sell our pressure cycling technology product
line.  We may not be able to:


- 17
-


·
            identify
      appropriate candidates for alliances, joint ventures or other business
      relationships;


·
            assure
      that any candidate for an alliance, joint venture or business relationship
      will provide us with the support
anticipated;


·
            successfully
      negotiate an alliance, joint venture or business relationship on terms
      that are advantageous to us; or


·
            successfully
      manage any alliance or joint
venture.





Furthermore,
any alliance, joint venture or other business relationship may divert management
time and resources.  Entering into a disadvantageous alliance, joint
venture or business relationship, failing to manage an alliance, joint venture
or business relationship effectively, or failing to comply with any obligations
in connection therewith, could harm our business and prospects.





We
may not be successful in growing our international sales.




We cannot
guarantee that we will successfully develop our international sales channels to
enable us to generate significant revenue from international
sales.  To date, we have entered into five international distribution
agreements, covering Belgium, France, Switzerland, Japan, China, Taiwan and
South Korea.  We have generated limited sales to date from
international sales and cannot guarantee that we will be able to increase our
sales.  As we expand, our international operations may be subject to
numerous risks and challenges, including:




·
            multiple,
      conflicting and changing governmental laws and regulations, including
      those that regulate high pressure
equipment;


·
            reduced
      protection for intellectual property rights in some
    countries;


·
            protectionist
      laws and business practices that favor local
  companies;


·
            political
      and economic changes and
disruptions;


·
            export/import
      controls;


·
            tariff
      regulations; and


·
            currency
      fluctuations.





Our
operating results are subject to quarterly variation.




Our
operating results may fluctuate significantly from period to period depending on
a variety of factors, including the following:




·
            our
      ability to increase our sales of our pressure cycling technology products
      for sample preparation on a consistent quarterly or annual
      basis;


·
            the
      lengthy sales cycle for our
products;


·
            the
      product mix of the Barocycler instruments we install in a given period,
      and whether the installations are completed pursuant to sales, rental or
      lease arrangements, and the average selling prices that we are able to
      command for our products;


·
            our
      ability to manage our costs and
expenses;


·
            our
      ability to continue our research and development activities without
      unexpected costs and expenses; and


·
            our
      ability to comply with state and federal regulations without incurring
      unexpected costs and expenses.





Our
instrumentation operates at high pressures and may therefore become subject to
certain regulation in the European Community.  Regulation of high
pressure equipment may limit or hinder our development and sale of future
instrumentation.




Our
Barocycler instruments operate at high pressures.  If our Barocycler
instruments exceed certain pressure levels, our products may become subject to
the European Pressure Equipment Directive, which requires certain pressure
equipment meet certain quality and safety standards.  We do not
believe that we are subject to this directive because our Barocycler instruments
are currently below the threshold documented in the text of the
directive.  If our interpretation were to be challenged, we could
incur significant costs defending the challenge, and we could face production
and selling delays, all of which could harm our business.


- 18
-





We
expect that we will be subject to regulation in the United States, such as the
FDA, and overseas, if and when we begin to invest more resources in the
development and commercialization of PCT in applications outside of sample
preparation.




Our
current pressure cycling technology products in the area of sample preparation
are not regulated by the U.S. Food and Drug Administration, or the
FDA.  Applications in which we intend to develop and commercialize
pressure cycling technology, such as protein purification, pathogen inactivation
and immunodiagnostics, are expected to require regulatory approvals or
clearances from regulatory agencies, such as the FDA, prior to
commercialization.  We expect that obtaining these approvals or
clearances will require a significant investment of time and capital resources
and there can be no assurance that such investments will receive approvals or
clearances that would allow us to commercialize the technology for these
applications.





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 our trade
secrets, and operate without infringing 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, one in Japan, and
one in Canada. We expect to file additional foreign applications in the future
relating to our pressure cycling technology, and we will file additional United
States applications as we develop new patentable intellectual property. 
The patents which have been issued expire between 2015 and 2027.




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
      value.





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.





Our
patents may be challenged by others.




We could
incur substantial costs in patent 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.





If
we are unable to maintain the confidentiality of our trade secrets and
proprietary knowledge, others may develop technology and products that could
prevent the successful commercialization of our products.




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 our 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 harm our
business.


- 19
-





If
we infringe on the intellectual property rights of others, our business will be
harmed.




It is
possible that the manufacture, use or sale of our pressure cycling technology
products or services may infringe patent or other intellectual property 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. We may be unable to secure a license on
terms and conditions acceptable to us, if at all. Also, we may not 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 if
we are found liable for infringement, or if we are unsuccessful in having 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 and the
development of new industry standards.




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 with others that are developing or have
developed competitive technologies and products.




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, proteins and small molecules
from 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 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 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.





Provisions
in our articles of organization and bylaws and our poison pill may discourage or
frustrate shareholders’ attempts to remove or replace our current
management.




Our
articles of organization and bylaws 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, or “poison pill”, 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.


- 20
-





The
costs of compliance with the reporting obligations of the Exchange Act, 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 rules subsequently implemented by the SEC and NASDAQ, have required changes
in corporate governance and financial disclosure 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 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.




The
holders of our common stock could suffer substantial dilution as the result of
the private placements we completed in 2009 and 2010.




In
connection with the private placements we completed in 2009 and 2010, we issued
shares of Series A Convertible Preferred Stock and shares of Series B
Convertible Preferred Stock, together with warrants to purchase shares of Series
A Convertible Preferred Stock and common stock in our first private placement,
and together with warrants to purchase shares of Series B Convertible Preferred
Stock in our second private placement.  Each share of Series A
Convertible Preferred Stock and each share of Series B Convertible Preferred
Stock is convertible into 10 shares of common stock.   If all of
the shares of Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock, together with the warrants to purchase Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock and common stock, were
converted or exercised into shares of our common stock, an additional 6,483,620
shares of common stock would be issued and outstanding.  The
additional issuance of common stock would cause immediate and substantial
dilution to our existing stockholders, and could cause a significant reduction
in the market price of our common stock.




Our
shares of Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock are entitled to certain rights, privileges and preferences over
our common stock, including the right to receive dividends and a preference upon
a liquidation of the company, which could reduce amounts available for
distribution to our common stockholders.




We have
never declared or paid any cash dividends on our common stock and do not plan to
pay any cash dividends on our common stock in the foreseeable
future.  The holders of our shares of Series A Convertible Preferred
Stock, however, are entitled to receive a cumulative dividend at the rate of 5%
per annum of the purchase price paid for the Series A Convertible Preferred
Stock, payable semi-annually on June 30 and December 31, which commenced on June
30, 2009.  The holders of our shares of Series B Convertible Preferred
Stock are entitled to receive a cumulative dividend at the rate of 5% per annum
of the purchase price paid for the Series B Convertible Preferred Stock, payable
semi-annually on June 30 and December 31, which commenced on December 31,
2009.  Dividends may be paid in cash or in shares of common stock at
our option, subject to certain conditions.   If we elect to pay
the dividends in cash, we will have less cash available for operations, and less
cash available to the holders of common stock upon a liquidation of the
company.  For the dividend payments on June 30, 2009 and December 31,
2009, we elected to pay the dividends in common stock.  This had a
dilutive effect on our common stockholders.  If we continue to elect
to pay the dividends in common stock, our common stockholders will suffer
additional dilution.




The
Series A Convertible Preferred Stock and Series B Convertible Preferred Stock
are also entitled to receive preferential treatment in the event of liquidation,
dissolution or winding up of our company, which could leave significantly less
assets, if any, available for distribution to our common stockholders upon a
liquidation, dissolution or winding up of our company.




There
is no guarantee that we will continue to meet the standards for continued
listing on the NASDAQ Capital Market.  The value of your investment in
our company may substantially decrease if we were delisted from
NASDAQ.




As of the
date of this Annual Report on Form 10-K, we are in compliance with the continued
listing standards of the NASDAQ Capital Market.  However, we cannot
guarantee that we will continue to meet the standards for listing in the
future.  Upon delisting from the NASDAQ Capital Market, our common
stock would be traded on the over-the-counter bulletin board (“OTC”). OTC
transactions involve risks in addition to those associated with transactions in
securities traded on the NASDAQ Capital Market. Many OTC stocks trade less
frequently and in smaller volumes than NASDAQ listed stocks. Accordingly,
delisting from the NASDAQ Capital Market could adversely affect the trading
price of our common stock, significantly limit the liquidity of our common stock
and impair our ability to raise additional funds.




- 21
-




ITEM
      1B.
                UNRESOLVED
      STAFF COMMENTS.




Not
Applicable.




ITEM
      2.
                PROPERTIES.





Our
corporate offices are currently located at 14 Norfolk Avenue, South Easton,
Massachusetts 02375.  In November 2007, we signed an 18 month lease
agreement commencing in February 2008 pursuant to which we lease approximately
5,500 square feet of office space, with an option for an additional 12
months.  We exercised the renewal option to extend the lease term
until July 14, 2010.  We pay approximately $6,500 per month for the
use of these facilities.





Effective
January 1, 2010, we entered into a three-year lease agreement with the
University of Massachusetts, pursuant to which we are leasing laboratory and
office space on campus at the university for research and development
activities.  We will pay $5,000 per month for the use of these
facilities.





ITEM
      3.
                LEGAL
      PROCEEDINGS.





We are
not currently involved in any legal proceedings.





ITEM
      4.
                RESERVED.





- 22
-


PART
II





ITEM
      5.
                MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
      PURCHASES OF EQUITY
SECURITIES.





Our
common stock is traded on the NASDAQ Capital Market under the 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 Capital Market from
January 1, 2008 through December 31, 2009.





Common Stock PriceFiscal Year Ended December 31,
      2008
                      
                      High
                      
                      
                      LowFirst
      Quarter
                      
                      $
                      5.72
                      
                      
                      $
                      3.80Second
      Quarter
                      
                      
                      5.09
                      
                      
                      
                      3.14Third
      Quarter
                      
                      
                      3.75
                      
                      
                      
                      2.25Fourth
      Quarter
                      
                      
                      2.37
                      
                      
                      
                      0.55Fiscal Year Ended December 31,
      2009
                      
                      High
                      
                      
                      LowFirst
      Quarter
                      
                      $
                      1.23
                      
                      
                      $
                      0.55Second
      Quarter
                      
                      
                      2.10
                      
                      
                      
                      0.80Third
      Quarter
                      
                      
                      1.85
                      
                      
                      
                      1.31Fourth
      Quarter
                      
                      
                      1.80
                      
                      
                      
                      1.32




As of
March 26, 2010, there were 20,000,000 shares of common stock authorized of which
2,350,186 shares were issued and outstanding, and held by 108 stockholders of
record.  As of March 26, 2010, we had 1,000,000 shares of preferred
stock authorized of which 171,864 shares of Series A Convertible Preferred Stock
and 88,711 shares of Series B Convertible Preferred Stock were issued and
outstanding and held by 68 stockholders of record.  Each share of
Series A Convertible Preferred Stock and Series B Convertible Preferred Stock is
convertible into 10 shares of common stock.





We have never declared or paid any cash dividends on our common
stock and do not plan to pay any cash dividends on our common stock in the
foreseeable future.  As part of the private placement completed in February
2009, the holders of the Series A Convertible Preferred Stock are entitled to
receive a cumulative dividend at the rate of 5% per annum of $11.50 (the
“Purchase Price”), payable semi-annually on June 30 and December 31, which
commenced on June 30, 2009 (with the first payment pro-rated based on the number
of days occurring between the date of issuance and June 30,
2009).  The Series B Convertible Preferred Stock issued in the
November 18, 2009 and March 18, 2010 private placements will pay a cumulative
dividend at the rate of 5% per annum of the Purchase Price, payable
semi-annually within 45 days of June 30th and December 31st, which commenced on
December 31, 2009 (with the first payment pro-rated based on the number of days
occurring between the date of issuance and December 31, 2009 for the November
18, 2009 private placement or June 30, 2010 for the March 18, 2010 private
placement).  Dividends may be paid in cash or in shares of common
stock at our option, subject to certain conditions. We issued 29,473 shares of
common stock for the six month period ending June 30, 2009.  The Board
of Directors approved the issuance of stock for the six month period ending June
30, 2009 and for the six month period ending December 31, 2009.  The
Series A holders will receive 39,098 shares of common stock for the six month
period ending December 31, 2009 and the Series B holders will receive 5,027
shares of common stock for the prorated period ending December 31,
2009.


- 23
-





Recent
Sales of Unregistered Securities





On
February 12, 2009, we completed a private placement, pursuant to which we sold
an aggregate of 156,980 units (the “Series A Units”) for a purchase price of
$11.50 per unit, resulting in gross proceeds to us of $1,805,270 (the “Series A
Private Placement”).  The Series A Units were issued and sold to a
total of 35 accredited investors pursuant to a Securities Purchase Agreement
entered into as of February 12, 2009 (the “Securities Purchase
Agreement”).  Each Series A Unit consists of  (i) one share
of a newly created series of preferred stock, designated “Series A Convertible
Preferred Stock,” par value $0.01 per share (the “Series A Convertible
Preferred Stock”) convertible into 10 shares of our common stock, (ii) a
warrant to purchase, at the purchaser’s election to be made within 7 days of the
closing, either 10 shares of our common stock, at an exercise price equal to
$1.25 per share, with a term expiring 15 months after the date of closing
(“15 Month Common
Stock Warrant”), or one share of Series A Convertible Preferred Stock at
an exercise price equal to $12.50 per share, with a term expiring 15 months
after the date of closing (“15 Month Preferred Stock
Warrant”) (all purchasers elected to receive the 15 Month Preferred Stock
Warrant); and (iii) a warrant to purchase 10 shares of common stock at an
exercise price equal to $2.00 per share, with a term expiring 30 months after
the date of closing (the “30 Month Common Stock
Warrants”).





On
November 18, 2009, we sold an aggregate of 62,039 units (the “Series B Units”)
of Series B Convertible Preferred Stock, par value $0.01 per share (the “Series
B Convertible Preferred Stock”) and warrants for a purchase price of $18.80 per
Series B Unit (the “Series B Purchase Price”), resulting in gross proceeds to us
of $1,166,333.  This is the first tranche of a $2.5 million private
placement (the “Series B Private Placement”).  We closed on the second
tranche of the Series B Private Placement on March 18, 2010 with the sale of an
additional 26,672 Series B Units with gross proceeds of
$501,434.  Each Series B Unit consists of (i) one share of a newly
created Series B Convertible Preferred Stock convertible into 10 shares of our
common stock and (ii) a warrant to purchase one share of Series B Convertible
Preferred Stock at an exercise price equal to $23.80 per share for the warrants
issued in November 2009 and at an exercise price of $28.80 for the warrants
issued in March 2010, in each case with a term expiring on August 11, 2011
(“Series B Warrant”).





In
connection with the Series B Private Placement, the Company paid a finder’s fee
of $100,478, plus warrants to purchase 5,344 shares of Series B Convertible
Preferred Stock at $28.80 per share, expiring
August 11, 2012.





In
connection with each of the Series A Private Placement and the Series B Private
Placement, the Company agreed that if it completes a subsequent equity financing
within one year from the initial closing of the Series A Private Placement and
the Series B Private Placement, respectively, it will offer each purchaser the
opportunity to exchange the Series A Units or the Series B Units, as the case
may be, purchased for the equity securities issued in such subsequent financing,
subject to compliance with applicable rules and regulations.





The sale
of the units in the Series A Private Placement and the Series B Private
Placement were issued and sold without registration under the Securities Act, in
reliance upon the exemption from registration set forth in Rule 506 of
Regulation D (“Regulation D”)
promulgated under the Securities Act.  The Company based such reliance
upon representations made by each purchaser of Series A Units and Series B
Units, including, but not limited to, representations as to the purchaser’s
status as an “accredited investor” (as defined in Rule 501(a) under Regulation
D) and the purchaser’s investment intent.  The Series A Units and the
Series B Units were not offered or sold by any form of general solicitation or
general advertising (as such terms are used in Rule 502 under Regulation
D).  The Series A Units and the shares of Series A Convertible
Preferred Stock, 15 Month Preferred Stock Warrants and 30 Month Common Stock
Warrants comprising the Series A Units, and the Series B Units and the shares of
Series B Convertible Preferred Stock and the Series B Warrants comprising the
Series B Units may not be re-offered or sold in the United States absent an
effective registration statement or an exemption from the registration
requirements under applicable federal and state securities
laws.





Repurchases
by Pressure BioSciences





We did
not repurchase any of our equity securities during the fourth quarter of
2009.


- 24
-





ITEM
      6.
                SELECTED
      FINANCIAL DATA.


Not
Applicable.





ITEM
      7.
                MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION.





OVERVIEW





We are a
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
consumables product line, which includes PULSE (Pressure Used to Lyse Samples
for Extraction) Tubes as well as application specific kits, which include
consumable products and reagents, together make up the PCT Sample Preparation
System (“PCT SPS”).





We have
experienced negative cash flows from operations with respect to our pressure
cycling technology business since we commenced our pressure cycling
operations.  During 2008, we undertook a number of cost reduction
measures including a comprehensive restructuring program, to significantly
reduce costs, centralize core operations, and refocus business strategy in
specific areas where our products have found significant initial market
acceptance.  The restructuring program included: a reduction in
personnel of eight full-time employees (40% of the workforce), reduction in
travel and meeting attendance for all personnel, decreases in the base salary of
most of our employees and all of our executive officers, a shutdown of our
research and development facility in Rockville, MD, a consolidation of our
research and development activities in Massachusetts, and delay of several
research and development and marketing programs.  These initiatives
have significantly decreased cash utilization, from just under $1 million per
quarter in the second half of 2008 to an average of approximately $635,000 per
quarter during 2009.  As of December 31, 2009, we had a total cash
balance of approximately $1,630,000.  In March 2010, we closed on a
second tranche of our private placement of units of Series B Convertible
Preferred Stock and warrants to purchase shares of Series B Convertible
Preferred Stock with gross proceeds of approximately $500,000.  Based
on our current projections, we believe our current cash resources, which
includes the funds we received from the private placements we completed in 2009
and 2010, are sufficient to fund our normal operations into the first quarter of
2011.  Depending upon the results of the Company’s financing and
partnering activities and sales efforts, we may make additional cost reductions
as required to accomplish this goal.





Our
pressure cycling technology employs a unique approach that we believe 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;


-
            pathogen
      inactivation;


-
            protein
      purification;


-
            control of chemical (enzymatic)
      reactions; and


-
            immunodiagnostics.





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





Our
business strategy is to commercialize pressure cycling technology in the area of
sample preparation for genomic, proteomic, and small molecule studies (“sample
preparation”).  We also plan to pursue the further development and
commercialization of PCT in other life sciences applications, which could
include working with various strategic partners that have greater scientific,
and regulatory, expertise in the respective applications than we do.We plan to focus
primarily on the application of PCT-enhanced protein digestion for the mass
spectrometry market and the advantages of PCT in this market, and the use of PCT
in biomarker discovery, soil and plant biology, counter bio-terror and tissue
pathology applications.


- 25
-





To
support our current strategy, our primary focus is the execution of our
commercialization plan for PCT in sample preparation.  We remain
focused on projects that we feel represent near-term revenue
opportunities.  If we are successful commercializing our technology in
the sample preparation market, we believe that our financial results will be
positively affected by a combination of the revenue from the sale, lease, and
rental of the Barocycler instruments, the sale of other PCT equipment, such as
the PCT Shredder, and by the recurring revenue streams that we hope to realize
from the sale of the single-use PULSE Tubes, PCT-dependent kits, andextended
service contracts on our instrumentation.  We believe the recurring
revenue streams that could be generated from our instruments in the field is a
very important component of our future financial success.  Therefore,
we believe that it is important for us to continue to focus on increasing the
number of installed Barocyclers in the field.  To this end, we have
offered our prospective customers the opportunity to lease or rent the
Barocycler instruments, and in some cases we have engaged in short-term reagent
rental agreements.  Under a reagent rental agreement we provide the
customer with a Barocycler instrument in exchange for a minimum purchase
commitment of consumable products. While these arrangements do not provide us
with the immediate revenue of a sale, they do serve to expand the utilization of
PCT and they provide a stream of revenue in the form of rental payments and
consumable purchases.  We define sales, leases, and rentals of
Barocycler instruments as revenue-generating installations.





We also
derive revenues from Small Business Innovation Research (“SBIR”) grants awarded
to us by the National Institutes of Health.  These types of grants
allow us to bill the federal agency for work that we are planning to perform as
part of the development, and commercialization, of our
technology.  Additionally, if our work in SBIR Phase I grants is
successful, then we expect to apply for larger NIH SBIR Phase II grants. To date
we have been awarded two National Institutes of Health (“NIH”) Small Business
Innovation Research (“SBIR”) Phase I Grants and one SBIR Phase II
Grant.  Both of our Phase I Grants have been completed.  The
data on one of the Phase I grants was the basis for the submission, and
subsequent award, of our Phase II award of approximately
$850,000.  The Phase II Grant is for work in the area of the use of
PCT to extract protein biomarkers, sub-cellular molecular complexes, and
organelles, with the expectation that these studies will ultimately lead to the
release of a new, commercially available PCT-based system, with validated
protocols, end-user kits, and other consumables intended for the extraction of
clinically important protein biomarkers, sub-cellular molecular complexes, and
organelles.  As of December 31, 2009, the amount of the Phase II SBIR
grant available to fund future research was $336,957.





We
completed our Series A Private Placement and the first tranche of our Series B
Private Placement in 2009, pursuant to which we sold an aggregate of 156,980
shares of Series A Convertible Preferred Stock and 62,039 shares of Series B
Convertible Preferred Stock, together with warrants, resulting in aggregate
gross proceeds to us of $2,971,603.  We also closed the sale of a
second tranche of 26,672 shares of Series B Convertible Preferred Stock and
warrants in the Series B Private Placement on March 18, 2010 with gross proceeds
of $501,434.





We
believe we have sufficient cash resources to fund normal operations into the
first quarter of 2011 due to the restructuring measures we have undertaken and
the $3,473,037 we received in connection with our 2009 and 2010 private
placements.  We believe we will need substantial additional capital to
fund our current operations beyond the first quarter of 2011.  If we
are able to obtain additional capital or otherwise increase our revenues, we may
increase spending in specific research and development applications and
engineering projects and may hire additional sales personnel or invest in
targeted marketing programs.  In the event that we are unable to
obtain financing on acceptable terms, or at all, we may be required to limit or
cease our operations, pursue a plan to sell our operating assets, or otherwise
modify our business strategy, which could materially harm our future business
prospects.




RESULTS OF OPERATIONS





Years
Ended December 31, 2009 as compared to 2008





Revenue





We had
total revenue of $1,244,910 in the year ended December 31, 2009 as compared to
$852,263 in the prior year.





PCT Products, Services,
Other.  Revenue from the sale of PCT products and services was
$831,602 in 2009 as compared to $655,252 in 2008.  This increase in
revenue in 2009 was driven primarily by the installation of a total of 54
Barocycler instruments during 2009 as compared to 41 during 2008, and the launch
of the PCT MicroTube Adapter Kit.  When we install instrumentation
under lease or rental agreements, we record the revenue over the life of the
agreement.


- 26
-





Unit
Installations


2009
                        
                        
                        2008Domestic
                        
                        
                        47
                        
                        
                        
                        26International
                        
                        
                        7
                        
                        
                        
                        15Total
      Installations
                        
                        
                        54
                        
                        
                        
                        41





We expect
the number of units installed will continue to increase in future periods as we
continue to gain commercial awareness of our technology, although we may
experience some delays in customer purchases due to current economic conditions
in the United States and globally.  We continue to expect that some
portion of future installations will be for the smaller, lower priced,
Barocycler NEP2320 model and some will be placed under lease or short-term
rental agreements.  Therefore, we expect that the average revenue per
installation may continue to fluctuate from period to period as we continue to
drive our installed base and commercialize PCT.  We also expect that
as we continue to expand the installed base of Barocycler instruments in the
field, we will realize increasing revenue from the sale of consumable products
and extended service contracts.  In the short-term, these recurring
revenue streams may continue to fluctuate from period to period.





Grant
Revenue.  During 2009, we recorded $413,308 of grant revenue as
compared to $197,011 in 2008.  Grant revenue recorded during 2009 was
related to the $850,000 SBIR Phase II grant that we were awarded in June 2008
and to an SBIR Phase I grant of approximately $110,000 awarded in January
2009.  The amount of grant revenue that we recognize in any given
period is dependent upon the level of resources we devote to grant-related work
in the period under existing grant awards.





Cost of PCT Products and
Services





The cost
of PCT products and services was $402,340 for the year ended December 31, 2009,
compared to $401,017 in 2008.  The increase in cost of PCT products
and services was due primarily to the increase in the number of units installed
under sale, lease, or rental arrangements during the period and, to a lesser
extent, costs associated with our June 2009 launch of our PCT MicroTube Adapter
Kits.  Costs of PCT products and services as a percentage of PCT
revenue decreased to 48% for the year ended December 31, 2009, as compared to
61% for the year ended December 31, 2008.  The decrease in the cost of
PCT products and services as a percentage of PCT revenue was due primarily to
the sale of Barocycler units that were demonstration models that had been
previously expensed resulting in a lower cost of PCT products in the current
year.  The Company also recovered four units from the field that were
previously expensed to costs of PCT products and services.  The prior
year cost of PCT products and services as a percentage of PCT revenue reflected
our sale of 12 Barocycler instruments to our foreign distributors at discounted
prices during 2008.





We
believe that our cost of PCT products and services will decrease as a percentage
of revenue as we continue to install more instruments, convert short-term
rentals to direct sales, and sell more consumable products, such as PULSE Tubes
and ProteoSolve kits.  However, we expect our gross margin may
fluctuate from period to period as we continue to sell, lease, or rent a varying
mix of Barocycler instrumentation and consumable products.





Research and
Development





Research
and development expenditures decreased to $1,175,136 during 2009 from $1,810,590
in 2008. This decline in R&D expenses was primarily due to the significant
restructuring and cost-reduction programs that we initiated in the second half
of 2008, including the termination of seven R&D employees.  The
headcount in R&D during the year ended December 31, 2009 was three, compared
to ten during the same period in 2008.The decline in expenses
was also due to a significant decrease in the number of R&D projects we
funded during 2009.





Research
and development expense included $137,161 and $162,421 of non-cash, stock-based
compensation in 2009 and 2008, respectively.


- 27
-





Selling and
Marketing





Selling
and marketing expenses decreased to $1,054,869 in 2009 from $1,686,590 for the
year ended December 31, 2009.  This decline in selling and marketing
expense was primarily due to the significant restructuring and cost-reduction
programs that we initiated in the second half of 2008, including the termination
of four sales directors and one marketing assistant.  The headcount in
selling and marketing during the year ended December 31, 2009 was five, compared
to ten during 2008.  A significant decrease in advertising, exhibit
booth rental, and travel expense also contributed to the reduction in overall
selling and marketing expense incurred.





Selling
and marketing expense included $73,689 and $93,947 of non-cash, stock-based
compensation expense in 2009 and 2008, respectively.





General and
Administrative





General
and administrative costs totaled $1,809,133 in the year ended December 31, 2009,
as compared to $1,920,465 in 2008.  The decline in expenses was due to
compensation savings from reduced headcount and reduced Board member fees offset
by increases in investor relations activities.





During
the years ended December 31, 2009 and 2008, general and administrative expense
included $218,155 and $252,827 of non-cash, stock-based compensation expense,
respectively.  The year ended December 31, 2009 includes a grant of
stock options to purchase an aggregate of 485,000 shares of our common stock in
total to our employees and our four independent directors, resulting in a charge
of $112,943 during 2009.  The year ended December 31, 2009 also
includes a one-time charge of $15,675 of non-cash stock-based compensation
expense in connection with the grant of a non-qualified, fully-vested option to
purchase 15,000 shares of our common stock to our new independent
director.  The same period in 2008 includes a one-time charge of
$100,556 of non-cash stock-based compensation expense in connection with the
grant of non-qualified, fully-vested stock options to purchase 10,000 shares of
our common stock to each of our four independent directors.





Operating
Loss





Our
operating loss was $3,196,568 for the year ended December 31, 2009 as compared
to $4,966,399 for the comparable period in 2008, a decrease of $1,769,831 or
36%.  During the second half of 2008, we initiated a number of cost
reduction measures, including a comprehensive restructuring program to
significantly reduce costs, centralize core operations, and refocus our business
strategy in specific areas where our products had found significant initial
market acceptance.  The restructuring program included: a reduction in
personnel of twelve full-time employees, reduction in travel and meeting
attendance for all personnel, reduced Board of Directors fees, decreases in the
base salary of most of our employees and all of our executive officers, a
shutdown of our R&D facility in Rockville, MD, a consolidation of
our research and development activities in Massachusetts, and delay or
cancellation of several research and development and marketing
programs.





These
initiatives have significantly decreased our rate of cash utilization, from just
under $1 million per quarter in the second half of 2008 to an average of
approximately $635,000 per quarter for 2009.





Interest
Income





Interest
income totaled $4,990 for the year ended December 31, 2009 as compared to
$57,954 for the year ended December 31, 2008.  The decrease is due to
lower average cash balances and lower yields on these balances during the year
ended December 31, 2009, as compared to the same period in
2008.  Several high-yield CDs matured in 2008.





Income
Taxes




In the
year ended December 31, 2009, we recorded a refund of income taxes of $623,262
due to provisions in the American Recovery and Reinvestment Act of 2009 relating
to net operating loss carry-backs.  The cash was received in August
2009.  There was no provision for an income tax benefit during the
same period in 2008.  Aside from the impact of the passage of this
law, we do not expect any additional income tax benefits relating to carry-backs
to prior periods.  If we are successful in commercializing PCT and in
generating operating income, then we may be able to utilize certain net
operating losses we may have at the time against such future operating
profits.


- 28
-





Net Loss





During
the year ended December 31, 2009, we recorded a net loss applicable to common
shareholders of $3,284,779 or $(1.42) per share, as compared to $4,908,445 or
$(2.24) per share in the same period of 2008.  Our net loss in the
year ended December 31, 2009 was lower than the corresponding net loss in the
same period in 2008 as the result of increased revenue, the income tax benefit,
and lower operating costs, as described above.For 2009, the difference
between net loss applicable to common shareholders and net loss relates to the
beneficial conversion associated with the intrinsic value of the Series A
Convertible Preferred Stock and Series B Convertible Preferred
Stock.





LIQUIDITY
AND FINANCIAL CONDITION





As of
December 31, 2009, our working capital position was $2,209,205, the primary
components of which were cash and cash equivalents, accounts receivable,
inventory, prepaid expenses, and deposits, partially offset by accounts payable,
accrued employee compensation, and other accrued expenses. As of December 31,
2008, our working capital balance was $1,602,556, the primary components of
which were cash and cash equivalents, income taxes receivable, prepaid expenses,
and deposits. We expect to continue to fund our operations from our working
capital balance.





During
2008, we took a number of cost reduction measures, including a comprehensive
restructuring program to significantly reduce costs, centralize core operations,
and refocus our business strategy in specific areas where our products have
found significant market acceptance. The restructuring program included: a
reduction in personnel of eight full-time employees (40% of the workforce),
reduction in travel and meeting attendance for all personnel, continued
reduction in investor relations activities, decreases in the base salary of most
of our employees and all of our executive officers,  a shutdown of the
our R&D facility in Rockville, MD, a consolidation of our research and
development activities in Massachusetts and delay of several research and
development and marketing programs.  These initiatives significantly
decreased our rate of cash utilization, from just under $1 million per quarter
to an average of just under $635,000 per quarter during 2009.





On
February 12, 2009, we completed a private placement, pursuant to which we sold
an aggregate of 156,980 units (the “Series A Units”) for a purchase price of
$11.50 per unit (the “Series A Purchase Price”), resulting in gross proceeds to
us of $1,805,270 (the “Series A Private Placement”).  See Note 8 to
our Consolidated Financial Statements for a further description of the Series A
Convertible Preferred Stock and Warrants issued in the Series A Private
Placement.





On
November 18, 2009, we sold an aggregate of 62,039 units (the “Series B Units”)
of Series B Convertible Preferred Stock, par value $0.01 per share (the “Series
B Convertible Preferred Stock”) and warrants for a purchase price of $18.80 per
Series B Unit (the “Series B Purchase Price”), resulting in gross proceeds to us
of $1,166,333.20.  This is the first tranche of a $2.5 million private
placement (the “Series B Private Placement”).  We closed on the second
tranche of the Series B Private Placement on March 18, 2010 with the sale of an
additional 26,672 Series B Units with gross proceeds of
$501,434.  Each Series B Unit consists of (i) one share of a newly
created Series B Convertible Preferred Stock, convertible into 10 shares of our
common stock and (ii) a warrant to purchase one share of Series B Convertible
Preferred Stock at an exercise price equal to $23.80 per share share for the
warrants issued in November 2009 and at an exercise price of $28.80 per share
for the warrants issued in March 2010, in each case with a term expiring on
August 11, 2011 (“Series B Warrant”).





In
connection with the Series B Private Placement, we paid a finder’s fee of
$100,478, plus warrants to purchase 5,344 shares of Series B Convertible
Preferred Stock at $28.80 per share, expiring August 11, 2012.





On
December 19, 2008, we received $200,000 from one of our distributors in the
escrow account for the private placement.  Prior to February 12, 2009,
the distributor requested that the $200,000 be used as payment for anticipated
future purchases of our PCT instrument and consumable products, and not for an
investment in the private placement.  This amount was recorded as
deferred revenue in 2009.  As of December 31, 2009, the remaining
unused balance of $132,808 was returned to our distributor.


- 29
-





We
believe that because of the cost restructuring measures we have undertaken,
together with the $3,473,037 we received in connection with our 2009 and 2010
private placements of units, consisting of Series A Convertible Preferred Stock
and Series B Convertible Preferred Stock and warrants, we have sufficient cash
resources to fund normal operations into the first quarter of
2011.  Depending upon the results of the Company’s financing and
partnering activities and sales efforts, we may make additional cost reductions
as required to accomplish this goal.  We believe we will need
substantial additional capital to fund our current operations beyond the first
quarter of 2011.   If we are able to obtain additional capital or
otherwise increase our revenues, we may increase spending in specific research
and development applications and engineering projects and may hire additional
sales personnel or invest in targeted marketing programs.  In the
event that we are unable to obtain financing on acceptable terms, or at all, we
may be required to limit or cease our operations, pursue a plan to sell our
operating assets, or otherwise modify our business strategy, which could
materially harm our future business prospects.





Net cash
used in operations during 2009 was $1,809,261 as compared to net cash used in
operations of $4,420,209 during 2008.  The decrease in cash used in
operations in 2009 as compared to 2008 is principally the result of the
increased revenues and lower operating expenses in 2009.




Net cash
used in investing activities during 2009 was $152,925 as compared to net cash
used in investing activities of $145,819 in the prior year.  During
year ended December 31, 2009, we installed 26 Barocycler instruments under
collaboration or lease agreements while selling six demonstration
units.  Cash used in investing activities during the year ended
December 31, 2008 was for the purchase of furniture and fixtures associated with
our move to new corporate offices, and for Barocycler instruments that we
purchased and installed under collaboration or lease agreements.





Net cash
provided by financing activities during 2009 was $2,703,756.  As noted
above, during 2009 we received the proceeds from the Series A Private Placement
and the first tranche of the Series B Private Placement.  The expenses
related to the Series A Private Placement totaled approximately $233,000 and the
expenses related to Series B Private Placement totaled approximately $117,000,
including the finder’s fees in the Series B Private Placement.  In
connection with the Series B Private Placement, we paid a finder’s fee of
$100,478, plus warrants to purchase 5,344 shares of Series B Convertible
Preferred Stock at $28.80 per share, expiring August 11, 2012.





Net cash provided by financing activities for the
year ended December 31, 2009 also included a stock warrant
exercise.  Net cash provided by financing activities for the year
ended December 31, 2008 was due to an exercise of employee stock options to
purchase shares of our common stock.





COMMITMENTS AND
CONTINGENCIES





Royalty
Commitments





In 1996,
we acquired our initial equity interest in BioSeq, Inc., which at the time was
developing our original pressure cycling technology.  BioSeq, Inc. acquired
its pressure cycling technology from BioMolecular Assays, Inc. (“BMA”) under a
technology transfer and patent assignment agreement.  In 1998, we purchased
all of the remaining outstanding capital stock of BioSeq, Inc., and at such
time, the technology transfer and patent assignment agreement was amended to
require us to pay BMA a 5% royalty on our sales of products or services
that incorporate or utilize the original pressure cycling technology that
BioSeq, Inc. acquired from BioMolecular Assays, Inc.  We are also required
to pay BMA 5% of the proceeds from any sale, transfer or license of all or any
portion of the original pressure cycling technology.  These payment
obligations terminate in 2016.  During the year ended December 31,
2009 and 2008, we incurred approximately $30,548 and $29,553, respectively in
royalty expense associated with our obligation to BMA.





In
connection with our acquisition of BioSeq, Inc., we licensed certain limited
rights to the original pressure cycling technology back to BMA.   This
license is non-exclusive and limits the use of the original pressure cycling
technology by BMA solely for molecular applications in scientific research and
development and in scientific plant research and development.  BMA is
required to pay us a royalty equal to 20% of any license or other fees and
royalties, but not including research support and similar payments, it receives
in connection with any sale, assignment, license or other transfer of any rights
granted to BMA under the license. BMA must pay us these royalties until the
expiration of the patents held by BioSeq, Inc. in 1998, which we anticipate will
be 2016.  We have not received any royalty payments from BMA under this
license.


- 30
-





Purchase
Commitments





On
December 14, 2009, we submitted a purchase order to Source Scientific, LLC, the
manufacturer of the Company’s PCT Barocycler instrumentation, for 50 Barocycler
NEP2320 units and 12 Barocycler NEP3229 units with various spare
parts.  Pursuant to the terms of the purchase order, we placed a
deposit with Source Scientific, LLC, of approximately $169,000 representing
approximately 25% of the expected total value of the order.  The
purchase price for the 50 NEP2320 units and 12 NEP3229 units is based upon a
fixed bill of materials.  We will be billed for the unpaid purchase
price of each unit at the time each unit is completed and ready for
sale.





Severance
and Change of Control Agreements




Each of
our executive officers is entitled to receive a severance payment if terminated
by the Company without cause. The severance benefits would include a payment in
an amount equal to one year of each executive officer’s annualized base salary
compensation plus accrued paid time off. Additionally, each executive officer
will be entitled to receive medical and dental insurance coverage for one year
following the date of termination. The total commitment related to these
agreements in the aggregate is approximately $1.0 million.




Each of
our executive officers, other than Mr. Richard T. Schumacher, our President and
Chief Executive Officer, is entitled to receive a change of control payment in
an amount equal to one year of such executive officer’s annualized base salary
compensation, accrued paid time off, and medical and dental coverage, in the
event of a change of control of the Company.  In the case of Mr.
Schumacher, this payment would be equal to two years of annualized base salary
compensation, accrued paid time off, and two years of medical and dental
coverage. The total commitment related to these agreements in the aggregate is
approximately $1.3 million.The severance payment is
meant to induce the executive to become an employee of the Company and to remain
in the employ of the Company, in general, and particularly in the occurrence of
a change in control.





Lease
Commitments





We lease
building space under non-cancelable leases in South Easton, MA and in the
Venture Development Center at the University of Massachusetts in
Boston.





Following
is a schedule by years of future minimum rental payments required under
operating leases with initial or remaining non-cancelable lease terms in excess
of one year as of December 31, 2009:





Year
      ending December 31:2010
                        
                        $
                        133,9142011
                        
                        
                        105,3042012
                        
                        
                        60,000Thereafter
                        
                        
                        -Total
      minimum payments required
                        
                        $
                        299,218




- 31
-




CRITICAL
ACCOUNTING POLICIES





FASB
Codification





We follow
accounting standards set by the Financial Accounting Standards Board,
(“FASB”).  The FASB sets GAAP that we follow to ensure we consistently
report our financial condition, results of operations, and cash
flows.  References to GAAP issued by the FASB in this Report are to
the FASB Accounting Standards Codification, sometimes referred to as the
Codification or ASC.  The FASB finalized the Codification effective
for periods ending on or after September 15, 2009.  Prior FASB
standards like FASB Statement No. 13, Accounting for Leases, are no longer being
issued by the FASB.





Principles
of Consolidation





The
consolidated financial statements include the accounts of Pressure BioSciences,
Inc., and its wholly-owned subsidiary PBI BioSeq, Inc.





Use
of Estimates





To
prepare our consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, we are required
to make significant estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. In addition, significant estimates were
made in projecting future cash flows to quantify impairment of assets, 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.





Revenue
Recognition





We
recognize revenue in accordance with FASB ASC 605, Revenue
Recognition.  Revenue is recognized when realized or earned
when all the following criteria have been met: persuasive evidence of an
arrangement exists; delivery has occurred and risk of loss has passed to the
customer; the seller’s price to the buyer is fixed or determinable; and
collectability is reasonably assured.





Our
current instruments, the Barocycler NEP3229 and NEP2320, require a basic level
of instrumentation expertise to set-up for initial operation. To support a
favorable first experience for our customers, we send a highly trained technical
representative to the customer site to install every Barocycler that we sell,
lease, or rent through our domestic sales force. The installation process
includes uncrating and setting up the instrument, followed by introductory user
training. Product revenue related to current Barocycler instrumentation is
recognized upon the completion of the installation and introductory training
process of the instrumentation at the customer location, for domestic
installations.  Product revenue related to sales of PCT
instrumentation to our foreign distributors is recognized upon shipment through
a common carrier. We provide for the expected costs of warranty upon the
recognition of revenue for the sales of our instrumentation. Our sales
arrangements do not provide our customers with a right of return. Product
revenue related to our consumable products such as PULSE Tubes, MicroTubes, and
application specific kits is recorded upon shipment through a common
carrier.  Shipping costs are included in sales and marketing
expense.  Any shipping costs billed to customers are recognized as
revenue.





In
accordance with FASB ASC 840, Leases, we account for our
lease agreements under the operating method.  We record revenue over
the life of the lease term and we record depreciation expense on a straight-line
basis over the thirty-six month estimated useful life of the Barocycler
instrument.  The depreciation expense associated with assets under
lease agreement is included in the “Cost of PCT products and services” line item
in our consolidated statements of operations.  Many of our lease and
rental agreements allow the lessee to purchase the instrument at any point
during the term of the agreement with partial or full credit for payments
previously made.  We pay all maintenance costs associated with the
instrument during the term of the leases.


- 32
-





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





Our
transactions sometimes involve multiple elements (i.e., products and
services).  Revenue under multiple element arrangements is recognized
in accordance with FASB ASC 605-25 Multiple-Element
Arrangements.  Under this method, if an element is determined
to be a separate unit of accounting, the revenue for the element is based on
fair value and determined by vendor specific objective evidence (“VSOE”), and
recognized at the time of delivery. If an arrangement includes undelivered
elements that are not essential to the functionality of the delivered elements,
we defer the fair value of the undelivered elements with the residual revenue
allocated to the delivered elements. Fair value is determined based upon the
price charged when the element is sold separately. If there is not sufficient
evidence of the fair value of the undelivered elements, no revenue is allocated
to the delivered elements and the total consideration received is deferred until
delivery of those elements for which objective and reliable evidence of the fair
value is not available. We provide certain customers with extended service
contracts and, to the extent VSOE is established, these service revenues are
recognized ratably over the life of the contract.




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, 2009
concluded they were not impaired.





Long-Lived
Assets and Deferred Costs





In
accordance with FASB ASC 360-10-05, Property, Plant, and
Equipment, 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,
2009 and determined that our long-lived assets were not
impaired.




RECENT
ACCOUNTING STANDARDS





In June
2009, the FASB issued FASB ASC 105, Generally Accepted Accounting
Principles, which establishes the FASB Accounting Standards Codification
as the sole source of authoritative generally accepted accounting
principles.  Pursuant to the provisions of FASB ASC 105, the Company
has updated references to GAAP in its financial statements issued for the period
ended December 31, 2009.  The adoption of FASB ASC 105 did not impact
the Company’s financial position or results of operations.





On
January 1, 2008, the Company adopted FASB ASC 820, Fair Value Measurements and
Disclosures. FASB ASC 820 defines fair value, establishes a framework for
measuring the fair value of assets and liabilities, and expands disclosure
requirements regarding the fair value measurement. FASB ASC 820 does not expand
the use of fair value measurements. This statement, as issued, is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. There was no significant effect
on our financial statements. We do not believe that the adoption of FASB ASC 820
to non-financial assets and liabilities will significantly affect our financial
statements.





In
December 2007, the FASB issued FASB ASC 805, Business Combinationsand
FASB ASC 810, Consolidations.





FASB ASC
805 significantly changes the accounting for business combinations. Under FASB
ASC 805, an acquiring entity will be required to recognize all the assets
acquired and liabilities assumed in a transaction at the acquisition-date at
fair value with limited exceptions. FASB ASC 805 further changes the accounting
treatment for certain specific items, including:


- 33
-


-
            Acquisition
      costs will be generally expensed as
incurred;




-
            Non-controlling
      interests (formerly known as “minority interests” – see FASB ASC
      810 discussion below) will be valued at fair value at the acquisition
      date;




-
            Acquired
      contingent liabilities will be recorded at fair value at the acquisition
      date and subsequently measured at either the higher of such amount or the
      amount determined under existing guidance for non-acquired
      contingencies;




-
            In-process
      research and development will be recorded at fair value as an
      indefinite-lived intangible asset at the acquisition
  date;




-
            Restructuring
      costs associated with a business combination will be generally expensed
      subsequent to the acquisition date;
and




-
            Changes
      in deferred tax asset valuation allowances and income tax uncertainties
      after the acquisition date generally will affect income tax
      expense.




In April
2008, the FASB issued FASB ASC 350-30, Intangibles Other Than
Goodwill which requires that an entity consider its own historical
experience in renewing similar arrangements, or a consideration of market
participant assumptions in the absence of historical experience.  FASB
ASC 350-30 also requires entities to disclose information that enables users of
financial statements to assess the extent to which the expected future cash
flows associated with the asset are affected by the entity’s intent and/or
ability to renew or extend the arrangement. We have adopted FASB ASC
350-30.  The adoption of this statement does not have any impact to
our financial statements.





FASB ASC
810establishes new
accounting and reporting standards for the non-controlling interest in a
subsidiary and for the deconsolidation of a subsidiary. Specifically, this
statement requires the recognition of non-controlling interests (minority
interests) as equity in the consolidated financial statements and separate from
the parent’s equity. The amount of net income attributable to non-controlling
interests will be included in consolidated net income on the face of the income
statement.  FASB ASC 810clarifies that changes in
a parent’s ownership interest in a subsidiary that does not result in
deconsolidation are treated as equity transactions if the parent retains its
controlling financial interest. In addition, this statement requires that a
parent recognize a gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss will be measured using the fair value of the
non-controlling equity investment on the deconsolidation date. FASB ASC 810also includes expanded
disclosure requirements regarding the interests of the parent and its
non-controlling interest.





We have
adopted FASB ASC 810and the statement does not
have a material affect on our consolidated results of operations and financial
condition.





In March
2008, the FASB issued FASB ASC 815, Derivatives and Hedging,
which requires additional disclosures about the objectives of derivative
instruments and hedging activities, the method of accounting for such
instruments under FASB ASC 815 and its related interpretations, and a tabular
disclosure of the effects of such instruments and related hedged items on our
financial position, financial performance, and cash flows. We adopted FASB ASC
815 and our adoption of FASB ASC 815 did not have a material impact on our
financial statements.





On June
30, 2009, the Company adopted FASB ASC 855, Subsequent Events, which
requires disclosure of the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial
statements.  The adoption of FASB ASC 855 did not have a material
impact on our financial statements.


- 34
-




ITEM 7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.




Not
Applicable


- 35
-


Report
of Independent Registered Public Accounting Firm





To the
Board of Directors of


Pressure
BioSciences, Inc. and Subsidiary:





We have
audited the consolidated balance sheets of Pressure BioSciences, Inc. and
Subsidiary (the “Company”) as of December 31, 2009 and 2008, and the related
consolidated statements of operations, changes in stockholders’ equity, and cash
flows for the years 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 audits.





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





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Pressure BioSciences, Inc.,
and Subsidiary as of December 31, 2009 and 2008, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of
America.





/s/ UHY
LLP





Boston,
Massachusetts


March 31,
2010


- 36
-


ITEM
      8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA.





PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


DECEMBER
31, 2009 AND 2008





December 31,
                          
                          
                          December 31,2009
                          
                          
                          2008ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                          
                          $
                          1,609,778
                          
                          
                          $
                          868,208Restricted
      cash
                          
                          
                          20,012
                          
                          
                          
                          50,000Accounts
      receivable, net of allowances of $8,400 at December 31, 2009 and $0 at
      December 31, 2008
                          
                          
                          203,211
                          
                          
                          
                          209,117Inventories
                          
                          
                          638,350
                          
                          
                          
                          571,831Deposits
                          
                          
                          182,010
                          
                          
                          
                          382,236Prepaid
      income taxes
                          
                          
                          3,176
                          
                          
                          
                          6,600Prepaid
      expenses and other current assets
                          
                          
                          86,563
                          
                          
                          
                          235,111Total
      current assets
                          
                          
                          2,743,100
                          
                          
                          
                          2,323,103PROPERTY
      AND EQUIPMENT, NET
                          
                          
                          249,465
                          
                          
                          
                          252,249OTHER
      ASSETSIntangible
      assets, net
                          
                          
                          231,026
                          
                          
                          
                          279,658TOTAL
      ASSETS
                          
                          $
                          3,223,591
                          
                          
                          $
                          2,855,010LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT
      LIABILITIESAccounts
      payable
                          
                          $
                          148,087
                          
                          
                          $
                          263,486Accrued
      employee compensation
                          
                          
                          105,824
                          
                          
                          
                          161,374Accrued
      professional fees and other
                          
                          
                          271,926
                          
                          
                          
                          278,982Deferred
      revenue
                          
                          
                          8,058
                          
                          
                          
                          16,705Total
      current liabilities
                          
                          
                          533,895
                          
                          
                          
                          720,547LONG
      TERM LIABILITIESDeferred
      revenue
                          
                          
                          1,609
                          
                          
                          
                          10,821TOTAL
      LIABILITIES
                          
                          
                          535,504
                          
                          
                          
                          731,368COMMITMENTS
      AND CONTINGENCIES (Note 7)STOCKHOLDERS'
      EQUITYSeries
      A convertible preferred stock, $.01 par value; 1,000,000 shares
      authorized; 152,213 shares issued and outstanding on December 31, 2009 and
      0 shares on December 31, 2008 (Liquidation value of
      $1,750,450)
                          
                          
                          1,523
                          
                          
                          
                          -Series
      B convertible preferred stock, $.01 par value; 1,000,000 shares
      authorized; 62,039 shares issued and outstanding on December 31, 2009 and
      0 shares on December 31, 2008 (Liquidation value of
      $1,166,333)
                          
                          
                          620
                          
                          
                          
                          -Common
      stock, $.01 par value; 20,000,000 shares authorized; 2,328,426 shares
      issued and outstanding on December 31, 2009 and 2,195,283 shares issued
      and outstanding on December 31, 2008
                          
                          
                          23,284
                          
                          
                          
                          21,953Warrants
      to acquire preferred stock and common stock
                          
                          
                          1,352,165
                          
                          
                          
                          -Additional
      paid-in capital
                          
                          
                          9,297,115
                          
                          
                          
                          6,803,530Accumulated
      deficit
                          
                          
                          (7,986,620
                          )
                          
                          
                          (4,701,841
                          )Total
      stockholders' equity
                          
                          
                          2,688,087
                          
                          
                          
                          2,123,642TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                          
                          $
                          3,223,591
                          
                          
                          $
                          2,855,010





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


- 37
-


PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





For the Year EndedDecember 31,2009
                
                
                2008REVENUE:PCT
      Products, services, other
                
                $
                831,602
                
                
                $
                655,252Grant
      revenue
                
                
                413,308
                
                
                
                197,011Total
      revenue
                
                
                1,244,910
                
                
                
                852,263COSTS
      AND EXPENSES:Cost
      of PCT products and services
                
                
                402,340
                
                
                
                401,017Research
      and development
                
                
                1,175,136
                
                
                
                1,810,590Selling
      and marketing
                
                
                1,054,869
                
                
                
                1,686,590General
      and administrative
                
                
                1,809,133
                
                
                
                1,920,465Total
      operating costs and expenses
                
                
                4,441,478
                
                
                
                5,818,662Operating
      loss
                
                
                (3,196,568
                )
                
                
                (4,966,399
                )Interest
      income
                
                
                4,990
                
                
                
                57,954Loss
      before income taxes
                
                
                (3,191,578
                )
                
                
                (4,908,445
                )Income
      tax refund
                
                
                623,262
                
                
                
                -Net
      loss
                
                
                (2,568,316
                )
                
                
                (4,908,445
                )Accrued
      and deemed dividends on convertible preferred stock
                
                
                (716,463
                )
                
                
                -Net
      loss applicable to common shareholders
                
                $
                (3,284,779
                )
                
                $
                (4,908,445
                )Net
      loss per share attributable to common stockholders - basic and
      diluted
                
                $
                (1.42
                )
                
                $
                (2.24
                )Weighted
      average common stock shares outstanding used in the basic and diluted net
      loss per share calculation
                
                
                2,314,316
                
                
                
                2,194,093





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


- 38
-


PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





RetainedSeries
      A
                                  
                                  
                                  Series
      B
                                  
                                  
                                  Total
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  Additional
                                  
                                  
                                  Earnings/
                                  
                                  
                                  TotalPreferred
      Stock
                                  
                                  
                                  Preferred
      Stock
                                  
                                  
                                  Preferred
      Stock
                                  
                                  
                                  Common
      Stock
                                  
                                  
                                  
                                  
                                  
                                  Paid-In
                                  
                                  
                                  (Accumulated
                                  
                                  
                                  Stockholders'Shares
                                  
                                  
                                  Amount
                                  
                                  
                                  Shares
                                  
                                  
                                  Amount
                                  
                                  
                                  Shares
                                  
                                  
                                  Amount
                                  
                                  
                                  Shares
                                  
                                  
                                  Amount
                                  
                                  
                                  Stock
      Warrants
                                  
                                  
                                  Capital
                                  
                                  
                                  Deficit)
                                  
                                  
                                  EquityBALANCE,
      December 31, 2007
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  
                                  2,192,175
                                  
                                  
                                  $
                                  21,922
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  6,284,616
                                  
                                  
                                  $
                                  206,604
                                  
                                  
                                  $
                                  6,513,142Stock-based
      compensation
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  509,195
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  509,195Issuance
      of common stock
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  3,108
                                  
                                  
                                  
                                  31
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  9,719
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  9,750Net
      loss
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (4,908,445
                                  )
                                  
                                  
                                  (4,908,445
                                  )BALANCE,
      December 31, 2008
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  
                                  2,195,283
                                  
                                  
                                  $
                                  21,953
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  6,803,530
                                  
                                  
                                  $
                                  (4,701,841
                                  )
                                  
                                  $
                                  2,123,642Stock-based
      compensation
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  429,004
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  429,004Issuance
      of convertible preferred stock
                                  
                                  
                                  156,980
                                  
                                  
                                  
                                  1,570
                                  
                                  
                                  
                                  62,039
                                  
                                  
                                  
                                  620
                                  
                                  
                                  
                                  219,019
                                  
                                  
                                  
                                  2,190
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  1,667,535
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  1,669,725Issuance
      of common stock
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  16,000
                                  
                                  
                                  
                                  160
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  26,400
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  26,560Offering
      costs
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (354,177
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  (354,177
                                  )Issuance
      of warrants
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  1,363,967
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  1,363,967Stock
      warrant exercise
                                  
                                  
                                  4,000
                                  
                                  
                                  
                                  40
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  4,000
                                  
                                  
                                  
                                  40
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (11,802
                                  )
                                  
                                  
                                  61,762
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  50,000Beneficial
      conversion of preferred stock
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  630,252
                                  
                                  
                                  
                                  (630,252
                                  )
                                  
                                  
                                  -Conversion
      of preferred stock to common stock
                                  
                                  
                                  (8,767
                                  )
                                  
                                  
                                  (87
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (8,767
                                  )
                                  
                                  
                                  (87
                                  )
                                  
                                  
                                  87,670
                                  
                                  
                                  
                                  877
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (790
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  -Common
      stock paid-in-kind dividends earned
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (86,211
                                  )
                                  
                                  
                                  (86,211
                                  )Issuance
      of common stock for dividends paid-in-kind
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  29,473
                                  
                                  
                                  
                                  294
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  33,599
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  33,893Net
      loss
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (2,568,316
                                  )
                                  
                                  
                                  (2,568,316
                                  )BALANCE,
      December 31, 2009
                                  
                                  
                                  152,213
                                  
                                  
                                  $
                                  1,523
                                  
                                  
                                  
                                  62,039
                                  
                                  
                                  $
                                  620
                                  
                                  
                                  
                                  214,252
                                  
                                  
                                  $
                                  2,143
                                  
                                  
                                  
                                  2,328,426
                                  
                                  
                                  $
                                  23,284
                                  
                                  
                                  $
                                  1,352,165
                                  
                                  
                                  $
                                  9,297,115
                                  
                                  
                                  $
                                  (7,986,620
                                  )
                                  
                                  $
                                  2,688,087





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


- 39
-


PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





For
      the Year EndedDecember 31,2009
                  
                  
                  2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                  
                  $
                  (2,568,316
                  )
                  
                  $
                  (4,908,445
                  )Adjustments
      to reconcile net loss to operating cash flows:Depreciation
      and amortization
                  
                  
                  204,341
                  
                  
                  
                  199,999Stock-based
      compensation expense
                  
                  
                  429,005
                  
                  
                  
                  509,195Bad
      debt expense
                  
                  
                  53,680
                  
                  
                  
                  -Changes
      in operating assets and liabilities:Restricted
      cash
                  
                  
                  29,988
                  
                  
                  
                  (50,000
                  )Accounts
      receivable
                  
                  
                  (47,774
                  )
                  
                  
                  (90,646
                  )Inventories
                  
                  
                  (66,519
                  )
                  
                  
                  (399,283
                  )Deposits
                  
                  
                  200,226
                  
                  
                  
                  171,247Accounts
      payable
                  
                  
                  (115,399
                  )
                  
                  
                  110,757Accrued
      employee compensation
                  
                  
                  (55,550
                  )
                  
                  
                  (215,816
                  )Deferred
      revenue and other accrued expenses
                  
                  
                  (24,915
                  )
                  
                  
                  93,307Prepaid
      expenses and other current assets
                  
                  
                  151,972
                  
                  
                  
                  159,476Net
      cash used in operating activities
                  
                  
                  (1,809,261
                  )
                  
                  
                  (4,420,209
                  )CASH
      FLOWS FROM INVESTING ACTIVITIES:Additions
      to property and equipment
                  
                  
                  (152,925
                  )
                  
                  
                  (145,819
                  )Net
      cash used in investing activities
                  
                  
                  (152,925
                  )
                  
                  
                  (145,819
                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      proceeds from the issuance of common stock
                  
                  
                  -
                  
                  
                  
                  9,750Proceeds
      from stock warrant exercise
                  
                  
                  50,000
                  
                  
                  
                  -Net
      proceeds from the issuance of preferred stock
                  
                  
                  2,653,756
                  
                  
                  
                  -Net
      cash provided by financing activities
                  
                  
                  2,703,756
                  
                  
                  
                  9,750Change
      in cash and cash equivalents
                  
                  
                  741,570
                  
                  
                  
                  (4,556,278
                  )Cash
      and cash equivalents, beginning of period
                  
                  
                  868,208
                  
                  
                  
                  5,424,486Cash
      and cash equivalents, end of period
                  
                  $
                  1,609,778
                  
                  
                  $
                  868,208SUPPLEMENTAL
      INFORMATION:Income
      taxes paid
                  
                  $
                  -
                  
                  
                  $
                  6,177Income
      tax refund received
                  
                  
                  623,262
                  
                  
                  
                  301,060Beneficial
      conversion feature on convertible preferred stock
                  
                  
                  630,252
                  
                  
                  
                  -





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


- 40
-


PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


As
of December 31, 2009





(1)  Business
Overview and Management Plans





We are a
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
consumables product line, which includes PULSE (Pressure Used to Lyse Samples
for Extraction) Tubes as well as application specific kits (which include
consumable products and reagents) together make up the PCT Sample Preparation
System (“PCT SPS”).





We have
experienced negative cash flows from operations with respect to our pressure
cycling technology business since our inception.  During 2008, we
undertook a number of cost reduction measures including a comprehensive
restructuring program, to significantly reduce costs, centralize core
operations, and refocus business strategy in specific areas where our products
have found significant initial market acceptance.  The restructuring
program included: a reduction in personnel of eight full-time employees (40% of
the workforce), reduction in travel and meeting attendance for all personnel,
decreases in the base salary of most of our employees and all of our executive
officers, a shutdown of our research and development facility in
Rockville, MD, a consolidation of our R&D activities in Massachusetts, and
delay of several research & development and marketing
programs.  These initiatives have significantly decreased cash
utilization, from just under $1 million per quarter in the second half of 2008
to an average of approximately $635,000 per quarter during
2009.  Based on our current projections, we believe our current cash
resources, which includes the funds we received from the private placements we
completed in 2009 and 2010, are sufficient to fund our normal operations into
the first quarter of 2011.  Depending upon the results of the
Company’s financing and partnering activities and sales efforts, we may make
additional cost reductions as required to accomplish this goal.





On
February 12, 2009, we completed a private placement, pursuant to which we sold
an aggregate of 156,980 units, consisting of Series A Convertible Preferred
Stock and warrants, for a purchase price of $11.50 per unit, resulting in gross
proceeds to us of $1,805,270 (the “Series A Private Placement”).  See
Note 8 to our Consolidated Financial Statement for a further description of the
Series A Convertible Preferred Stock and Warrants issued in the Series A Private
Placement.





On
November 18, 2009, we sold an aggregate of 62,039 units (the “Series B Units”)
for a purchase price of $18.80 per unit, resulting in gross proceeds to us of
$1,166,333.20.  This is the first tranche of a $2.5 million private
placement (the “Series B Private Placement”).  We closed the second
tranche of the Series B Private Placement on March 18, 2010 with the sale of an
additional 26,672 Series B Units with gross proceeds of
$501,434.  Each Series B Unit consists of (i) one share of a newly
created Series B Convertible Preferred Stock convertible into 10 shares of our
common stock and (ii) a warrant to purchase one share of Series B Convertible
Preferred Stock at an exercise price equal to $23.80 per share for the warrants
issued in November 18, 2009 and at an exercise price equal to $28.80 per share
for the warrants issued in March 2010, in each case with a term expiring on
August 11, 2011 (“Series B Warrant”).  See Note 8 to our Consolidated
Financial Statement for a further description of the Series B Convertible
Preferred Stock and Series B Warrants issued in the Series B Private
Placement.





In
connection with the first tranche closing of the Series B Private Placement, we
paid a finder’s fee of $68,907, plus warrants to purchase 3,665 shares of Series
B Convertible Preferred Stock at $28.80 per share, expiring August 11,
2012.





We
believe we have sufficient cash resources to fund normal operations into the
first quarter of 2011 due to the restructuring measures we have undertaken and
the $2,971,603 we received in connection with our Series A Private Placement and
Series B Private Placement.  We believe we will need substantial
additional capital to fund our current operations beyond the first quarter of
2011.  If we are able to obtain additional capital or otherwise
increase our revenues, we may increase spending in specific research and
development applications and engineering projects and may hire additional sales
personnel or invest in targeted marketing programs.  In the event that
we are unable to obtain financing on acceptable terms, or at all, we may be
required to limit or cease our operations, pursue a plan to sell our operating
assets, or otherwise modify our business strategy, which could materially harm
our future business prospects.


- 41
-


PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


As
of December 31, 2009





(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 subsidiary PBI BioSeq, Inc.





(ii) Use
of Estimates





To
prepare our consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, we are required
to make significant estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. In addition, significant estimates were
made in projecting future cash flows to quantify impairment of assets, 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





Revenue
is recognized when realized or earned when all the following criteria have been
met: persuasive evidence of an arrangement exists; delivery has occurred and
risk of loss has passed to the customer; the seller’s price to the buyer is
fixed or determinable; and collectability is reasonably
assured.





Our
current instruments, the Barocycler NEP3229 and NEP2320, require a basic level
of instrumentation expertise to set-up for initial operation. To support a
favorable first experience for our customers, we send a highly trained technical
representative to the customer site to install every Barocycler that we sell,
lease, or rent through our domestic sales force. The installation process
includes uncrating and setting up the instrument, followed by introductory user
training. Product revenue related to current Barocycler instrumentation is
recognized upon the completion of the installation and introductory training
process of the instrumentation at the customer location, for domestic
installations.  Product revenue related to sales of PCT
instrumentation to our foreign distributors is recognized upon shipment through
a common carrier. We provide for the expected costs of warranty upon the
recognition of revenue for the sales of our instrumentation. Our sales
arrangements do not provide our customers with a right of return. Product
revenue related to our consumable products such as PULSE Tubes, MicroTubes, and
application specific kits is recorded upon shipment through a common
carrier.  Shipping costs are included in sales and marketing
expense.  Any shipping costs billed to customers are recognized as
revenue.





We
account for our lease agreements under the operating method.  We
record revenue over the life of the lease term and we record depreciation
expense on a straight-line basis over the thirty-six month estimated useful life
of the Barocycler instrument.  The depreciation expense associated
with assets under lease agreement is included in the “Cost of PCT products and
services” line item in our consolidated statements of
operations.  Many of our lease and rental agreements allow the lessee
to purchase the instrument at any point during the term of the agreement with
partial or full credit for payments previously made.  We pay all
maintenance costs associated with the instrument during the term of the
leases.





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


- 42
-


PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


As
of December 31, 2009





Our
transactions sometimes involve multiple elements (i.e., products and
services).  Revenue under multiple element arrangements is recognized
in accordance with FASB ASC 605-25 Multiple-Element
Arrangements.  Under this method, if an element is determined
to be a separate unit of accounting, the revenue for the element is based on
fair value and determined by vendor specific objective evidence (“VSOE”), and
recognized at the time of delivery. If an arrangement includes undelivered
elements that are not essential to the functionality of the delivered elements,
we defer the fair value of the undelivered elements with the residual revenue
allocated to the delivered elements. Fair value is determined based upon the
price charged when the element is sold separately. If there is not sufficient
evidence of the fair value of the undelivered elements, no revenue is allocated
to the delivered elements and the total consideration received is deferred until
delivery of those elements for which objective and reliable evidence of the fair
value is not available. We provide certain customers with extended service
contracts and, to the extent VSOE is established, these service revenues are
recognized ratably over the life of the contract.





(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.  As of December 31, 2009, we held $20,000 in a restricted
account as collateral for our corporate credit card and therefore classified
this balance as restricted cash on our consolidated balance sheet.





(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, consumable products and overhead costs that are expensed
as incurred.  In support of our research and development activities we
utilize our Barocycler instruments that are capitalized as fixed assets and
depreciated over their expected useful life.





(vi) Inventories





Inventories
are valued at the lower of cost (average cost) or market (sales
price).  The cost of Barocyclers consists of the cost charged by the
contract manufacturer.  The cost of manufactured goods includes
material, freight-in, direct labor, and applicable overhead.  As of
December 31, 2009, the recorded cost of all categories was less than the recent
sales price.  The composition of inventory as of December 31, 2009 and 2008
is as follows:





December
      31,2009
                  
                  
                  2008Raw
      materials
                  
                  $
                  92,453
                  
                  
                  $
                  83,451Finished
      goods
                  
                  
                  545,897
                  
                  
                  
                  488,380Total
                  
                  $
                  638,350
                  
                  
                  $
                  571,831





(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 classified 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, 2009. Based on this analysis, we have concluded that no impairment of
intangible assets had occurred.


- 43
-


PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


As
of December 31, 2009





(ix) Long-Lived
Assets and Deferred Costs





The
Company’s long-lived assets and other assets are reviewed for impairment in
accordance with the guidance of the FASB ASC 360-10-05, Property, Plant, and
Equipment, whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable.  Recoverability
of an asset to be held and used is measured by a comparison of the carrying
amount of an asset to the future undiscounted cash flows expected to be
generated by the asset.  If such asset is considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying
amount of the asset exceeds its fair value.  Through December 31,
2009, the Company had not experienced impairment losses on its long-lived
assets.  While our current and historical operating losses and cash
flow are indicators of impairment, we performed an impairment test at December
31, 2009 and determined that such long-lived assets were not
impaired.





(x) Concentrations





Credit
Risk





Our
financial instruments that potentially subject us to concentrations of credit
risk consist primarily of cash, cash equivalents and trade receivables. We have
cash investment policies which, among other things, limit investments to
investment-grade securities. We perform ongoing credit evaluations of our
customers, and the risk with respect to trade receivables is further mitigated
by the fact that many of our customers are government institutions and
university labs.





The
following table illustrates the level of concentration of the below two groups
within revenue as a percentage of total revenues during the years ended December
31, 2009 and 2008:





For
      the Year EndedDecember 31,2009
                  
                  
                  2008Top
      Five Customers
                  
                  
                  48
                  %
                  
                  
                  52
                  %Federal
      Agencies
                  
                  
                  37
                  %
                  
                  
                  33
                  %





The
following table illustrates the level of concentration of the below two groups
within accounts receivable as a percentage of total accounts receivable balance
as of December 31, 2009 and 2008:





December
      31,2009
                  
                  
                  2008Top
      Five Customers
                  
                  
                  62
                  %
                  
                  
                  81
                  %Federal
      Agencies
                  
                  
                  12
                  %
                  
                  
                  1
                  %





Product
Supply





Source
Scientific, LLC has been our sole contract manufacturer for all of our PCT
instrumentation. During 2008, however, we initiated several engineering
initiatives to position us for greater independence from any one supplier, and
we are in the process of developing a network of manufacturers and
sub-contractors to reduce our reliance on any single supplier.  Until
we develop a broader network of manufacturers and subcontractors, obtaining
alternative sources of supply or manufacturing services could involve
significant delays and other costs and challenges, and may not be available to
us on reasonable terms, if at all. The failure of a supplier or contract
manufacturer to provide sufficient quantities, acceptable quality and timely
products at an acceptable price, or an interruption of supplies from such a
supplier could harm our business and prospects.


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PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


As
of December 31, 2009





(xi) Computation
of Loss per Share





Basic
loss per share is computed by dividing loss available to common shareholders by
the weighted average number of common shares outstanding.  Diluted
loss per share is computed by dividing loss available to common shareholders by
the weighted average number of common shares outstanding plus additional common
shares that would have been outstanding if dilutive potential common shares had
been issued.  For purposes of this calculation, convertible preferred
stock, common stock dividends, warrants to acquire preferred stock convertible
into common stock, and warrants and options to acquire common stock, are all
considered common stock equivalents in periods in which they have a dilutive
effect and are excluded from this calculation in periods in which these are
anti-dilutive.  The following table illustrates our computation of
loss per share for the years ended December 31, 2009 and 2008.





For
      the Year EndedDecember 31,2009
                  
                  
                  2008Numerator:Net
      loss
                  
                  $
                  (2,568,316
                  )
                  
                  $
                  (4,908,445
                  )Accrued
      preferred stock dividend
                  
                  
                  (52,318
                  )
                  
                  
                  -Beneficial
      conversion feature for Series A Preferred Stock
                  
                  
                  (489,803
                  )
                  
                  
                  -Beneficial
      conversion feature for Series B Preferred Stock
                  
                  
                  (140,449
                  )Series
      A Preferred dividends paid-in-kind
                  
                  
                  (33,893
                  )Net
      loss applicable to common shareholders
                  
                  $
                  (3,284,779
                  )
                  
                  $
                  (4,908,445
                  )Denominator
      for basic and diluted loss per share:Weighted
      average common stock shares outstanding
                  
                  
                  2,314,316
                  
                  
                  
                  2,194,093Loss
      per common share - basic and diluted
                  
                  $
                  (1.42
                  )
                  
                  $
                  (2.24
                  )





The
following table presents securities that could potentially dilute basic loss per
share in the future.  For all periods presented, the potentially
dilutive securities were not included in the computation of diluted loss per
share because these securities would have been anti-dilutive.





December 31,2009
                  
                  
                  2008Stock
      options
                  
                  
                  157,402
                  
                  
                  
                  82,659Common
      stock warrants
                  
                  
                  1,619,800
                  
                  
                  
                  -Preferred
      stock warrants
                  
                  
                  2,186,840
                  
                  
                  
                  -Convertible
      preferred stock:Series
      A Convertible Preferred
                  
                  
                  1,522,130
                  
                  
                  
                  -Series
      B Convertible Preferred
                  
                  
                  620,390
                  
                  
                  
                  -6,106,562
                  
                  
                  
                  82,659





(xii) Accounting
for Income Taxes





We
account for income taxes under the asset and liability method, which requires
recognition of deferred tax assets, subject to valuation allowances, and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns.  Deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting and income tax
purposes.  A valuation allowance is established if it is more likely than
not that all or a portion of the net deferred tax assets will not be
realized.  If substantial changes in the company’s ownership should
occur, as defined in Section 382 of the Internal Revenue Code, there could be
sufficient limitations on the amount of net loss carry forwards that could be
used to offset future taxable income.





In the
first half of 2009, we recorded a benefit for income taxes of $623,262 due to
provisions in the American Recovery and Reinvestment Act of 2009 relating to net
operating loss carry-backs.  We received the cash during the second
half of 2009.  There was no provision for an income tax benefit during
the same period in 2008.  Aside from the impact of the passage of this
congressional act, we do not expect any additional income tax benefits relating
to carry-backs to prior periods.  If we are successful in
commercializing PCT and in generating operating income, then we may be able to
utilize certain net operating losses we may have at the time against such future
operating profits.


- 45
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PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


As
of December 31, 2009





(xiii) Accounting
for Stock-Based Compensation





We
maintain equity compensation plans under which incentive stock options and
non-qualified stock options are granted to employees, independent members of our
Board of Directors and outside consultants.  We recognize equity
compensation expense over the requisite service period using the Black-Scholes
formula to estimate the fair value of the stock options on the date of
grant.





Determining Fair Value of
Stock Option Grants





Valuation
and Amortization Method - The fair value of each option award is estimated on
the date of grant using the Black-Scholes pricing model based on certain
assumptions.  The estimated fair value of employee stock options is
amortized to expense using the straight-line method over the vesting
period.





Expected
Term - The Company uses the simplified calculation of expected life, described
in the FASB ASC 718, Compensation-Stock Compensation, as the Company does not
currently have sufficient historical exercise data on which to base an estimate
of expected term.  Using this method, the expected term is determined
using the average of the vesting period and the contractual life of the stock
options granted.





Expected
Volatility - Expected volatility is based on the Company’s historical stock
volatility data over the expected term of the award.





Risk-Free
Interest Rate - The Company bases the risk-free interest rate used in the
Black-Scholes valuation method on the implied yield currently available on U.S.
Treasury zero-coupon issues with an equivalent remaining term.





Forfeitures
- As required by FASB ASC 718, Compensation-Stock
Compensation, the Company records stock-based compensation expense only
for those awards that are expected to vest.  The Company estimated a
forfeiture rate of 5% for awards granted based on historical experience and
future expectations of options vesting.  We used this historical rate
as our assumption in calculating future stock-based compensation
expense.





The
following table summarizes the assumptions we utilized for grants of stock
options to the three sub-groups of our stock option recipients during the twelve
months ended December 31, 2009 and 2008:




Assumptions
                    
                    Outside
                      Consultants
                    
                    
                    Outside Board
                      Members and
                      Consultants
                    
                    
                    CEO and other
                      Officers and
                      EmployeesExpected
      life
                    
                    2.0
      (yrs)
                    
                    
                    5.0
      (yrs)
                    
                    
                    6.0
      (yrs)Expected
      volatility
                    
                    
                    79.60
                    %
                    
                    
                    55.66%
      - 77.86
                    %
                    
                    
                    55.66%
      - 92.53
                    %Risk-free
      interest rate
                    
                    
                    1.27
                    %
                    
                    
                    2.60%
      - 4.94
                    %
                    
                    
                    2.76%
      - 4.94
                    %Forfeiture
      rate
                    
                    
                    0.00
                    %
                    
                    
                    5.00
                    %
                    
                    
                    5.00
                    %Expected
      dividend yield
                    
                    
                    0.0
                    %
                    
                    
                    0.0
                    %
                    
                    
                    0.0
                    %





We
recognized stock-based compensation expense of $429,005 and $509,195 for the
years ended December 31, 2009 and 2008, respectively. The following table
summarizes the effect of this stock-based compensation expense within each of
the line items within our Consolidated Statement of Operations:


- 46
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PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


As
of December 31, 2009





For
      the Year Ended, December 31,2009
                    
                    
                    2008Research
      and development
                    
                    $
                    137,161
                    
                    
                    $
                    162,421Selling
      and marketing
                    
                    
                    73,689
                    
                    
                    
                    93,947General
      and administrative
                    
                    
                    218,155
                    
                    
                    
                    252,827Total
      stock-based compensation expense
                    
                    $
                    429,005
                    
                    
                    $
                    509,195





During
the years ended December 31, 2009 and 2008, the total fair value of stock
options awarded was $284,745 and $403,711, respectively.





As of
December 31, 2009, the total estimated fair value of unvested stock options to
be amortized over their remaining vesting period was $225,149.  The
non-cash, stock based compensation expense associated with the vesting of these
options will be $184,585 in 2010 and $40,564 in 2011.





(xiv)  Fair
Value of Financial Instruments





Due to
their short maturities, the carrying amounts for cash and cash equivalents,
accounts receivable, accounts payable, and accrued expenses approximate their
fair value. Long-term liabilities are primarily related to liabilities
transferred under contractual arrangements with carrying values that approximate
fair value.





(xv)
Reclassifications





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





(xvi)
Recent Accounting Standards





In June
2009, the FASB issued FASB ASC 105, Generally Accepted Accounting
Principles, which establishes the FASB Accounting Standards Codification
as the sole source of authoritative generally accepted accounting
principles.  Pursuant to the provisions of FASB ASC 105, the Company
has updated references to GAAP in its financial statements issued for the period
ended December 31, 2009.  The adoption of FASB ASC 105 did not impact
the Company’s financial position or results of operations.





On
January 1, 2008, the Company adopted FASB ASC 820, Fair Value Measurements and
Disclosures.  FASB ASC 820 defines fair value, establishes a
framework for measuring the fair value of assets and liabilities, and expands
disclosure requirements regarding the fair value measurement.  FASB
ASC 820 does not expand the use of fair value measurements.  This
statement, as issued, is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those
fiscal years.  There was no significant effect on our financial
statements.  We do not believe that the adoption of FASB ASC 820 to
non-financial assets and liabilities will significantly affect our financial
statements.





In
December 2007, the FASB issued FASB ASC 805, Business Combinationsand
FASB ASC 810, Consolidations.





FASB ASC
805 significantly changes the accounting for business combinations. Under FASB
ASC 805, an acquiring entity will be required to recognize all the assets
acquired and liabilities assumed in a transaction at the acquisition-date at
fair value with limited exceptions.  FASB ASC 805 further changes the
accounting treatment for certain specific items, including:




-
            Acquisition
      costs will be generally expensed as
incurred;




-
            Non-controlling
      interests (formerly known as “minority interests” – see FASB ASC
      810 discussion below) will be valued at fair value at the acquisition
      date;




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PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


As
of December 31, 2009




-
            Acquired
      contingent liabilities will be recorded at fair value at the acquisition
      date and subsequently measured at either the higher of such amount or the
      amount determined under existing guidance for non-acquired
      contingencies;




-
            In-process
      research and development will be recorded at fair value as an
      indefinite-lived intangible asset at the acquisition
  date;




-
            Restructuring
      costs associated with a business combination will be generally expensed
      subsequent to the acquisition date;
and




-
            Changes
      in deferred tax asset valuation allowances and income tax uncertainties
      after the acquisition date generally will affect income tax
      expense.







In April
2008, the FASB issued FASB ASC 350-30, Intangibles Other Than
Goodwill which requires that an entity consider its own historical
experience in renewing similar arrangements, or a consideration of market
participant assumptions in the absence of historical experience.  FASB
ASC 350-30 also requires entities to disclose information that enables users of
financial statements to assess the extent to which the expected future cash
flows associated with the asset are affected by the entity’s intent and/or
ability to renew or extend the arrangement. We have adopted FASB ASC
350-30.  The adoption of this statement does not have any impact to
our financial statements.





FASB ASC
810establishes new
accounting and reporting standards for the non-controlling interest in a
subsidiary and for the deconsolidation of a subsidiary. Specifically, this
statement requires the recognition of non-controlling interests (minority
interests) as equity in the consolidated financial statements and separate from
the parent’s equity. The amount of net income attributable to non-controlling
interests will be included in consolidated net income on the face of the income
statement.  FASB ASC 810clarifies that changes in
a parent’s ownership interest in a subsidiary that does not result in
deconsolidation are treated as equity transactions if the parent retains its
controlling financial interest. In addition, this statement requires that a
parent recognize a gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss will be measured using the fair value of the
non-controlling equity investment on the deconsolidation date. FASB ASC 810also includes expanded
disclosure requirements regarding the interests of the parent and its
non-controlling interest.





We have
adopted FASB ASC 810and the statement does not
have a material affect on our consolidated results of operations and financial
condition.





In March
2008, the FASB issued FASB ASC 815, Derivatives and Hedging,
which requires additional disclosures about the objectives of derivative
instruments and hedging activities, the method of accounting for such
instruments under FASB ASC 815 and its related interpretations, and a tabular
disclosure of the effects of such instruments and related hedged items on our
financial position, financial performance, and cash flows. We adopted FASB ASC
815 and our adoption of FASB ASC 815 did not have a material impact on our
financial statements.





On June
30, 2009, the Company adopted FASB ASC 855, Subsequent Events, which
requires disclosure of the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial
statements.  The adoption of FASB ASC 855 did not have a material
impact on our financial statements.





(xvii)
Advertising





Advertising
costs are expensed as incurred.  During 2009 and 2008 we incurred
$8,853 and $68,716, respectively in advertising expense.





(xviii)
Rent Expense





Rental
costs are expensed as incurred.  During 2009 and 2008 we incurred
$82,821 and $148,982, respectively in rent expense for the use of our corporate
office and research and development facilities.


- 48
-


PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


As
of December 31, 2009





(3)  Property
and Equipment





Property
and equipment as of December 31, 2009 and 2008 consisted of the following
components:





December 31,2009
                          
                          
                          2008Laboratory
      and manufacturing equipment
                          
                          $
                          151,451
                          
                          
                          $
                          127,355Office
      equipment
                          
                          
                          132,101
                          
                          
                          
                          129,101Leasehold
      improvements
                          
                          
                          8,117
                          
                          
                          
                          8,117PCT
      collaboration, demonstration and leased systems
                          
                          
                          486,393
                          
                          
                          
                          398,352Total
      property and equipment
                          
                          
                          778,062
                          
                          
                          
                          662,925Less
      accumulated depreciation
                          
                          
                          (528,597
                          )
                          
                          
                          (410,676
                          )Net
      book value
                          
                          $
                          249,465
                          
                          
                          $
                          252,249





Depreciation
expense for the years ended December 31, 2009 and 2008 was $155,709 and
$169,359, respectively.





(4)  Intangible
Assets





Intangible
assets as of December 31, 2009 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 $48,632 per year over their estimated
remaining useful lives of approximately 6 years.  We performed a
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, 2009.  We have concluded that there is no impairment of
intangible assets.  Intangible assets at December 31, 2009 and 2008
consisted of the following:





December 31,2009
                      
                      
                      2008PCT
      Patents
                      
                      $
                      778,156
                      
                      
                      $
                      778,156Less
      accumulated amortization
                      
                      
                      (547,130
                      )
                      
                      
                      (498,498
                      )Net
      book value
                      
                      $
                      231,026
                      
                      
                      $
                      279,658





Amortization
expense for each of the years ended December 31, 2009 and 2008 was
$48,632.





(5)  Retirement
Plan





We
provide all of our employees with the opportunity to participate in our
retirement savings plan. Our retirement savings 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 2009 and 2008 we
contributed $10,098 and $19,238, respectively, in the form of discretionary
company matching contributions.





(6)  Income
Taxes





The
components of the benefit for income taxes are as follows:


- 49
-


PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


As
of December 31, 2009





For
      the Year EndedDecember
      31,2009
                          
                          
                          2008Current
      benefit: federal
                          
                          $
                          623,262
                          
                          
                          $
                          -Current
      benefit: state
                          
                          
                          -
                          
                          
                          
                          -Total  current
      benefit
                          
                          
                          623,262
                          
                          
                          
                          -Deferred
      provision: federal
                          
                          
                          -
                          
                          
                          
                          -Deferred
      provision: state
                          
                          
                          -
                          
                          
                          
                          -Total  deferred
      provision
                          
                          
                          -
                          
                          
                          
                          -Total
      benefit for income taxes
                          
                          $
                          623,262
                          
                          
                          $
                          -





Significant
items making up the deferred tax assets and deferred tax liabilities as of
December 31, 2009 and 2008 are as follows:





December
      31,2009
                          
                          
                          2008Current
      deferred taxes:Other
      accruals
                          
                          $
                          39,121
                          
                          
                          $
                          83,467Less:
      valuation allowance
                          
                          
                          (39,121
                          )
                          
                          
                          (83,467
                          )Total
      current deferred tax assets (liabilities)
                          
                          $
                          -
                          
                          
                          $
                          -Long
      term deferred taxes:Accelerated
      tax depreciation
                          
                          $
                          (4,893
                          )
                          
                          $
                          13,672Non-cash,
      stock-based compensation, NQ
                          
                          
                          345,987
                          
                          
                          
                          276,152Goodwill
      and intangibles
                          
                          
                          (93,034
                          )
                          
                          
                          (112,618
                          )Operating
      loss carryforwards and tax credits
                          
                          
                          4,951,236
                          
                          
                          
                          4,216,958Less:
      valuation allowance
                          
                          
                          (5,199,296
                          )
                          
                          
                          (4,394,164
                          )Total
      long term deferred tax assets (liabilities), net
                          
                          
                          -
                          
                          
                          
                          -Total
      net deferred tax liabilities
                          
                          $
                          -
                          
                          
                          $
                          -





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 2009 and 2008 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,
2009.  We released approximately $623,000 of the valuation allowance
during 2009 due to new legislation within the American Recovery and Reinvestment
Act of 2009 relating to net operating loss carrybacks.





We had
net operating loss carry-forwards for federal income tax purposes of $5,110,998
as of December 31, 2009.  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 2011 through 2028.





In
February of 2009, we sold approximately 156,000 Series A Units of equity
consisting of one share of Series A Convertible Preferred Stock, a warrant to
purchase shares of common stock and a warrant to purchase a share of Series A
Convertible Preferred Stock.  In November of 2009, we sold
approximately 62,000 Series B Units of equity consisting of one share of Series
B Convertible Preferred Stock and a warrant to purchase a share of Series B
Convertible Preferred Stock.  We are considering whether the sale of
the equity units will result in further limitations of our net operating losses
under Section 382.





We had
net operating loss carry-forwards for state income tax purposes of approximately
$24,237,587 at December 31, 2009.  These net operating loss
carry-forwards expire at various dates from 2010 through 2028.


- 50
-


PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


As
of December 31, 2009





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





For
      the Year EndedDecember
      31,2009
                    
                    
                    2008Federal
      tax benefit (provision) rate
                    
                    
                    34
                    %
                    
                    
                    34
                    %Permanent
      differences
                    
                    
                    (3
                    )%
                    
                    
                    (2
                    )%State
      tax expense
                    
                    
                    0
                    %
                    
                    
                    0
                    %Net
      operating loss carryback
                    
                    
                    19
                    %
                    
                    
                    0
                    %Valuation
      allowance
                    
                    
                    (31
                    )%
                    
                    
                    (32
                    )%Effective
      income tax benefit rate from continuing operations
                    
                    
                    19
                    %
                    
                    
                    0
                    %





(7)  Commitments
and Contingencies





Operating
Leases





Our
corporate offices are currently located at 14 Norfolk Avenue, South Easton,
Massachusetts 02375.  In November 2007, we signed an 18 month lease
agreement commencing in February 2008 pursuant to which we leased approximately
5,500 square feet of office space, with an option for an additional 12
months.  We exercised the renewal option to extend the lease term
until July 14, 2010.  We pay approximately $6,500 per month for the
use of these facilities.





Effective
January 1, 2009, we terminated our lease agreement with Scheer Partners and the
Maryland Economic Development Corporation, pursuant to which we leased
laboratory and office space in Rockville, MD.  We paid approximately
$3,300 per month for the use of these facilities through December 31, 2008 with
no further obligation.





Effective
January 31, 2009, we terminated our sub-lease agreement with Proteome Systems,
pursuant to which we leased approximately 650 square feet of laboratory space
plus 100 square feet of office space from Proteome Systems in Woburn,
Massachusetts.  We paid approximately $3,200 per month for the use of
these facilities through January 31, 2009 with no further
obligation.





Royalty
Commitments





BioMolecular Assays,
Inc.





In 1996,
we acquired our initial equity interest in BioSeq, Inc., which at the time was
developing our original pressure cycling technology.  BioSeq, Inc. acquired
its pressure cycling technology from BioMolecular Assays, Inc. under a
technology transfer and patent assignment agreement.  In 1998, we purchased
all of the remaining outstanding capital stock of BioSeq, Inc., and at such
time, the technology transfer and patent assignment agreement was amended to
require us to pay BioMolecular Assays, Inc. a 5% royalty on our sales of
products or services that incorporate or utilize the original pressure cycling
technology that BioSeq, Inc. acquired from BioMolecular Assays, Inc.  We
are also required to pay BioMolecular Assays, Inc. 5% of the proceeds from any
sale, transfer or license of all or any portion of the original pressure cycling
technology.  These payment obligations terminate in 2016.  During the
fiscal years ended December 31, 2009 and 2008, we incurred $30,548 and $29,553
in royalties.





In
connection with our acquisition of BioSeq, Inc., we licensed certain limited
rights to the original pressure cycling technology back to BioMolecular Assays,
Inc.   This license is non-exclusive and limits the use of the
original pressure cycling technology by BioMolecular Assays, Inc. solely for
molecular applications in scientific research and development and in scientific
plant research and development.  BioMolecular Assays, Inc. is required to
pay us a royalty equal to 20% of any license or other fees and royalties, but
not including research support and similar payments, it receives in connection
with any sale, assignment, license or other transfer of any rights granted to
BioMolecular Assays, Inc. under the license. BioMolecular Assays, Inc. must pay
us these royalties until the expiration of the patents held by BioSeq, Inc. in
1998, which we anticipate will be 2016.  We have not received any royalty
payments from BioMolecular Assays, Inc. under this license.


- 51
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PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


As
of December 31, 2009





Battelle Memorial
Institute





In
December 2008, we entered into an exclusive patent license agreement with the
Battelle Memorial Institute ("Battelle"). The licensed technology is described
in the patent application filed by Battelle on July 31, 2008 (US serial number
12/183,219). This application includes subject matter related to a method and a
system for improving the analysis of protein samples, including through an
automated system utilizing pressure and a pre-selected agent to obtain a
digested sample in a significantly shorter period of time than current methods,
while maintaining the integrity of the sample throughout the preparatory
process.  Pursuant to the terms of the agreement, we paid Battelle a
non-refundable initial fee.  In addition to royalty payments on net
sales on “licensed products”, we are obligated to make minimum royalty payments
for each year that we retain the rights outlined in the patent license
agreement. and we are required to have our first commercial sale of the licensed
products within one year following the issuance of the patent covered by the
licensed technology.





Purchase
Commitments





On
December 14, 2009, we submitted a purchase order to Source Scientific, LLC, the
manufacturer of the Company’s PCT Barocycler instrumentation, for 50 Barocycler
NEP2320 units and 12 Barocycler NEP3229 units with various spare
parts.  Pursuant to the terms of the purchase order, we placed a
deposit with Source Scientific, LLC, of approximately $169,000 representing
approximately 25% of the expected total value of the order.  The
purchase price for the 50 NEP2320 units and 12 NEP3229 units is based upon a
fixed bill of materials.  We will be billed for the unpaid purchase
price of each unit at the time each unit is completed and ready for
sale.





Severance
and Change of Control Agreements




Each of
our executive officers; Mr. Schumacher, Dr. Ting, Dr. Lazarev, Dr. Lawrence and
Mr. Potter is entitled to receive a severance payment if terminated by us
without cause.  The severance benefits would include a payment in an
amount equal to one year of such executive officer’s annualized base salary
compensation plus accrued paid time off.  Additionally, the officer
will be entitled to receive medical and dental insurance coverage for one year
following the date of termination.  The total commitment related to
these agreements in the aggregate is approximately $1.0 million.




Each of
our executive officers, other than Mr. Schumacher, is entitled to receive a
change of control payment in an amount equal to one year of such executive
officer’s annualized base salary compensation, accrued paid time off, and
medical and dental coverage, in the event of a change of control of the
Company.  In the case of Mr. Schumacher this payment would be equal to
two years of annualized base salary compensation, accrued paid time off,
and two years of medical and dental coverage.  The total commitment
related to these agreements in the aggregate is approximately $1.3
million.  The severance payment is meant to induce the executive to
become an employee of the Company and to remain in the employ of the Company, in
general, and particularly in the occurrence of a change in control.





(8)  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, 2009, 20,000 shares of
preferred stock have been designated as Series A Junior Participating Preferred
Stock, none of which are issued and outstanding, 313,960 shares of preferred
stock have been designated as Series A Convertible Preferred Stock, par value
$0.01 per share (“Series A Convertible Preferred Stock”), of which 156,980
shares are issued and outstanding, and. 279,256 shares of preferred stock have
been designated as Series B Convertible Preferred Stock, par value $0.01 per
share (“Series B Convertible Preferred Stock”), of which 62,039 shares are
issued and outstanding.


- 52
-




PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 As
of December 31, 2009


Series A Convertible
Preferred Stock





On
February 12, 2009, we completed a private placement, pursuant to which we sold
an aggregate of 156,980 units (the “Series A Units”) for a purchase price of
$11.50 per unit (the “Series A Purchase Price”), resulting in gross proceeds to
us of $1,805,270 (the “Series A Private Placement”).  Each Series A
Unit consisted of  (i) one share of Series A Convertible Preferred
Stock convertible into 10 shares of our common stock, (ii) a warrant to purchase
one share of Series A Convertible Preferred Stock at an exercise price equal to
$12.50 per share, with a term expiring 15 months after the date of closing
(“15 Month Series A
Preferred Stock Warrant”); and (iii) a warrant to purchase 10 shares of
common stock at an exercise price equal to $2.00 per share, with a term expiring
30 months after the date of closing (the “30 Month Common Stock
Warrants”).  We did not pay any placement fees associated with
this transaction but the expenses related to the offering totaled approximately
$233,000.





The
proceeds from the sale of each Series A Unit was allocated between the Series A
Convertible Preferred Stock, the 15 Month Series A Preferred Stock Warrant and
the 30 Month Common Stock Warrant based on the relative estimated fair value of
each security.  The estimated fair value of the warrants was
determined using the Black-Scholes formula, resulting in an allocation of the
gross proceeds of $882,253 to the total warrants issued.  The
allocation of the gross proceeds to the Series A Convertible Preferred Stock was
$923,017.  In accordance with the provisions of FASB ASC 470-20, Debt with Conversion and Other
Options, an additional adjustment between Additional Paid in Capital and
Accumulated Deficit of $489,803 was recorded to reflect an implicit non-cash
dividend related to the allocation of proceeds between the stock and warrants
issued.The $489,803
represents the value of the adjustment to additional paid in capital related to
the beneficial conversion feature of the Series A Convertible Preferred
Stock.  The value adjustment was calculated by subtracting the fair
market value of the underlying common stock on February 12, 2009 issuable upon
conversion of the Series A Convertible Preferred Stock from the fair market
value of the Series A Convertible Preferred Stock as determined when the Company
performed a fair market value allocation of the proceeds to the Series A
Convertible Preferred Stock and warrants.





Each
share of Series A Convertible Preferred Stock will receive a cumulative dividend
at the rate of 5% per annum of the Series A Purchase Price, payable
semi-annually on June 30 and December 31, commencing on June 30, 2009 (with the
first payment being pro-rated based on the number of days occurring between the
date of issuance and June 30, 2009).  Dividends may be paid in cash or
in shares of common stock at our option, subject to certain
conditions.  The shares of Series A Convertible Preferred Stock also
are entitled to a liquidation preference, such that in the event of any
voluntary or involuntary liquidation, dissolution or winding up of our company,
the holders of Series A Convertible Preferred Stock will be paid out of the
assets of the Company available for distribution to our stockholders before any
payment shall be paid to the holders of common stock, an amount per share equal
to the Series A Purchase Price, plus accrued and unpaid
dividends.  The Series A Convertible Preferred Stock and the Series B
Convertible Preferred Stock (as described below) will be treated on an
equivalent basis with respect to payments made in connection with a
liquidation.  The Board approved the method of payment in the form of
common stock for the June 30, 2009 dividend and the December 31, 2009
dividend.





Each
share of Series A Convertible Preferred Stock is convertible into 10 shares of
common stock at any time at the option of the holder, subject to adjustment for
stock splits, stock dividends, recapitalizations and similar transactions (the
“Series A Conversion
Ratio”). Unless waived under certain circumstances by the holder of
Series A Convertible Preferred Stock, such holder’s shares of Series A
Convertible Preferred Stock may not be converted if upon such conversion the
holder’s beneficial ownership would exceed certain thresholds.  Each
share of Series A Convertible Preferred Stock will automatically be converted
into shares of common stock at the Series A Conversion Ratio then in
effect:  (i) if, after 12 months from the closing of the Series A
Private Placement, the common stock trades on the Nasdaq Capital Market (or
other primary trading market or exchange on which the common stock is then
traded) at a price equal to $4.00 for 20 out of 30 consecutive trading days with
average daily trading volume of at least 10,000 shares or (ii) upon a registered
public offering by the Company at a per share price equal to $2.30 with
aggregate gross proceeds to the Company of not less than $10
million.





The
holders of Series A Convertible Preferred Stock are not entitled to vote on any
matters presented to the stockholders of the Company for their action or
consideration at any meeting of stockholders of the Company (or by written
consent of stockholders in lieu of meeting), except that the holders of Series A
Convertible Preferred Stock may vote separately as a class on any matters that
would amend, alter or repeal any provision of our Restated Articles of
Organization, as amended, in a manner that adversely affects the powers,
preferences or rights of the Series A Convertible Preferred Stock and such
holders may also vote on any matters required by law.


- 53
-


PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


As
of December 31, 2009





At any
time after February 11, 2014, upon 30 days written notice, we have the right to
redeem the outstanding shares of Series A Convertible Preferred Stock at a price
equal to the Series A Purchase Price, plus all accrued and unpaid dividends
thereon.  The redemption price may be paid in two annual
installments.





15 Month Series A Preferred
Stock Warrants and 30 Month Common Stock Warrants




The
warrants have the following exercise prices and terms:  (i) the 15
Month Series A Preferred Stock Warrants have an exercise price equal to $12.50
per share, with a term expiring on May 12, 2010; and (ii) the 30 Month Common
Stock Warrants have an exercise price equal to $2.00 per share, with a term
expiring on August 12, 2011.Unless waived under
certain circumstances by the holder of the 30 Month Common Stock Warrant, such
holder’s 30 Month Common Stock Warrants may not be exercised if upon such
exercise the holder’s beneficial ownership would exceed certain
thresholds.





Each of
the 15 Month Series A Preferred Stock Warrants and the 30 Month Common Stock
Warrants permit the holder to conduct a “cashless exercise” at any time the
holder of the warrant is an “affiliate” (as defined in the Securities Purchase
Agreement) of the Company.





The
warrant exercise price and/or number of shares issuable upon exercise of the
applicable warrant will be subject to adjustment for stock dividends, stock
splits or similar capital reorganizations, as set forth in the
warrants.





Subject
to the terms and conditions of the applicable warrants, the Company has the
right to call for cancellation of the 15 Month Series A Preferred Stock Warrants
if the volume weighted average price of our common stock on the Nasdaq Capital
Market (or other primary trading market or exchange on which our common stock is
then traded) equals or exceeds $1.75 for either (i) 10 consecutive trading days
or (ii) 15 out of 25 consecutive trading days.  Subject to the terms
and conditions of the 30 Month Common Stock Warrant, the Company has the right
to call for cancellation the 30 Month Common Stock Warrant if the volume
weighted average price for our common stock on the Nasdaq Capital Market (or
other primary trading market or exchange on which our common stock is then
traded) equals or exceeds $2.80 for either (i) 10 consecutive trading days or
(ii) 15 out of 25 consecutive trading days.





The
warrants granted in connection with the Series A Units were valued based on a
Black-Scholes pricing model at the date of the grant.  The 15 Month
Series A Preferred Stock Warrants and 30 Month Common Stock Warrants were
granted with an exercise price of $1.25 per share of Series A Convertible
Preferred Stock and $2.00 per share of common stock,
respectively.  The 15 Month Series A Preferred Stock Warrants and 30
Month Common Stock Warrants vested immediately.  The relative fair
value of the warrants was calculated to be $882,253, and a non-cash charge of
$1.8 million was recorded to Stockholders’ Equity in the first quarter of
2009.  The assumptions for the Black-Scholes pricing model are
represented in the table below.





Assumptions
                  
                  Preferred
                  
                  
                  CommonExpected
      life (in months)
                  
                  
                  15.0
                  
                  
                  
                  30.0Expected
      volatility
                  
                  
                  142.0
                  %
                  
                  
                  109.0
                  %Risk-free
      interest rate
                  
                  
                  0.875
                  %
                  
                  
                  1.375
                  %Exercise
      price
                  
                  $
                  1.25
                  
                  
                  $
                  2.00Stock
      price
                  
                  $
                  0.90
                  
                  
                  $
                  0.90Fair
      value per warrant
                  
                  $
                  0.45
                  
                  
                  $
                  0.41




- 54
-


PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


As
of December 31, 2009





Series B Convertible
Preferred Stock





On
November 18, 2009, we sold an aggregate of 62,039 units (the “Series B Units”)
for a purchase price of $18.80 per unit (the “Series B Purchase Price”),
resulting in gross proceeds to us of $1,166,333.  This is the first
tranche of a $2.5 million private placement (the “Series B Private
Placement”).  The second tranche closed on March 18, 2010 for the sale
of 26,672 Series B Units with gross proceeds of $501,434.  Each Series
B Unit consists of (i) one share of Series B Convertible Preferred Stock
convertible into 10 shares of our common stock and (ii) a warrant to purchase
one share of Series B Convertible Preferred Stock at an exercise price equal to
$23.80 per share for warrants issued in November 2009 and at an exercise price
of $28.80 for warrants issued in March 2010, in each case with a term expiring
on August 11, 2011 (the “Series B Warrant”).





In
connection with the Series B Private Placements, we paid a finder’s fee of
$100,478, plus warrants to purchase 5,344 shares of Series B Convertible
Preferred Stock at $28.80 per share, expiring August 11, 2012.





The
proceeds from the sale of each Series B Unit was allocated between the Series B
Convertible Preferred Stock and the Series B Warrant based on the relative
estimated fair value of each security.  The estimated fair value of
the Series B Warrants was determined using the Black-Scholes formula, resulting
in an allocation of the gross proceeds of $419,624 to the total warrants issued
for the first tranche closed in 2009.  The allocation of the gross
proceeds to the Series B Convertible Preferred Stock was $746,709 for the first
tranche closed in 2009.  In accordance with the provisions of FASB ASC
470-20, Debt with Conversion
and Other Options, an additional adjustment between Additional Paid in
Capital and Accumulated Deficit of $140,449 was recorded to reflect an implicit
non-cash dividend related to the allocation of proceeds between the Series B
Convertible Preferred Stock and Series B Warrants issued in the first tranche
closing. The
$140,449 represents the value of the adjustment to additional paid in capital
related to the beneficial conversion feature of the Series B Convertible
Preferred Stock.  The value adjustment was calculated by subtracting
the fair market value of the underlying common stock on November 17, 2009
issuable upon conversion of the Series B Convertible Preferred Stock from the
fair market value of the Series B Convertible Preferred Stock as determined when
the Company performed a fair market value allocation of the proceeds to the
Series B Convertible Preferred Stock and Series B Warrants.





Each
share of Series B Convertible Preferred Stock will receive a cumulative dividend
at the rate of 5% per annum of the Series B Purchase Price, payable
semi-annually on June 30 and December 31, commencing on December 31, 2009 (with
the first payment being pro-rated based on the number of days occurring between
the date of issuance and December 31, 2009).  Dividends may be paid in
cash or in shares of common stock at our option, subject to certain
conditions.  The shares of Series B Convertible Preferred Stock also
are entitled to a liquidation preference, such that in the event of any
voluntary or involuntary liquidation, dissolution or winding up of our company,
the holders of Series B Convertible Preferred Stock will be paid out of the
assets of the Company available for distribution to our stockholders before any
payment shall be paid to the holders of common stock, an amount per share equal
to the Series B Purchase Price, plus accrued and unpaid
dividends.  The Series B Convertible Preferred Stock and the Series A
Convertible Preferred Stock will be treated on an equivalent basis with respect
to payments made in connection with a liquidation.  The Board approved
the method of payment in the form of common stock for the December 31, 2009
dividend.





Each
share of Series B Convertible Preferred Stock is convertible into 10 shares of
common stock at any time at the option of the holder, subject to adjustment for
stock splits, stock dividends, recapitalizations and similar transactions (the
“Series B Conversion
Ratio”).  Each share of Series B Convertible Preferred Stock
will automatically be converted into shares of common stock at the Series B
Conversion Ratio then in effect:  (i) if, after 12 months from the
closing of the applicable tranche of the Series B Private Placement, the common
stock trades on the Nasdaq Capital Market (or other primary trading market or
exchange on which the common stock is then traded) at a price equal to 3/10 of
the Series B Purchase Price, or $5.64, for 20 out of 30 consecutive trading days
with average daily trading volume of at least 10,000 shares or (ii) upon a
registered public offering by the Company at a per share price equal to 3/10 of
the Series B Purchase Price, or $5.64, with aggregate gross proceeds to the
Company of not less than $10 million.  Unless waived under certain
circumstances by the holder of the Series B Convertible Preferred Stock, such
holder’s Series B Convertible Preferred Stock may not be converted if upon such
conversion the holder’s beneficial ownership would exceed certain
thresholds.


- 55
-


PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


As
of December 31, 2009





The
holders of Series B Convertible Preferred Stock are not entitled to vote on any
matters presented to the stockholders of the Company for their action or
consideration at any meeting of stockholders of the Company (or by written
consent of stockholders in lieu of meeting), except that the holders of Series B
Convertible Preferred Stock may vote separately as a class on any matters that
would amend, alter or repeal any provision of our Restated Articles of
Organization, as amended, in a manner that adversely affects the powers,
preferences or rights of the Series B Convertible Preferred Stock and such
holders may also vote on any matters required by law.





At any
time after February 12, 2014, upon 30 days written notice, we have the right to
redeem the outstanding shares of Series B Convertible Preferred Stock at a price
equal to the Series B Purchase Price, plus all accrued and unpaid dividends
thereon.  The redemption price may be paid in two annual
installments.  The Series B Convertible Preferred Stock and the Series
A Convertible Preferred Stock will be treated on an equivalent basis with
respect to payments made in connection with redemption.





Series B
Warrants




The
Series B Warrants issued in November 2009 have an exercise price equal to $23.80
and the Series B Warrants issued in March 2010 have an exercise price equal to
$28.80, in each case with a term expiring on August 11, 2011.  The
Series B Warrants permit the holder to conduct a “cashless exercise” at any time
the holder of the Series B Warrant is an “affiliate” (as defined in the
Securities Purchase Agreement) of the Company.





The
Series B Warrant exercise price and/or number of shares issuable upon exercise
of the Series B Warrant will be subject to adjustment for stock dividends, stock
splits or similar capital reorganizations, as set forth in the Series B
Warrants.





Subject
to the terms and conditions of the Series B Warrants, the Company has the right
to call for cancellation of the Series B Warrants if the volume weighted average
price of our common stock on the Nasdaq Capital Market (or other primary trading
market or exchange on which our common stock is then traded) equals or exceeds
5/20 of the Series B Purchase Price, or $4.70, for either (i) 10 consecutive
trading days or (ii) 15 out of 25 consecutive trading days.





In
connection with the Series B Private Placement on November 18, 2009, we issued
warrants to our placement agent to purchase 3,665 shares of Series B Convertible
Preferred Stock at $28.80 per share, expiring August 11, 2012.  The
Series B Warrants and placement agent warrants issued in November 2009 were
valued based on a Black-Scholes pricing model at the date of the
grant.  The Series B warrants issued in November 2009 were granted
with an exercise price of $2.38 per share of common stock and the placement
agent warrants issued in November 2009 were granted with an exercise price of
$2.88 per share of common stock.  The Series B Warrants and placement
agent warrants vested immediately.  The relative fair value of the
Series B Warrants was calculated to be $419,624 and a non-cash charge of $1.1
million was recorded to Stockholders’ Equity in the fourth quarter of
2009.  The assumptions for the Black-Scholes pricing model are
represented in the table below for both warrants.





Assumptions
                  
                  Preferred
                  
                  
                  Placement AgentExpected
      life (in months)
                  
                  
                  21.0
                  
                  
                  
                  33.0Expected
      volatility
                  
                  
                  142.0
                  %
                  
                  
                  119.0
                  %Risk-free
      interest rate
                  
                  
                  1.000
                  %
                  
                  
                  1.380
                  %Exercise
      price
                  
                  $
                  2.38
                  
                  
                  $
                  2.88Fair
      value per warrant
                  
                  $
                  0.80
                  
                  
                  $
                  0.80




- 56
-


PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


As
of December 31, 2009




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 (the “Rights”). 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.





Stock
Options





On June
16, 2005, our stockholders approved our 2005 Equity Incentive Plan (the “Plan”),
pursuant to which an aggregate of 1,000,000 shares of our common stock was
reserved for issuance upon exercise of stock options or other equity awards made
under the Plan.  On September 25, 2008, our stockholders approved an
amendment to the Plan pursuant to which the number of shares reserved for
issuance upon exercise of stock options or other equity awards made under the
Plan was increased from 1,000,000 shares to 1,500,000 shares. Under the Plan, we
may award stock options, shares of common stock, and other equity interests in
the Company to employees, officers, directors, consultants, and advisors, and to
any other persons the Board of Directors deems appropriate.  As of
December 31, 2009, options to acquire 1,325,500 shares are outstanding under the
Plan.





As of
December 31, 2009, options to acquire 239,000 shares are outstanding under the
1999 Non-qualified Stock Option Plan.  No additional options may be
granted under the 1999 Non-qualified Stock Option Plan.




The
following tables summarize information concerning options outstanding and
exercisable:


- 57
-


PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


As
of December 31, 2009





Stock Options
                            
                            
                            WarrantsWeighted
                            
                            
                            
                            
                            
                            WeightedAverage price
                            
                            
                            
                            
                            
                            Average price
                            
                            
                            TotalShares
                            
                            
                            per share
                            
                            
                            Shares
                            
                            
                            per share
                            
                            
                            Shares
                            
                            
                            ExercisableBalance
      outstanding, 12/31/2007
                            
                            
                            1,120,500
                            
                            
                            $
                            3.45
                            
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            1,120,500
                            
                            
                            
                            691,166Granted
                            
                            
                            231,500
                            
                            
                            
                            2.94
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            231,500Exercised
                            
                            
                            (3,000
                            )
                            
                            
                            3.25
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (3,000
                            )Expired
                            
                            
                            (1,500
                            )
                            
                            
                            3.25
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (1,500
                            )Forfeited
                            
                            
                            (125,001
                            )
                            
                            
                            4.01
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (125,001
                            )Balance
      outstanding, 12/31/2008
                            
                            
                            1,222,499
                            
                            
                            $
                            3.30
                            
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            1,222,499
                            
                            
                            
                            932,334Granted
                            
                            
                            485,000
                            
                            
                            
                            0.82
                            
                            
                            
                            3,846,640
                            
                            
                            $
                            1.78
                            
                            
                            
                            4,331,640Exercised
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            (40,000
                            )
                            
                            
                            1.25
                            
                            
                            
                            (40,000
                            )Expired
                            
                            
                            (5,000
                            )
                            
                            
                            4.25
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (5,000
                            )Forfeited
                            
                            
                            (137,999
                            )
                            
                            
                            3.40
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (137,999
                            )Balance
      outstanding, 12/31/2009
                            
                            
                            1,564,500
                            
                            
                            $
                            2.52
                            
                            
                            
                            3,806,640
                            
                            
                            $
                            1.78
                            
                            
                            
                            5,371,140
                            
                            
                            
                            4,955,152





Options Outstanding
                            
                            
                            Options ExercisableWeighted Average
                            
                            
                            Weighted AverageRange of Exercise
                              Prices
                            
                            Number of
                              Options
                            
                            
                            Remaining
                              Contractual
                              Life
                            
                            
                            Exercise
                              Price
                            
                            
                            Number of
                              Options
                            
                            
                            Remaining
                              Contractual
                              Life
                            
                            
                            Exercise
                              Price$0.77  -
      $2.70
                            
                            
                            704,000
                            
                            
                            
                            6.9
                            
                            
                            $
                            1.25
                            
                            
                            
                            392,346
                            
                            
                            
                            5.2
                            
                            
                            $
                            1.612.71
      - 3.08
                            
                            
                            319,500
                            
                            
                            
                            5.2
                            
                            
                            
                            2.93
                            
                            
                            
                            283,166
                            
                            
                            
                            4.7
                            
                            
                            
                            2.953.09
      - 3.95
                            
                            
                            302,000
                            
                            
                            
                            6.4
                            
                            
                            
                            3.67
                            
                            
                            
                            276,000
                            
                            
                            
                            6.3
                            
                            
                            
                            3.693.96
      - 5.93
                            
                            
                            239,000
                            
                            
                            
                            7.1
                            
                            
                            
                            4.24
                            
                            
                            
                            197,000
                            
                            
                            
                            6.9
                            
                            
                            
                            4.21$0.77
      - $5.93
                            
                            
                            1,564,500
                            
                            
                            
                            6.5
                            
                            
                            $
                            2.52
                            
                            
                            
                            1,148,512
                            
                            
                            
                            5.7
                            
                            
                            $
                            2.89





Sale of Common
Stock





In
connection with a private placement of 126,750 shares of common stock (the
“Shares”) at a price of $5.00 per share in November 2007, we agreed to prepare
and file a Registration Statement on Form S-3 (the “Registration Statement”)
covering the resale of the Shares, and to use our commercially reasonable
efforts to cause such Registration Statement to be declared effective as
promptly as possible after the filing thereof and to keep the Registration
Statement continuously effective under the Securities Act until all shares
covered by such Registration Statement have been sold, or may be sold without
volume restrictions pursuant to Rule 144 (or any successor Rule under the
Securities Act).   The Registration Statement was declared
effective by the SEC on January 22, 2008.





(9)  Subsequent
Events





We
performed a review of events subsequent to the balance sheet date through March
31, 2010, the date the financial statements were issued.





Commitments





Effective
January 1, 2010, we entered into a three-year lease agreement with the
University of Massachusetts, pursuant to which we are leasing laboratory and
office space on campus at the university.  We will pay $5,000 per
month for the use of these facilities.





Series
B Convertible Preferred Stock





On March
18, 2010, we sold an aggregate of 26,672 Series B Units for a purchase price of
$18.80 per unit, resulting in gross proceeds to us of $501,434.  This
is the second tranche of the $2.5 million Series B Private
Placement.


- 58
-


PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


As
of December 31, 2009





In
connection with the closing of the second tranche of the Series B Private
Placement, we paid a finder’s fee of $31,571, plus warrants to purchase 1,679
shares of Series B Convertible Preferred Stock at $28.80 per share, expiring
August 11, 2012.


- 59
-


ITEM 9.
            CHANGES IN AND DISAGREEMENTS WITH
      ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
  DISCLOSURE.





None





ITEM
      9A(T).
            CONTROLS
      AND PROCEDURES.





Evaluation
of Disclosure 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
filings are recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management, including our President and Chief Executive
Officer (Principal Executive Officer) and Chief Financial Officer (Principal
Financial Officer), as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, as ours are designed to do, and management was
necessarily required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.





As of
December 31, 2009, we carried out an evaluation, under the supervision and with
the participation of our management, including our Principal Executive Officer
and 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 Principal Executive Officer and
Principal Financial Officer concluded that our disclosure controls and
procedures are effective at the reasonable assurance level.





Report
of Management on Internal Control over Financial Reporting





We are
responsible for establishing and maintaining adequate internal control over
financial reporting. Internal control over financial reporting is defined in
Rule 13a-15(f) and 15d-15(f) under the Exchange Act, as a process designed by,
or under the supervision of our principal executive and principal financial
officers and effected by our board of directors, management and other personnel
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles and includes those policies and
procedures that:





-
            pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and disposition of our
    assets;





-
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that our receipts and expenditures are being
      made only in accordance with authorization of our management and
      directors; and





-
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of our assets that could have
      a material effect on the financial
statements.





Our
internal control system is designed to provide reasonable assurance to our
management and board of directors regarding the preparation and fair
presentation of published financial statements. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods
are subject to the risks that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.


- 60
-


We have
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2009.  In making this assessment, we used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework.





Based on
our assessment, we believe that, as of December 31, 2009, our internal control
over financial reporting is effective at a reasonable assurance level based on
these criteria.





This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management's report in this annual report.





Changes
in Internal Control Over Financial Reporting





There
have been no changes in our internal control over financial reporting that
occurred during the fourth quarter of 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





ITEM 9B.
            OTHER
      INFORMATION.




On March
31, 2010, we issued warrants to an investor relations firm to purchase 50,000
shares of our common stock at an exercise price equal to $3.00 per share, with a
term expiring on August 11, 2012, in exchange for consulting services provided
to us by such firm.  The investor relations firm provided us
consulting on general corporate financial matters.  The warrants were
issued and sold without registration under the Securities Act, in reliance upon
the exemption from registration set forth in Rule 506 of Regulation D
promulgated under the Securities Act.  The Company based such reliance
upon representations made to it by the investor relations firm, including, but
not limited to, representations as to such firm’s status as an “accredited
investor” (as defined in Rule 501(a) under Regulation D) and such firm’s
investment intent.  The securities were not offered or sold by any
form of general solicitation or general advertising (as such terms are used in
Rule 502 under Regulation D) and may not be re-offered or sold in the United
States absent an effective registration statement or an exemption from the
registration requirements under applicable federal and state securities
laws.





Also on
November 18, 2009, we issued 16,000 shares of our common stock and on or about
March 31, 2010, we issued 12,000 shares of our common stock, to another investor
relations firm, in each case in exchange for consulting services provided to us
by such firm.  The investor relations firm provided us consulting on
general corporate financial matters.  The shares of common stock
issued in November 2009 were issued and sold without registration under Section
4(2) of the Securities Act, for transactions not involving a public
offering.  The shares of common stock issued in March 2010 were issued
and sold without registration under the Securities Act, in reliance upon the
exemption from registration set forth in Rule 506 of Regulation D promulgated
under the Securities Act.  The Company based such reliance upon
representations made to it by the investor relations firm, including, but not
limited to, representations as to such firm’s status as an “accredited investor”
(as defined in Rule 501(a) under Regulation D) and such firm’s investment
intent.  The securities were not offered or sold by any form of
general solicitation or general advertising (as such terms are used in Rule 502
under Regulation D) and may not be re-offered or sold in the United States
absent an effective registration statement or an exemption from the registration
requirements under applicable federal and state securities
laws.


- 61
-


PART
III





ITEM 10.
            DIRECTORS, EXECUTIVE OFFICERS AND
      CORPORATE GOVERNANCE.





Code
of Ethics





Pursuant
to Section 406 of the Sarbanes-Oxley Act of 2002, we have adopted a Code of
Ethics for Senior Financial Officers that applies to our principal executive
officer, principal financial officer, principal accounting officer, controller,
and other persons performing similar functions. A copy of the code of ethics is
posted on, and may be obtained free of charge from our Internet website at http://www.pressurebiosciences.com.   If
we make any amendments to this Code of Ethics or grant any waiver, including any
implicit waiver, from a provision of this Code of Ethics to our principal
executive officer, principal financial officer, principal accounting officer,
controller, or other persons performing similar functions, we will disclose the
nature of such amendment or waiver, the name of the person to whom the waiver
was granted and the date of waiver in a Current Report on Form
8-K.




The
information regarding our executive officer is under Item 1, “Our Executive
Officers”, of this Form 10-K. The additional 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.


- 62
-


ITEM 11.
            EXECUTIVE
      COMPENSATION.





The
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.
            SECURITY OWNERSHIP OF CERTAIN
      BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
      MATTERS.





Equity
Compensation Plan Information





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, 2009 regarding the shares of our common stock available for
grant or granted under our equity compensation plans.





Plan Category
                
                Number of
                  securitiesto be
                  issued upon
                  exercise of
                  outstanding options
                
                
                Weighted-average
                  exercise price of
                  outstanding
                  options
                
                
                Number of securities
                  remaining available
                  for future issuance
                  under equity
                  compensation plansEquity
      compensation plans approved by security holders
                
                
                1,564,500
                
                
                $
                2.52
                
                
                
                174,500





Includes the following plans: 1999
Non-Qualified Stock Option Plan and 2005 Equity Incentive Plan.





The
additional 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.





ITEM 13.
            CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS; AND DIRECTOR
INDEPENDENCE.





The
information required by this Item 13 is hereby incorporated by reference to our
definitive proxy statement to be filed within 120 days after the close of our
fiscal year.


- 63
-


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.


- 64
-





PART
      IVITEM 15.
              
              EXHIBITS.Exhibit No.
              
              
              
              Reference3.1
              
              Restated
      Articles of Organization of the Company
              
              A-3.1**3.2
              
              Articles
      of Amendment to Restated Articles of Organization of the
      Company
              
              B-3.1**3.3
              
              Articles
      of Amendment to Restated Articles of Organization of the Company, as
      amended
              
              O-3.1**3.4
              
              Amended
      and Restated Bylaws of the Company
              
              A-3.2**3.5
              
              Amendment
      to Amended and Restated Bylaws of the Company
              
              C-3.3**4.1
              
              Specimen
      Certificate for Shares of the Company’s Common Stock
              
              D-4.1**4.2
              
              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-3.1
      & 3.2**4.3
              
              Rights
      Agreement dated as of February 27, 2003 between the Company and
      Computershare Trust Company, Inc.
              
              E-4**4.4
              
              Amendment
      No. 1 to Rights Agreement dated April 16, 2004 between the Company and
      Computershare Trust Company, Inc.
              
              F-4**4.5
              
              Securities
      Purchase Agreement dated November 21, 2007 between the Company and the
      purchasers named therein
              
              G-4.9**4.6
              
              Registration
      Rights Agreement dated November 21, 2007 between the Company and the
      purchasers named therein
              
              G-4.10**4.7
              
              Securities
      Purchase Agreement dated February 12, 2009 between the Company and the
      purchasers named therein
              
              L-4.1**4.8
              
              Form
      of 15 Month Preferred Stock Warrant
              
              L-4.2**4.9
              
              Form
      of 30 Month Common Stock Warrant
              
              L-4.4**4.10
              
              Registration
      Rights Agreement dated February 12, 2009 between the Company and the
      purchasers named therein
              
              L-4.5**4.11
              
              Securities
      Purchase Agreement dated November 18, 2009 between the company and the
      purchasers named therein
              
              O-4.14.12
              
              Registration
      Rights Agreement dated November 18, 2009 between the Company and the
      purchasers named therein
              
              O-4.24.13
              
              Series
      B Preferred Stock Warrant
              
              O-4.3


- 65
-





Exhibit No.
              
              
              
              Reference10.2
              
              1999
      Non-Qualified Stock Option Plan*
              
              H**10.3
              
              1999
      Employee Stock Purchase Plan*
              
              H**10.4
              
              2005
      Equity Incentive Plan.*
              
              I-99.1**10.5
              
              Amendment
      No. 1 to 2005 Equity Incentive Plan*
              
              M-10.1**10.6
              
              Description
      of Compensation for Certain Directors*
              
              N-10.7**10.7
              
              Severance
      Agreement between the registrant and Richard T.
Schumacher*
              
              N-10.6**10.8
              
              Form
      of Severance Agreement including list of officers to whom
      provided*
              
              N-10.7**10.10
              
              Consent
      Agreement, dated May 29, 2007, by and among the registrant, PBI Source
      Scientific, Inc., Source Scientific, LLC, BIT Analytical Instruments,
      Inc., Richard W. Henson and Bruce A. Sargeant.
              
              J-10.1**10.11
              
              Asset
      Purchase Agreement dated April 16, 2004 between the Company, BBI Biotech
      Research Laboratories, Inc. and SeraCare Life Sciences,
      Inc.
              
              F-1**10.12
              
              Technology
      Transfer and Patent Assignment Agreement dated October 7, 1996, between
      Bioseq, Inc. and BioMolecular Assays, Inc.
              
              N-10.11**10.13
              
              Amendment
      to Technology Transfer and Patent Assignment Agreement dated October 8,
      1998 between Bioseq, Inc. and BioMolecular Assays, Inc.
              
              N-10.12**10.14
              
              Nonexclusive
      License Agreement dated September 30, 1998 between Bioseq, Inc. and
      BioMolecular Assays, Inc.
              
              N-10.13**10.16
              
              Agreement
      for Research Services dated February 1, 2006 by and between the registrant
      and the University of New Hampshire
              
              K-10.1**23.1
              
              Consent
      of Independent Registered Public Accounting Firm
              
              Filed
      herewith31.1
              
              Principal
      Executive Officer Certification Pursuant to Item 601(b)(31) of Regulation
      S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002
              
              Filed
      herewith31.2
              
              Principal
      Financial Officer Certification Pursuant to Item 601(b)(31) of Regulation
      S-K, 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-K, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002
              
              Filed
      herewith32.2
              
              Principal
      Financial Officer Certification Pursuant to Item 601(b)(32) of Regulation
      S-K, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002
              
              Filed
      herewith




*Management
contract or compensatory plan or arrangement.


**Previously
filed as follows.





A
                We
      previously filed this exhibit with the referenced exhibit number as an
      exhibit to the registrant’s Registration Statement on Form S-1
      (Registration No. 333-10759) filed with the Commission on August 23,
      1996.B
                We
      previously filed this exhibit with the referenced exhibit number as an
      exhibit to the registrant’s Quarterly Report on Form 10-Q for the fiscal
      quarter ended September 30, 2004.C
                We
      previously filed this exhibit with the referenced exhibit number as an
      exhibit to the registrant’s Annual Report on Form 10-K for the fiscal year
      ended December 31, 2002.D
                We
      previously filed this exhibit with the referenced exhibit number as an
      exhibit to the registrant’s Annual Report on Form 10-KSB for the fiscal
      year ended December 31, 2004.E
                We
      previously filed this exhibit with the referenced exhibit number as an
      exhibit to the registrant’s Current Report on Form 8-K filed with the
      Commission March 12, 2003.F
                We
      previously filed this exhibit with the referenced exhibit number as an
      exhibit to the registrant’s Current Report on Form 8-K filed with the
      Commission April 16, 2004.G
                We
      previously filed this exhibit with the referenced exhibit number as an
      exhibit to the registrant’s Registration Statement on Form S-3
      (Registration No. 333-148227) filed with the Commission on December 20,
      2007.H
                We
      previously filed this exhibit as an appendix to the registrant’s proxy
      statement filed June 14, 1999.I
                We
      previously filed this exhibit with the referenced exhibit number as an
      exhibit to the registrant’s Registration Statement on Form S-8 (Reg. No.
      333-128594) filed with the Commission on September 26,
    2005.J
                We
      previously filed this exhibit with the referenced exhibit number as an
      exhibit to the registrant’s Current Report on Form 8-K filed with the
      Commission on June 1, 2007.K
                We
      previously filed this exhibit with the referenced exhibit number as an
      exhibit to the registrant’s Current Report on Form 8-K filed with the
      Commission on February 7, 2006.L
                We
      previously filed this exhibit with the referenced exhibit number as an
      exhibit to the registrant’s Current Report on Form 8-K filed with the
      Commission on February 18,
2009.


- 66
-





M
                We
      previously filed this exhibit with the referenced exhibit number as an
      exhibit to the registrant’s Current Report on Form 8-K filed with the
      Commission on September 29, 2008.N
                We
      previously filed this exhibit with the referenced exhibit number as an
      exhibit to the registrant’s Annual Report on Form 10-K filed with the
      Commission on March 27, 2008.O
                We
      previously filed this exhibit with the referenced exhibit number as an
      exhibit to the registrant’s Current Report on Form 8-K filed with the
      Commission on November 19,
2009..


- 67
-


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.




Date:  March
      31, 2010
                Pressure
      BioSciences, Inc.By:
                /s/ Richard T.
SchumacherRichard
      T. SchumacherPresident
      and Chief Executive Officer





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacity and on the dates indicated.




SIGNATURES
                  
                  TITLES
                  
                  DATE/s/Richard T.
      Schumacher
                  
                  President,
      Chief Executive Officer (Principal Executive Officer,
                    Principal
      Financial Officer and Principal Accounting Officer)
                  
                  March
      31, 2010Richard
      T. Schumacher/s/ R. Wayne Fritzsche
                  
                  Director
      and Chairman of the Board
                  
                  March
      31, 2010R.
      Wayne Fritzsche/s/J. Donald
      Payne
                  
                  Director
                  
                  March
      31, 2010J.
      Donald Payne/s/ Calvin A. Saravis,
Ph.D.
                  
                  Director
                  
                  March
      31, 2010Calvin
      A. Saravis, Ph. D./s/ Alan D. Rosenson
                  
                  Director
                  
                  March
      31, 2010Alan
      D. Rosenson