**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-QSB**




**(Mark
      One)**




ý  **Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
      Act
      of 1934**




**For
      the quarterly period ended**  **September
      30, 2006**  **or**




o  **Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
      Act
      of 1934**




**For
      the transition period from _____________ to _____________**




**Commission
      file number**  **0-21615**





**PRESSURE
      BIOSCIENCES, INC.**


(Exact
      Name of Small Business Issuer as Specified in its Charter)




**Massachusetts**
            
            **04-2652826**(State
                or Other Jurisdiction of
            
            (I.R.S.
                EmployerIncorporation
                or Organization)
            
            Identification
                No.)**321
                Manley St.****West
                Bridgewater, Massachusetts**
            
            **02379-1040**(Address
                of Principal Executive Offices)
            
            (Zip
                Code)




**(508)
      580-1818**


(Issuer’s
      telephone number, including area code




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




ý Yes o No




Indicate
      by check mark whether the registrant is a shell company (as defined in Exchange
      Act Rule 12b-2).




o Yes ý No




The
      number of shares outstanding of the Issuer’s common stock as of November 10,
      2006 was 2,319,589.


Transitional
      Small Business Disclosure Format (check one):




o Yes ý No









TABLE
      OF
      CONTENTS




PagePART
                I - FINANCIAL INFORMATIONItem
                1.   Financial StatementsConsolidated
                Balance Sheets as of September 30, 2006 (Unaudited) and December
                31, 2005
                (Restated)
            3Consolidated
                Statements of Operations for the Three Months and Nine Months Ended
                September 30, 2006 and 2005 (Unaudited)
            4Consolidated
                Statements of Comprehensive Income (Loss) for the Three Months and
                Nine
                Months Ended September 30, 2006 and 2005 (Unaudited)
            5Consolidated
                Statements of Cash Flows for the Nine Months Ended September 30,
                2006 and
                2005 (Unaudited)
            6Notes
                to Consolidated Financial Statements as of September 30, 2006 (Unaudited)
            7Item
                2. Management's Discussion and Analysis of Financial Condition or Plan of
                Operations
            14Item
                3. Controls and Procedures
            25PART
                II - OTHER INFORMATIONItem
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            26Item
                6. Exhibits
            26







-2-





**PART
      I.   FINANCIAL INFORMATION**


**Item
      1. Financial Statements**


**PRESSURE
      BIOSCIENCES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**





September
                  30,
              
              
              December
                  31,ASSETS
              
              
              2006
              
              
              2005(unaudited)
              
              
              (restated)CURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              5,850,427
              
              $
              6,416,772Restricted
                  cash
              
              
              17,484
              
              
              255,612Accounts
                  receivable (less allowance for doubtful accounts of $115,908 in
                  2005)
              
              
              45,048
              
              
              58,798Inventories,
                  net
              
              
              44,859
              
              
              85,207Investments
                  in marketable securities
              
              
              -
              
              
              1,533Escrow
                  deposit related to sale of assets to SeraCare
              
              
              -
              
              
              1,117,305Prepaid
                  income taxes
              
              
              28,687
              
              
              -Income
                  tax receivable
              
              
              781,457
              
              
              531,122Prepaid
                  expenses, deposits, and other current assets
              
              
              274,855
              
              
              75,286Total
                  current assets
              
              
              7,042,817
              
              
              8,541,635PROPERTY
                  AND EQUIPMENT, NET
              
              
              200,146
              
              
              282,780OTHER
                  ASSETS:Intangible
                  assets, net
              
              
              389,080
              
              
              425,554Assets
                  transferred under contractual arrangements
              
              
              1,420,996
              
              
              1,420,996Investments
                  in marketable securities
              
              
              2,549,113
              
              
              3,962,810Total
                  other assets
              
              
              4,359,189
              
              
              5,809,360TOTAL
                  ASSETS
              
              $
              11,602,152
              
              $
              14,633,775LIABILITIES
                  AND STOCKHOLDERS' EQUITYCURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              142,762
              
              $
              56,395Accrued
                  employee compensation
              
              
              144,649
              
              
              94,354Other
                  accrued expenses
              
              
              200,102
              
              
              99,718Income
                  taxes payable
              
              
              173,256
              
              
              63,730Current
                  deferred tax liability
              
              
              -
              
              
              219,949Accrued
                  SeraCare liabilities
              
              
              26,584
              
              
              264,713Liabilities
                  from discontinued operations
              
              
              2,040
              
              
              2,040Total
                  current liabilities
              
              
              689,393
              
              
              800,899LONG
                  TERM LIABILITIESLiabilities
                  from discontinued operations
              
              
              4,253
              
              
              6,120Deferred
                  revenue
              
              
              13,500
              
              
              -Deferred
                  tax liability
              
              
              866,134
              
              
              1,419,662Liabilities
                  transferred under contractual arrangements
              
              
              1,042,493
              
              
              1,042,493Total
                  long term liabilities
              
              
              1,926,380
              
              
              2,468,275TOTAL
                  LIABILITIES
              
              
              2,615,773
              
              
              3,269,174COMMITMENTS
                  AND CONTINGENCIESSTOCKHOLDERS'
                  EQUITY:Common
                  stock, $.01 par value; 20,000,000 shares authorized;2,426,189
                  issued and 2,319,589 outstanding in 2006 and 2,424,189issued
                  and outstanding in 2005
              
              
              23,196
              
              
              24,242Additional
                  paid-in capital
              
              
              6,267,549
              
              
              6,027,020Loan
                  receivable from Director / CEO
              
              
              (1,000,000
              )
              
              (1,000,000
              )Accumulated
                  other comprehensive income
              
              
              1,675,092
              
              
              2,537,963Retained
                  earnings
              
              
              2,020,542
              
              
              3,775,376Total
                  stockholders' equity
              
              
              8,986,379
              
              
              11,364,601TOTAL
                  LIABILITIES & STOCKHOLDERS' EQUITY
              
              $
              11,602,152
              
              $
              14,633,775


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




-3-





**PRESSURE
      BIOSCIENCES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(UNAUDITED)**


For
                  the Three Months Ended
              
              
              For
                  the Nine Months EndedSeptember
                  30,
              
              
              September
                  30,2006
              
              
              2005
              
              
              2006
              
              
              2005(restated)
              
              
              
              
              
              (restated)REVENUE:PCT
                  Products, services, other
              
              $
              92,211
              
              $
              11,742
              
              $
              174,409
              
              $
              21,984Total
                  revenue
              
              
              92,211
              
              
              11,742
              
              
              174,409
              
              
              21,984COSTS
                  AND EXPENSES:Cost
                  of PCT products & services
              
              
              90,037
              
              
              33,966
              
              
              188,688
              
              
              61,653Research
                  and development
              
              
              324,525
              
              
              156,529
              
              
              984,844
              
              
              374,147Selling
                  and marketing
              
              
              127,419
              
              
              39,954
              
              
              322,803
              
              
              93,590General
                  and administrative
              
              
              380,065
              
              
              320,195
              
              
              1,665,172
              
              
              1,361,157Total
                  operating costs and expenses
              
              
              922,046
              
              
              550,644
              
              
              3,161,507
              
              
              1,890,547Operating
                  loss from continuing operations
              
              
              (829,835
              )
              
              (538,902
              )
              
              (2,987,098
              )
              
              (1,868,563
              )OTHER
                  INCOME (EXPENSE):Realized
                  gain on securities held for sale
              
              
              -
              
              
              2,838,491
              
              
              517,938
              
              
              2,838,491Other
                  operating, net
              
              
              -
              
              
              (140,648
              )
              
              -
              
              
              (528,285
              )Interest
                  income
              
              
              88,190
              
              
              62,699
              
              
              305,982
              
              
              187,559Total
                  other income
              
              
              88,190
              
              
              2,760,542
              
              
              823,920
              
              
              2,497,765(Loss)
                  income from continuing operations before
                income
                  taxes
              
              
              (741,645
              )
              
              2,221,640
              
              
              (2,163,178
              )
              
              629,202Income
                  tax benefit (provision) from continuing operations
              
              
              111,106
              
              
              (912,671
              )
              
              408,344
              
              
              (457,535
              )(Loss)
                  income from continuing operations
              
              
              (630,539
              )
              
              1,308,969
              
              
              (1,754,834
              )
              
              171,667Discontinued
                  operations:(Loss)
                    income from discontinued operations (net of income tax benefit
                    of $1,720
                    and provision of $913 for the three and nine monthsended
                    in 2005)
              
              
              -
              
              
              (3,340
              )
              
              -
              
              
              1,995Gain
                  on sale of net assets related to discontinued
                  operations(includes
                  effect of income taxes of $701,699 in 2005)
              
              
              -
              
              
              701,699
              
              
              -
              
              
              701,699Net
                  income from discontinued operations
              
              
              -
              
              
              698,359
              
              
              -
              
              
              703,694Net
                  (loss) income
              
              $
              (630,539
              )
              $
              2,007,328
              
              $
              (1,754,834
              )
              $
              875,361(Loss)
                  income per share from continuing operations - basic
              
              $
              (0.26
              )
              $
              0.54
              
              $
              (0.72
              )
              $
              0.05Income
                  per share from discontined operations - basic
              
              $
              -
              
              $
              0.29
              
              $
              -
              
              $
              0.23Net
                  (loss) income per share, basic
              
              $
              (0.26
              )
              $
              0.83
              
              $
              (0.72
              )
              $
              0.28(Loss)
                  income per share from continuing operations -
                  diluted
              
              $
              (0.26
              )
              $
              0.52
              
              $
              (0.72
              )
              $
              0.05Income
                  per share from discontined operations - diluted
              
              $
              -
              
              $
              0.27
              
              $
              -
              
              $
              0.22Net
                  (loss) income per share, diluted
              
              $
              (0.26
              )
              $
              0.79
              
              $
              (0.72
              )
              $
              0.27Weighted
                  average number of shares used to calculate
                net
                  (loss) income per share - basic
              
              
              2,422,675
              
              
              2,424,189
              
              
              2,424,351
              
              
              3,157,495Weighted
                  average number of shares used to calculate
                net
                  (loss) income per share - diluted
              
              
              2,422,675
              
              
              2,537,987
              
              
              2,424,351
              
              
              3,202,101





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




-4-





**PRESSURE
      BIOSCIENCES, INC. AND SUBSIDIARIES**


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


**(UNAUDITED** )




For
                  the Three Months Ended
              
              
              For
                  the Nine Months EndedSeptember
                  30,
              
              
              September
                  30,Other
                  Comprehensive Income (loss):
              
              
              2006
              
              
              2005
              
              
              2006
              
              
              2005(restated)
              
              
              
              
              
              (restated)Net
                  (loss) income
              
              $
              (630,539
              )
              $
              2,007,328
              
              $
              (1,754,834
              )
              $
              875,361Unrealized
                  (loss) gain on marketable securities
              
              
              (289,456
              )
              
              1,194,772
              
              
              (1,416,399
              )
              
              6,655,362Income
                  tax benefit (provision) related to itemsother
                  comprehensive (loss) income
              
              
              115,898
              
              
              (488,842
              )
              
              553,528
              
              
              (2,452,590
              )Total
                  other comprehensive (loss) income, net of taxes
              
              
              (173,558
              )
              
              705,930
              
              
              (862,871
              )
              
              4,202,772Comprehensive
                  (loss) income
              
              $
              (804,097
              )
              $
              2,713,258
              
              $
              (2,617,705
              )
              $
              5,078,133


















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





-5-





**PRESSURE
      BIOSCIENCES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(UNAUDITED)**






For
                  the Nine Months EndedSeptember
                  30,2006
              
              
              2005CASH
                  FLOWS FROM OPERATING ACTIVITIES:
              
              
              
              
              
              (restated)Net
                  (loss) income
              
              $
              (1,754,834
              )
              $
              875,361Less
                  income from discontinued operations
              
              
              -
              
              
              703,694(Loss)
                  income from continuing operations
              
              
              (1,754,834
              )
              
              171,667Adjustments
                  to reconcile (loss) income from continuing operations to net
                  cashused
                  in operating activities:Depreciation
                  and amortization
              
              
              108,733
              
              
              61,248Non-cash,
                  stock-based, compensation expense
              
              
              543,220
              
              
              -Loss
                  on disposal of property and equipment
              
              
              42,781Realized
                  gain on sale of marketable securities
              
              
              (517,938
              )
              
              (2,838,491
              )Interest
                  receivable on loan outstanding from Director / CEO
              
              
              -
              
              
              134,263Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              13,750
              
              
              203,866Inventories
              
              
              40,348
              
              
              (186,131
              )Investments
                  in marketable securities
              
              
              -
              
              
              1,787Income
                  tax receivable
              
              
              (250,335
              )
              
              (122,666
              )Prepaid
                  income taxes
              
              
              (28,687
              )
              
              (189,253
              )Prepaid
                  expenses, deposits, and other current assets
              
              
              (199,569
              )
              
              65,913Assets
                  and liabilities transferred under contractual arrangements,
                  (net)
              
              
              -
              
              
              490,755Accounts
                  payable
              
              
              86,367
              
              
              36,158Accrued
                  employee compensation
              
              
              50,295
              
              
              (14,892
              )Other
                  accrued expenses
              
              
              100,383
              
              
              (165,969
              )Deferred
                  revenue
              
              
              13,500
              
              
              -Income
                  taxes payable
              
              
              109,526
              
              
              (175,011
              )Deferred
                  tax liability
              
              
              (219,949
              )
              
              -Accrued
                  expenses due to SeraCare
              
              
              -
              
              
              205,410Net
                  cash used in operating activities
              
              
              (1,862,409
              )
              
              (2,321,346
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Payments
                  for additions to property and equipment
              
              
              (34,097
              )
              
              (64,998
              )Proceeds
                  from sale of marketable securities
              
              
              518,463
              
              
              2,841,510Net
                  cash provided by investing activities
              
              
              484,366
              
              
              2,776,512CASH
                  FLOWS FROM FINANCING ACTIVITIES:Use
                  of funds in repurchase of common stock
              
              
              (309,140
              )
              
              (16,303,862
              )Proceeds
                  from the issuance of common stock
              
              
              5,400Restricted
                  cash payable to SeraCare
              
              
              -
              
              
              (133,480
              )Net
                  cash used in financing activities
              
              
              (303,740
              )
              
              (16,437,342
              )CASH
                  FLOW FROM DISCONTINUED OPERATIONS:Operating
                  cash flows, net of taxes
              
              
              (1,867
              )
              
              870,483Investing
                  cash flows
              
              
              1,117,305
              
              
              -Net
                  cash provided by discontinued operations
              
              
              1,115,438
              
              
              870,483(DECREASE)
                  IN CASH AND CASH EQUIVALENTS:
              
              
              (566,345
              )
              
              (15,111,693
              )Cash
                  and cash equivalents, beginning of period
              
              
              6,416,772
              
              
              21,201,790Cash
                  and cash equivalents, end of period
              
              $
              5,850,427
              
              $
              6,090,097SUPPLEMENTAL
                  INFORMATION:Income
                  Taxes Paid
              
              $
              104,619
              
              $
              -





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




-6-




**PRESSURE
      BIOSCIENCES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF SEPTEMBER 30, 2006**




**1)**
            **Organization
                and Business
                Activities**





Pressure
      BioSciences, Inc. (“PBI”) is an early-stage company focused on the development
      and commercialization of a novel, 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. PBI currently holds 13 US and 5 foreign patents
      covering multiple applications of PCT in the life sciences field, including
      in
      such areas as genomic and proteomic sample preparation, pathogen inactivation,
      the control of enzymes, immunodiagnostics, and protein
      purification.




**2)**
            **Interim
                Financial Reporting**





The
      accompanying unaudited consolidated financial statements of Pressure
      BioSciences, Inc., have been prepared in accordance with generally accepted
      accounting principles for interim financial information and with the
      instructions to Form 10-QSB. Accordingly, they do not include all of the
      information and footnotes required by generally accepted accounting principles
      for complete financial statements. In the opinion of management, all adjustments
      (consisting of only normal recurring adjustments) considered necessary for
      a
      fair presentation have been included. Operating results for the three months
      and
      nine months ended September 30, 2006 are not necessarily indicative of the
      results that may be expected for the year ending December 31, 2006. For further
      information, refer to the audited consolidated financial statements and
      footnotes thereto included in the Company’s Annual Report on Form 10-KSB, as
      amended (the “Form 10-KSB/A”) for the fiscal year ended December 31,
      2005.




**3)**
            **Summary
                of Significant Accounting
                Policies**




*Principles
      of Consolidation*




The
      consolidated financial statements include the accounts of Pressure BioSciences,
      Inc., and its wholly-owned subsidiaries, PBI Biotech Research Laboratories,
      Inc., PBI Source Scientific, Inc., and PBI BioSeq, Inc.




*Use
      of Estimates*




To
      prepare the unaudited consolidated financial statements in conformity with
      generally accepted accounting principles, we are required to make significant
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the consolidated financial statements and the reported amounts of revenues
      and
      expenses during the reporting periods. In addition, significant estimates were
      made in projecting future cash flows to quantify impairment of assets, the
      realizability of a loan receivable from our President and Chief Executive
      Officer, deferred taxes, 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 to directors, officers and
      employees. On an on-going basis, we evaluate our estimates. We base our
      estimates on historical experience and on various other assumptions that are
      believed to be reasonable under the circumstances, the results of which form
      the
      basis for making judgments about the carrying values of assets and liabilities
      that are not readily apparent from other sources. Actual results could differ
      from the estimates and assumptions used.




*Cash
      and Cash Equivalents and Restricted Cash*




We
      invest
      our available cash in short-term, investment grade, interest bearing
      obligations, including money market funds, municipal notes, and bank and
      corporate debt instruments. Securities purchased with initial maturities of
      three months or less are valued at cost plus accrued interest, which
      approximates fair market value, and are classified as cash
      equivalents.




Our
      restricted cash consists of payments from customers of our former business
      units
      who remit payments to us erroneously. When this cash is received in our lockbox
      system we isolate it so that we can return it to SeraCare Life Sciences, Inc.
      (“SeraCare”) in a timely manner. The balances reflected are those indicative of
      timing of transfers to SeraCare. At the time the cash is classified as
      restricted, we record a corresponding liability so the balances have no effect
      on our net assets.




-7-


**PRESSURE
      BIOSCIENCES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF SEPTEMBER 30, 2006**






*Computation
      of Earnings (Loss) per Share*




Basic
      earnings (loss) per share is computed by dividing income (loss) available to
      common shareholders by the weighted average number of common shares outstanding.
      Diluted earnings per share is computed by dividing income (loss) available
      to
      common shareholders by the weighted average number of common shares outstanding
      plus additional common shares that would have been outstanding if dilutive
      potential common shares had been issued. For purposes of this calculation,
      stock
      options are considered common stock equivalents in periods in which they have
      a
      dilutive effect. Stock options that are anti-dilutive are excluded from this
      calculation.




Potentially
      dilutive securities having a net effect of 47,842 and 117,369 shares were
      excluded from the calculation for the three and nine months ended September
      30,
      2006.




*Accounting
      for Stock-Based Compensation*




On
      January 1, 2006, we adopted SFAS No. 123 (revised 2004), *“Share-Based
      Payment”* ,
      or SFAS
      123R, and its related implementation guidance as promulgated by both the
      Financial Accounting Standards Board (the “FASB”), and the Securities and
      Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 107, or SAB
      107, associated with the accounting for stock-based compensation arrangements
      of
      our employees and directors. These pronouncements require that equity-based
      compensation cost be measured at the grant date (based upon an estimate of
      the
      fair value of the compensation granted) and recorded to expense over the
      requisite service period, which generally is the vesting period. We adopted
      SFAS
      123R using the modified prospective method in the first quarter of 2006. Under
      this method, stock-based compensation expense recognized in the first nine
      months of 2006 includes: (a) compensation expense for all equity-based payments
      granted prior to, but not yet vested as of January 1, 2006, based on the grant
      date fair value estimated in accordance with the original provisions of FASB
      Statement No. 123, *“Accounting
      for Stock-Based Compensation”* (“SFAS
      123”), and (b) compensation expense for all equity-based payments granted
      between January 1, 2006 and September 30, 2006, based on the grant date fair
      value estimated using the Black-Scholes option pricing model. Results for
      periods prior to January 1, 2006 do not include, and have not been restated
      to
      reflect amounts associated with the requirements of SFAS 123R.




We
      estimate the fair value of equity-based compensation utilizing the Black-Scholes
      option pricing model. This model requires the input of several factors such
      as
      the expected option term, expected volatility of our stock price over the
      expected term, expected risk-free interest rate over the expected option term,
      expected dividend yield rate over the expected option term, and an estimate
      of
      expected forfeiture rates, and is subject to various assumptions. We believe
      this valuation methodology is appropriate for estimating the fair value of
      stock
      options granted to employees and directors which are subject to SFAS 123R
      requirements. These amounts are estimates and thus may not be reflective of
      actual future results, nor amounts ultimately realized by recipients of these
      grants. These amounts, and the amounts applicable to future quarters, are also
      subject to future quarterly adjustments based upon a variety of factors. The
      following table summarizes the assumptions we utilized for grants of stock
      options to the two sub-groups of our stock option recipients during the three
      and nine months ended September 30, 2006:


Assumptions
              
              
              Outside
                  Board Members
              
              
              CEO
                  and other Officers & EmployeesExpected
                  Life
              
              
              5.0
              
              
              6.0Expected
                  Volatility
              
              
              74.7
              %
              
              88.2
              %Risk-Free
                  Interest Rate
              
              
              4.9
              %
              
              4.9
              %Expected
                  Dividend Yield
              
              
              0.0
              %
              
              0.0
              %




-8-





**PRESSURE
      BIOSCIENCES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF SEPTEMBER 30, 2006**





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





As
      a
      result of adopting SFAS 123R on January 1, 2006 we recognized stock-based
      compensation expense of $95,811 and $543,220 for the three and nine months
      ended
      September 30, 2006, respectively. The following table summarizes the effect
      of
      this stock-based compensation expense within our Consolidated Statement of
      Operations:





Three
                  Months Ended
              
              
              Nine
                  Months EndedSeptember
                  30,
                2006
              
              
              September
                  30,
                2006Cost
                  of PCT products & services
              
              $
              2,621
              
              $
              7,335Research
                  and development
              
              
              47,748
              
              
              113,363Selling
                  and marketing
              
              
              11,761
              
              
              32,259General
                  and administrative
              
              
              33,681
              
              
              390,263Total
                  stock-based Compensation expense
              
              $
              95,811
              
              $
              543,220





The
      provisions of SFAS 123R require that we make an estimate of our forfeiture
      rate
      and adjust the expense that we recognize to reflect the estimated number of
      stock options that will go unexercised. Due to our early stage of development
      as
      a newly focused company and our limited workforce of eleven employees as of
      September 30, 2006, including executive officers, we are challenged to develop
      an appropriate estimate of forfeitures. Based on these circumstances we have
      opted for a conservative position in that we are estimating forfeitures to
      be 0%
      at this time. We will continue to assess this position as our company develops
      and our workforce expands. When we feel that we have sufficient data on which
      to
      base an assumption we will adjust the expense recognized, if
      necessary.





As
      of
      September 30, 2006, the total estimated fair value of unvested stock options
      to
      be amortized over their remaining vesting period was $847,099.





Prior
      to
      January 1, 2006, we accounted for our stock-based compensation under the
      recognition and measurement provisions of APB No. 25, and related
      Interpretations, as permitted by SFAS 123, as amended by SFAS No. 148 *“Accounting
      for Stock-Based Compensation - Transition and Disclosure”* .
      No
      stock-based compensation cost was recognized in the Consolidated Statements
      of
      Operations for the three or nine-months period ended September 30, 2005, as
      all
      stock options granted under our stock option plans had an exercise price equal
      to the fair market value of the underlying common stock on the date of
      grant.


-9-





**PRESSURE
      BIOSCIENCES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF SEPTEMBER 30, 2006**




The
      following table illustrates the effect on the net income and the net income
      per
      share for the three and nine months ended September 30, 2005 as if we had
      applied the fair value recognition provisions of SFAS 123 to stock options
      granted under our stock option plans in effect at that time. For purposes of
      this pro forma disclosure, the value of the stock options is estimated using
      the
      Black-Scholes option pricing model and amortized to expense over the stock
      options’ vesting periods:




Three
                  Months Ended
              
              
              Nine
                  Months EndedSeptember
                  30,
                2005
              
              
              September
                  30,
                2005Net
                  income - as reported
              
              $
              2,007,328
              
              $
              875,361Add
                  back: Stock-based compensationin
                  net income, as reported
              
              
              -
              
              
              -Deduct:
                  Stock-based employee compensationexpense
                  determined under fair value based methodfor
                  all awards, net of related tax effects
              
              
              (29,785
              )
              
              (117,293
              )Net
                  income - pro forma
              
              $
              1,977,543
              
              $
              758,068Basic
                  net income per share - as reported
              
              $
              0.83
              
              $
              0.28Basic
                  net income per share - pro forma
              
              $
              0.82
              
              $
              0.24Diluted
                  net income per share - as reported
              
              $
              0.79
              
              $
              0.27Diluted
                  net income per share - pro forma
              
              $
              0.78
              
              $
              0.24





*Correction
      of an Accounting Error*





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





On
      March
      15, 2006, we received $1,094,162 from Wells Fargo Corporate Trust Escrow
      Services, representing the remaining principal held in escrow from the 2004
      sale
      of the assets and certain liabilities of our BBI Core Businesses to SeraCare
      Life Sciences Inc. (“SeraCare”), plus interest from January 1 through February
      28, 2006. The receipt of these funds triggered the recognition of taxable
      income, accounted for as an installment sale for federal income tax purposes.
      During the financial statement closing process for the quarter ended March
      31,
      2006, we determined that a deferred tax liability of approximately $220,000
      should have been established during the quarter ended September 30, 2005, the
      period in which we filed our federal income tax return. Upon reexamining
      accounting for income taxes in its entirety, we further determined that the
      deferred tax liability in connection with the unrealized gain on Panacos
      Pharmaceuticals Inc., should be reduced by approximately $60,000, and that
      the
      income tax provision from continuing operations should be increased by $23,000.
      We also determined that the accounting for deferred tax assets needed to be
      adjusted; however, there would be no impact from this adjustment as deferred
      tax
      assets are fully reserved for.





We
      elected to remedy these errors by restating our Annual Report on Form 10-KSB
      for
      the year ended December 31, 2005 and our Quarterly Report on Form 10-QSB for
      the
      quarter ended September 30, 2005. The December 31, 2005 balance sheet presented
      in this Quarterly Report on Form 10-QSB for the period ended September 30,
      2006,
      reflects the appropriate adjustments to the income tax accounts and to retained
      earnings.





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





-10-








**PRESSURE
      BIOSCIENCES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF SEPTEMBER 30, 2006**





*Accounting
      for Income Taxes*





In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, *“Accounting
      for Uncertainty in Income Taxes”* (“FIN
      48”), which applies to all tax positions accounted for under SFAS
      No. 109. FIN 48 prescribes a recognition threshold and measurement
      attribute for the financial statement recognition and measurement of a tax
      position taken or expected to be taken in a tax return. FIN 48 also provides
      guidance on de-recognition of such tax positions, classification, interest
      and
      penalties, accounting in interim periods and disclosure. FIN 48 is applicable
      to
      the Company as of January 1, 2007. We are in the process of evaluating FIN
      48 and the effect it will have on our financial position and results of
      operations.





**4)**
            **Investment
                in Marketable
                Securities**





As
      of
      September 30, 2006, we held 513,934 shares of common stock of Panacos
      Pharmaceuticals Inc. (“Panacos”), a publicly traded company listed on the NASDAQ
      Global Market. We account for this investment in accordance with SFAS 115 *“Accounting
      for Certain Investments in Debt and Equity Securities”* as
      securities available for sale. On September 30, 2006, our balance sheet
      reflected the fair value of our investment in Panacos to be approximately $2.5
      million, based on the closing price of Panacos shares of $4.96 per share on
      that
      day. The carrying value of our investment in Panacos common stock held will
      change from period to period based on the closing price of the common stock
      of
      Panacos as of the balance sheet date. This change in market value will be
      recorded by us on a quarterly basis as an unrealized gain or loss in
      Comprehensive Income or Loss.




**5)**
            **Discontinued
                Operations**





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




**6)**
            **Assets
                and Liabilities Transferred Under Contractual
                Arrangements**




In
      June
      2004, we completed the sale of substantially all of the assets as well as
      selected liabilities of PBI Source Scientific, Inc. (PBI’s laboratory
      instrumentation division) to Source Scientific, LLC, an entity owned 35% by
      Mr.
      Richard W. Henson, 35% by Mr. Bruce A. Sargeant, and 30% by us. Despite our
      intent to exit the laboratory instrumentation business, we may be viewed as
      having a continuing involvement in the business of Source Scientific, LLC.
      Because of this and other factors, even though the transaction is treated as
      a
      divestiture for legal purposes, we have not recognized the transaction as a
      divestiture for accounting purposes in accordance with SEC SAB Topic 5E, *“Accounting
      for Divestiture of a Subsidiary or Other Business Operation”* . 
      In accordance with SAB Topic 5E, we have recorded the assets and liabilities
      associated with the Source Scientific, LLC operation on our consolidated balance
      sheet as of September 30, 2006 under the captions “Assets transferred under
      contractual arrangements” and “Liabilities transferred under contractual
      arrangements”.




During
      the nine months ended September 30, 2006, Source Scientific, LLC recognized
      net
      income of approximately $46,000. In accordance with SAB Topic 5E we excluded
      this net income from our Consolidated Statement of Operations and made no
      adjustment to the accounts captioned “Assets transferred under contractual
      arrangements” and “Liabilities transferred under contractual arrangements”. SAB
      Topic 5E requires that we recognize the losses of Source Scientific, LLC to
      the
      extent such losses exceed profits in the same fiscal year. In accordance with
      SAB Topic 5E, we will continue this accounting treatment until circumstances
      have changed or until the net assets of the Source Scientific, LLC business
      have
      been written down to zero (or a net liability is recognized in accordance with
      GAAP).





**7)**
            **Related
                Party Transaction**





As
      of
      September 30, 2006, we evaluated the recoverability of the $1,000,000 loan
      receivable from our President, CEO, and a director, Mr. Richard T.
      Schumacher, which is reflected on the accompanying balance sheet in
      stockholders' equity as a loan





-11-





**PRESSURE
      BIOSCIENCES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF SEPTEMBER 30, 2006**




receivable.
      Our evaluation of the recoverability of the loan receivable included an analysis
      of the value of the 479,657 shares of our common stock that are held as
      collateral. This test included a review of the current trading price of our
      common stock. After performing
      the impairment test, we determined that the loan receivable was not impaired.
      We
      will continue to monitor and test the collateral for impairment due in large
      part to the relatively low trading volume of our common stock and recent
      volatility in stock price, ranging from a low of $2.94 per share to a high
      of
      $4.79 per share from January 1, 2006 to September 30, 2006.





**8)**
            **Inventories**





Inventories
      represented are primarily finished Barocycler TM units
      available for sale and those units at various stages of manufacture. As of
      September 30, 2006, finished goods included BarocyclerTM NEP3229 units and PULSETM
Tubes.




As
      of
      September 30, 2006, inventories were comprised as follows:


September
                  30,
              
              
              December
                  31,2006
              
              
              2005Raw
                  materials
              
              $
              9,471
              
              $
              32,188Work-in-process
              
              
              4,388
              
              
              31,565Finished
                  goods
              
              
              31,000
              
              
              21,454Total
              
              $
              44,859
              
              $
              85,207





**9)**
            **Commitments
                and Contingencies**





*Royalty
      Commitments*




In
      1998,
      we acquired all the remaining outstanding common stock of BioSeq, Inc., a
      development-stage company involved with PCT. In accordance with the provisions
      of a technology transfer agreement assumed in the transaction, we are obligated
      to pay a 5% royalty on net sales until March 2016. For purposes of the
      royalty calculation, net sales include the trade revenues related to units
      sold
      or leased as well as PULSETM Tube revenue. The royalty obligation that we accrued
      for the nine months ended September 30, 2006 was approximately
      $8,000.




*Research
      and Development Collaboration*




On
      February 1, 2006, we entered into an agreement with the University of New
      Hampshire (“UNH”) pursuant to which UNH agreed to perform certain research and
      development services for us through December 31, 2006. Subject to the terms
      of
      the agreement, we will pay UNH an aggregate of $157,850 during the term of
      the
      agreement.




*Operating
      Leases*




On
      March
      1, 2006, we entered into a sub-lease agreement with Proteome Systems, Inc.,
      pursuant to which we have agreed to lease approximately 650 sq. feet of
      laboratory space plus 100 sq. feet of office space from Proteome Systems in
      Woburn, Massachusetts. The lease period will expire on December 31, 2006. We
      will pay $2,350 per month for the use of these facilities.





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





*Purchase
      Commitments*





In
      April
      2006, we executed a purchase order with Source Scientific, LLC under which
      we
      agreed to purchase 25 Barocycler NEP3229 units. In connection with this purchase
      order, we submitted a deposit to Source Scientific, LLC for $200,000. In
      accordance with the terms of the agreement, we expect that the units will be
      completed during the fourth quarter of 2006 and the first





-12-


**PRESSURE
      BIOSCIENCES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF SEPTEMBER 30, 2006**





quarter
      of 2007. We will be billed for the complete cost of each unit as it is
      completed, net of the $8,000 deposit per instrument. Finished goods will stay
      at
      Source Scientific, LLC for shipment directly to our customers. As of September
      30, 2006, Source completed and billed us for two of these units. One unit was
      shipped to a customer of ours and we are carrying the other unit as finished
      goods inventory.





**10)**
            **Stockholders’
                Equity**





*Stock
      Buy-back Program*





During
      the quarter ended September 30, 2006 our board of directors approved a stock
      buy-back program pursuant to which we are authorized to use up to $500,000
      of
      our cash resources to purchase shares of the Company’s common stock in the open
      market or in privately negotiated transactions. On September 22, 2006 we
      purchased 106,600 shares of Company common stock from an unaffiliated
      shareholder for approximately $2.88 per share. As of September 30, 2006 these
      shares had not yet been retired therefore they are considered issued but not
      outstanding.





*Stock
      Options*





On
      September 16, 2005, our stockholders approved our 2005 Equity Incentive Plan
      (the “Plan”) pursuant to which an aggregate of 1,000,000 shares of common stock
      were reserved for the issuance upon exercise of stock options or other equity
      awards made under the Plan. Under the Plan, our board of directors has authority
      to grant stock options or other equity awards to employees, officers, directors,
      consultants, and advisors. As of September 30, 2006, there were 666,000 stock
      options granted and outstanding under the 2005 Equity Incentive Plan and 334,000
      shares available for future grants.





We
      also
      have 244,000 stock options outstanding under our 1999 Non-Qualified Plan and
      9,500 stock options outstanding under our 1994 Incentive Stock Option Plan.
      As
      of September 30, 2006, there were 4,800 shares available for future grant under
      the 1999 Non-Qualified Plan. The 1994 Incentive Stock Option Plan has expired;
      therefore, there are no shares available for future grants under this
      plan.





During
      the first nine months of 2006, our board of directors granted stock options
      to
      our employees, officers, and to members of our board of directors. The following
      tables present summarized data relative to our stock option plans:




The
      following tables summarize information concerning options outstanding and
      exercisable as of September 30, 2006:





Stock
                  OptionsWeightedAverage
                  priceShares
              
              
              per
                  shareBalance
                  outstanding, 12/31/2005
              
              
              585,000
              
              $
              2.96Granted
              
              
              356,000
              
              
              3.92Exercised
              
              
              (2,000
              )
              
              2.70Expired
              
              
              (19,500
              )
              
              4.11Forfeited
              
              
              -Balance
                  outstanding, 9/30/2006
              
              
              919,500
              
              $
              3.31


Options
                  Outstanding
              
              Options
                  ExercisableRange
                  of Exercise
                Prices
              
              Weighted
                  Average Remaining Life
              
              Number
                  of Options
              
              Weighted
                  Average Exercise Price
              
              Number
                  of Options
              
              Weighted
                  Average Exercise Price$
              2.50
              
              
              -
              
              $
              2.70
              
              
              5.9
              
              
              159,000
              
              $
              2.64
              
              
              159,000
              
              $
              2.642.71
              
              
              -
              
              
              3.08
              
              
              7.9
              
              
              343,000
              
              
              2.96
              
              
              209,000
              
              
              2.983.09
              
              
              -
              
              
              3.97
              
              
              9.3
              
              
              269,500
              
              
              3.74
              
              
              21,000
              
              
              3.323.98
              
              
              -
              
              
              4.25
              
              
              9.2
              
              
              148,000
              
              
              4.04
              
              
              127,000
              
              
              4.05$
              2.50
              
              
              -
              
              $
              4.25
              
              
              9.4
              
              
              919,500
              
              $
              3.31
              
              
              516,000
              
              $
              3.16





-13-


**ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
      OPERATION**





***SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS***





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





*•*
            *our
                plans and expectations with respect to our pressure cycling technology
                operations;**•*
            *our
                anticipated costs and expenses with respect to our
                business;**•*
            *market
                acceptance and the potential for commercial success of our PCT
                products;**•*
            *the
                sufficiency of our working capital and our belief that we have sufficient
                liquidity to finance operations into 2008;**•*
            *our
                ability to develop future collaborations with partners who generate
                and
                disseminate meaningful and beneficial scientific
                data;**•*
            *the
                expected results of our current and future collaboration
                agreements;**•*
            *our
                ability to sell additional Barocycler instruments to existing and
                future
                collaboration partners;**•*
            *general
                economic conditions; and**•*
            *the
                anticipated future financial performance and business operations
                of our
                company.*





*These
      forward-looking statements are only predictions and involve known and unknown
      risks, uncertainties, and other factors that may cause our actual results,
      levels of activity, performance, or achievements to be materially different
      from
      any future results, levels of activity, performance, or achievements expressed
      or implied by such forward-looking statements. Also, these forward-looking
      statements represent our estimates and assumptions only as of the date of this
      report.  Except as otherwise required by law, we expressly disclaim any
      obligation or undertaking to release publicly any updates or revisions to any
      forward-looking statement contained in the report to reflect any change in
      our
      expectations or any change in events, conditions, or circumstances on which
      any
      of our forward-looking statements are based or to conform to actual
      results.  Factors that could cause or contribute to differences in our
      future financial results include those discussed in the risk factors set forth
      in Item 6 of our Annual Report on Form 10-KSB, as amended, for the year ended
      December 31, 2005, as well as those discussed elsewhere in this report. We
      qualify all of our forward-looking statements by these cautionary
      statements.*





*You
      should read this section in combination with the section entitled Management’s
      Discussion and Analysis of Financial Condition or Plan of Operation for the
      year
      ended December 31, 2005, included in our Annual Report on Form 10-KSB, as
      amended, for the year ended December 31, 2005 and in our Quarterly Report
      on Form 10-QSB for the three and nine months ended September 30,
      2006.*








-14-





***Overview***





Pressure
      BioSciences, Inc. (“PBI”) is an early-stage 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. PBI currently holds 13 US and 5 foreign patents
      covering multiple applications of PCT in the life sciences field, including
      in
      such areas as genomic and proteomic sample preparation, pathogen inactivation,
      the control of enzymes, immunodiagnostics, and protein
      purification.




During
      the first nine months of 2006 we have made important progress in the execution
      of our business plan.  The key priorities for this year include: the
      continued development and public dissemination of third party scientific data
      to
      support market acceptance of our technology, continued development of our
      infrastructure in support of our anticipated future growth, continued addition
      of qualified personnel to our scientific, sales and senior management staff,
      and
      continued diligence towards the management of our financial resources. 
Selected developments that illustrate our progress during the first nine months
      of this year are listed below:





·
            In
                October 2006, we announced the sale of PCT Sample Preparation Systems
                (Barocycler NEP3229 plus PULSE Tubes) to Johns Hopkins University,
                the
                National Institutes of Health (NIH), and a state laboratory in
                Virginia.





·
            In
                September 2006, we announced the appointment of UHY LLP as our independent
                registered accounting firm.





·
            In
                July 2006, we announced that Dermtech International leased a Barocycler
                NEP3229 for a three year period. Dermtech chose to use the PCT SPS
                as the
                primary, front-end extraction method for recovering ribonucleic acid
                (RNA)
                from skin cells harvested via their proprietary Epidermal Genetic
                Information Retrieval (EGIR)
                platform.





·
            In
                June 2006, we sold a Barocycler NEP3229 to the Federal Bureau of
                Investigation (FBI). Prior to its purchase the FBI worked with our
                scientists to evaluate the ability of the PCT SPS to extract DNA
                and RNA
                from bone fragments, blood, hair, and
                skin.





·
            In
                April 2006, we announced important additions to our Senior Management
                Team; including the promotion of Dr. Nathan Lawrence to the newly
                created
                position of Vice President of Marketing & Business Development, the
                hiring of Dr. Alexander V. Lazarev as our Director of Research and
                Development, and the hiring of Mr. Edward H. Myles as our Vice President
                of Finance & CFO. We also announced the hiring of Dr. Edmund Ting as
                our Senior Vice President of
                Engineering.





·
            In
                April 2006, we entered into an agreement with Source Scientific,
                LLC to
                purchase an additional 25 Barocycler NEP3229
                units.





·
            During
                the first quarter of 2006 we sold a total of 57,900 shares of Panacos
                Pharmaceuticals stock for a realized, pre-tax gain of
                $517,938.





·
            On
                March 15, 2006, we received $1,094,162 from Wells Fargo Corporate
                Trust
                Escrow Services, representing the remaining principal held in escrow
                from
                the 2004 sale of the assets and certain liabilities of our BBI Core
                Businesses to SeraCare Life Sciences Inc. (“SeraCare”), plus interest from
                January 1 through February 28,
                2006.





·
            On
                February 1, 2006 we entered into an agreement with the University
                of New
                Hampshire, pursuant to which UNH agreed to perform certain research
                and
                development services for us through December 31, 2006. Subject to
                the
                terms of the agreement, we will pay UNH an aggregate of $157,850
                during
                the term of the agreement.





Our
      pressure cycling technology uses an instrument that is capable of cycling
      pressure between ambient and ultra-high levels at controlled temperatures to
      rapidly and repeatedly control the interactions of biomolecules. PCT utilizes
      our Barocycler instrument and disposable PULSE Tubes (together, the PCT Sample
      Preparation System, or the PCT SPS) to release nucleic acids, proteins, and
      small molecules from plant/animal cells and tissues, as well as other organisms
      that are not easily disrupted by standard chemical and physical methods. Our
      patented and proprietary pressure cycling technology employs a unique approach
      that has the potential for broad applications in a number of established and
      emerging life sciences areas, including:




-15-




*•*
            sample
                preparation for genomic, proteomic, and small molecule
                studies*•*
            control
                of enzymatic actions*•*
            protein
                purification;*•*
            Pathogen
                inactivation;*•*
            immunodiagnostics;*•*
            DNA
                sequencing; and*•*
            food
                safety.





*Near-Term
      Strategy*




Our
      near-term strategy is to market PCT for use in sample preparation in the life
      sciences field, with particular focus in the area of the extraction of nucleic
      acids, proteins, and small molecules from cells and tissues. To this end, we
      have developed scientific collaborations with a number of leading laboratories
      and academic institutions in the United States, which we expect will remain
      ongoing throughout 2006 and 2007. We enter into these collaborations with
      parties that we view to have a high likelihood of purchasing our Barocycler
      instrument and disposable PULSE Tubes. We also pursue collaboration partners
      whose research is synergistic with our plans to expand the use of PCT into
      new
      areas of sample preparation. In both cases, we expect that our collaboration
      partners will generate data that will be publicly disseminated in scientific
      publications and presentations.





Our
      collaboration program was initiated in June 2005 with the intention of placing
      twelve Barocycler NEP3229 units in selected strategic customer sites for trial
      periods of three months or longer. We believe that this program has provided,
      and continues to provide, potential customers with the opportunity to develop
      and collect independent and objective data.  Since the initiation of the
      collaboration program, our instruments have been evaluated by investigators
      in
      approximately twenty independent laboratories.  Some of our collaborations
      have resulted in the withdrawal of the instrument while others have resulted
      in
      extensions of time, expansion of research scope, and the publication of
      favorable third party data. Many programs are still ongoing, and a few
      evaluations have led to the sale or lease of Barocycler instruments.  In
      all cases we have gained valuable knowledge about our technology and various
      aspects of the markets that we are trying to penetrate.  We believe that
      this knowledge will be beneficial to us as we continue to expand our
      collaboration program and our sales and marketing efforts.




During
      the first nine months of 2006, our sales and marketing efforts were focused
      on
      fostering our relationships and providing technical and scientific support
      to
      new and existing collaboration partners. During this period we also participated
      in industry trade shows and meetings to generate new leads, and to expand
      awareness of our company and products within the scientific community, continue
      to learn about competitive technologies, and learn more about the additional
      potential uses of PCT. We expect these efforts to continue throughout 2006
      and
      2007, as our sales and marketing plan calls for participation in several more
      trade shows.




Seven
      of
      our collaborators presented data that they generated with PCT at international,
      national, or regional scientific meetings. The data generated were in the areas
      of genomic and proteomic research. One presentation in particular focused on
      the
      extraction of protein from adipose tissue, an area of laboratory medicine that
      is important in diabetes research, but that has presented a particularly
      difficult sample preparation task for scientists over the years. The
      collaborators indicated in their presentation that they extracted significantly
      more protein using PCT than they had ever extracted using any other current
      extraction method. Another presentation focused on the use of PCT to extract
      nucleic acids and proteins from plants and soil. A third presentation focused
      on
      the use of the PCT SPS to extract important proteins and nucleic acids from
      cancer cells and tissues.





During
      the first nine months of 2006, we focused our engineering research and
      development efforts on two specific areas: improvements in the design of several
      key component parts of our Barocycler instrument, and improvements in the design
      of the disposable PULSE Tubes. The goal of these efforts was to continue to
      improve the performance and capabilities of the NEP3229 bench-top unit, and
      to
      further improve the extraction capability of the PULSE Tube. These efforts
      are
      important to our near-term strategy, as the continued improvement of our product
      line is critical to our commercial success.





We
      have
      focused our applications research and development efforts on a number of
      exciting and potentially large commercial areas, including but not limited
      to:
      the lysis of organelles and other bio-molecules; the extraction of nucleic
      acids
      and proteins from formalin-fixed paraffin-embedded (FFPE) tissues; the
      extraction of proteins from adipose tissue; the modification of PULSE Tubes
      to
      allow for the extraction of bio-molecules from a variety of plant and animal
      samples in sizes that are far below currently acceptable levels; the extraction
      of nucleic acids and proteins from potential bioterrorism agents; the extraction
      of important bio-molecules from microbial samples; and the extraction of
      bio-molecules from cancer tissues.




-16-


*Mid
      and Long-Term Strategy*




Our
      mid
      and long-term strategy includes the continued expansion of PCT in the area
      of
      sample preparation, with particular focus in developing a miniaturized, portable
      Barocycler unit for field use, as well as developing a robust, high speed,
      24/48/96 well instrument for high throughput applications. Our mid and long-term
      strategy also includes research and development efforts in other potentially
      large and exciting markets outside of sample preparation, such as:




·
            the
                inactivation of pathogens in human blood, therapeutics, and
                vaccines;




·
            the
                purification of proteins;




·
            the
                control of enzymatic actions; and




·
            the
                enhancement of*in
                vitro*diagnostics, particularly
                immunodiagnostics.




The
      timing and the manner in which we pursue our mid and long-term strategy depends
      on a number of factors. Specifically, it depends on the level of success that
      we
      realize in pursuit of our near-term strategy in sample preparation. Our pursuit
      of these mid and long-term strategic markets also depends on our view regarding
      the cost and the value of these markets to us, and the level of scale up and
      funding required entering these markets.








-17-




**RESULTS
      OF OPERATIONS**




**THREE
      MONTHS ENDED SEPTEMBER 30, 2006 AND 2005**




*Revenue*




We
      recognized revenue of $92,211 for the three months ended September 30, 2006,
      as
      compared to $11,742 for the three months ended September 30, 2005. This increase
      in revenue represents an important early step in our path to full
      commercialization. The sale of Barocycler NEP3229 units to three high quality
      customers (Johns Hopkins University, the National Institutes of Health and
      a
      state laboratory in Virginia) suggests to us that the data generated by our
      collaboration program is beginning to drive market acceptance of our technology.
      During the same period in 2005 we did not sell any Barocycler instruments,
      while
      revenue was comprised of PULSE Tubes sales and monthly rental revenue on one
      unit. We are still learning the sales cycle associated with our products;
      therefore it is difficult for us to forecast sales for upcoming quarters.
      However we do strongly believe that the data being generated and disseminated
      by
      our collaboration partners is having, and will continue to have, a positive
      effect on the demand for our products.





*Cost
      of PCT Products and Services*




The
      cost
      of PCT products and services was $90,037 for the three months ended September
      30, 2006 compared to $33,966 for the comparable period in 2005. The increase
      in
      the third quarter of 2006 as compared to the same period in 2005 is primarily
      due to increased product sales. Included in the cost of products and services
      are fixed costs associated with maintaining field based personnel to install
      and
      service Barocycler NEP3229 units.




Included
      in the cost of PCT Products and Services for the three months ended September
      30, 2006 is a $2,621 non-cash, stock-based compensation charge recognized in
      accordance with SFAS 123R.





We
      expect
      our fixed costs associated with the field service staff will increase as we
      continue to increase our operations. We do expect, however, that the cost of
      PCT
      products and services will decrease as a percent of sales as we sell more units
      and thereby spread the fixed costs associated with product installation and
      support over a greater revenue base.





*Research
      and Development*




Research
      and development expenditures increased to $324,525 in the third quarter of
      2006
      as compared to $156,529 in the third quarter of 2005. The primary reasons for
      the increase in research and development expenses include the growth of our
      dedicated research and development staff from two full-time employees in the
      third quarter of 2005 to five full-time employees during the third quarter
      of
      2006. This increase in research and development headcount is in support of
      our
      strategy to continue to evaluate and offer new applications of PCT within the
      life sciences sample preparation field. Additionally, with the hiring of Dr.
      Edmund Ting as our Senior Vice President of Engineering in April 2006, we
      expanded our research and development capabilities to include engineering
      expertise.





Included
      in the research and development expense recognized in the second quarter of
      2006
      was a $47,748 non-cash, stock-based compensation charge recognized in accordance
      with SFAS 123R. We expect non-cash, stock-based compensation expense charged
      to
      research and development to increase in future quarters as we continue to hire
      additional scientific personnel.




Consistent
      with our strategy, we plan to continue to add research and development personnel
      to our staff. We believe this additional investment in personnel will allow
      us
      to increase the level of work being performed in our internal labs in addition
      to enhancing the level of support that we can provide to our collaboration
      partners. We also believe that an increased investment in our research and
      development program will have a direct effect on the number of application
      notes
      developed and published by our own researchers and by our collaboration
      partners. We are also investing research and development resources toward the
      continued improvement of the operating performance of our current bench top
      Barocycler, including the re-engineering of several key component parts, as
      well
      as the design and development of additional Barocycler instruments, from small,
      portable units to larger, high throughput, fully automated machines. We feel
      that these scientific and engineering investments will allow us to better
      penetrate and serve our target markets, which we believe will lead to increased
      sales and an expansion of our operating margins on Barocycler instruments and
      PULSE Tubes.




-18-





*Selling
      and Marketing*




Selling
      and marketing expenses increased to $127,419 for the three months ended
      September 30, 2006 from $39,954 for the comparable period in 2005. This increase
      was driven by the shift of all of Dr. Lawrence’s costs from research and
      development to sales and marketing, consistent with his April 2006 promotion
      to
      the newly created position of Vice President of Marketing and Business
      Development. Also contributing to the increase in selling and marketing expense
      during the third quarter of 2006 as compared to 2005 was the increase in the
      number of trade shows that we attended and sponsored.





During
      the third quarter of 2006, we recognized an $11,761 non-cash, stock-based
      compensation charge in accordance with the provisions of SFAS 123R.




We
      expect
      to continue our increased focus on selling and marketing activities for the
      remainder of 2006, and into 2007, in an effort to drive our commercialization
      efforts. Within the next two fiscal quarters we expect to hire at least two
      experienced sales professionals, and one coordinator to support our increasing
      selling and marketing activities.




*General
      and Administrative*




General
      and administrative costs totaled $380,065 for the three months ended September
      30, 2006, as compared to $320,195 for the comparable period in 2005. The
      increase in general and administrative costs was driven by our initiation of
      an
      investor relations program, the hiring of an office manager and the inclusion
      of
      stock-based compensation costs in 2006 results.




General
      and administrative costs for the third quarter of 2006 included $33,681
      non-cash, stock-based compensation charges in accordance with SFAS 123R.





We
      expect
      that general and administrative costs will increase in the fourth quarter of
      2006, and throughout 2007, as we continue to prepare our infrastructure to
      support our planned increase in operations.





*Operating
      Loss from Continuing Operations*




The
      operating loss of the PCT business, from continuing operations was $829,835
      for
      the three months ended September 30, 2006 as compared to an operating loss
      from
      continuing operations of $538,902 for the comparable period in 2005. The
      increase in operating loss from continuing operations was primarily the result
      of increases in activities within all aspects of our business, particularly
      increased costs associated with our increased sales and marketing and research
      and development efforts.





The
      operating loss from continuing operations for the three months ended September
      30, 2006 included $95,811 of non-cash, stock-based compensation charges
      recognized in accordance with SFAS 123R. The same period for 2005 did not
      include any such charges as we adopted the modified prospective approach to
      implementing SFAS 123R on January 1, 2006, and therefore we are not required
      to
      restate prior periods, which did not include any stock-based, compensation
      charges in the financial statements.




We
      plan
      to continue our increasing level of activity in all areas of our business,
      particularly sales and marketing and research and development, for the remainder
      of 2006 and into 2007. Consequently we expect our operating loss from continuing
      operations for 2006, and 2007, to exceed that of 2005.




*Gain
      on Sale of Securities*




In
      the
      three months ended September 30, 2006, we did not sell any shares of Panacos
      Pharmaceuticals, therefore we did not realize any gain. During the same period
      in 2005 we realized gain on securities sold of $2,838,491, from the sale of
      328,986 shares of Panacos Pharmaceuticals common stock.





*Other
      Operating (Charges), net*




The
      non-PCT related activities of PBI Source Scientific, Inc. reflect the
      operating results of Source Scientific, LLC. Source Scientific, LLC generated
      a
      loss of approximately $56,000 during the three months ended September 30, 2006;
      however, we did not reflect any of this loss in our consolidated financial
      statements because Source Scientific, LLC’s net profit during the first and
      second quarter of 2006 exceeds the loss incurred during the third quarter of
      2006. In accordance with the provisions of SEC SAB Topic No. 5E we are required
      to recognize a loss generated from Source Scientific LLC to the extent it
      exceeds net profit in the same fiscal year. For the comparative quarter ended
      September 30, 2005, we recorded an operating charge of $140,648.





-19-


We
      expect
      that Source Scientific LLC will be profitable in the fourth quarter; we
      therefore expect Source Scientific LLC to record a net profit for the year.
      According to the provisions of SAB Topic 5E, this expected net profit will
      not
      be included in our consolidated results. If Source Scientific LLC is
      unsuccessful generating a profit during the forth quarter and the loss exceeds
      the year to date profit of approximately $46,000 than we will record the entire
      net loss for the year.




*Interest
      Income*




Interest
      income totaled $88,190 for the three months ended September 30, 2006 as compared
      to interest income of $62,699 in the prior year period. The increase in interest
      income is due to a higher average cash balance and higher interest rates earned
      on cash and cash equivalents.




*Income
      Taxes*




In
      the
      quarter ended September 30, 2006, we recorded a tax benefit from continuing
      operations of $111,106. During the same period in 2005, we recorded a provision
      for income taxes of $912,671. During 2006 we recorded an income tax benefit
      for
      federal purposes because we have significant tax carrybacks, against which
      we
      can apply our current operating loss. This benefit from federal income taxes
      is
      being partially offset by the provision for additional state tax due to
      Massachusetts from 2004. This additional provision was the result of a
      Massachusetts Department of Revenue Audit, which was concluded during the third
      quarter of 2006.




*Income
      from Discontinued Operations*




For
      the
      three months ended September 30, 2006, the net income from discontinued
      operations was $0, as compared to net loss of $3,340 for the same period in
      2005.





*Gain
      on Sale of Net Assets Related to Discontinued Operations*




For
      the
      three months ended September 30, 2006, there were no sales of assets related
      to
      discontinued operations. For the three months ended September 30, 2005, we
      recorded a benefit of $701,699 for the overpayment of 2004 taxes related to
      the
      sale of net assets to SeraCare Life Sciences in 2004. The impact resulted from
      the utilization of favorable treatments of tax credits, and from the utilization
      of installment sale tax treatment related to sale of assets, and treatment
      of
      our 70% interest in Source Scientific LLC.




*Net
      Loss*




For
      the
      quarter ended September 30, 2006, we realized a net loss $630,539 compared
      to a
      net income of $2,007,328 for the quarter ended September 30, 2005. The shift
      from profitability in 2005 to loss in 2006 is due primarily to the gain from
      the
      sale of Panacos shares of approximately $2.8 million that we realized in the
      third quarter of 2005, we did not sell any Panacos shares during the third
      quarter of 2006. Also contributing to the higher loss in 2006 versus 2005 was
      the increased spending in all functional areas of our business, particularly
      sales and marketing and research and development. We expect to continue our
      operational scale-up for the remainder of the year; therefore we expect to
      realize a net loss for 2006.





**NINE
      MONTHS ENDED SEPTEMBER 30, 2006 AND 2005**




*Revenue*




During
      the nine months ended September 30, 2006 we recognized total revenue of
      $174,409, as compared to $21,984 for the same period in 2005. We believe that
      this increase in revenue represents an important early step in our path to
      full
      commercialization. During the first nine months of 2006 we have sold our
      instruments to several high quality institutions such as Johns Hopkins
      University, the National Institutes of Health, the Federal Bureau of
      Investigation, Dermtech International, and the University of New Hampshire.
      During the same period in 2005 we did not sell any Barocycler instruments,
      while
      revenue was comprised of PULSE Tubes sales and monthly rental revenue on one
      unit. We are still learning the sales cycle associated with our products;
      therefore it is difficult for us to forecast sales for upcoming quarters.
      However we strongly believe that the data being generated and disseminated
      by
      our collaboration partners is having, and will continue to have, a positive
      effect on the demand for our products.




-20-


*Cost
      of PCT Products and Services*




The
      cost
      of PCT products and services was $188,688 for the nine months ended September
      30, 2006 compared to $61,653 for the comparable period in 2005. The increase
      in
      2006 was primarily the result of selling more products during 2006 than 2005.
      Additionally, the cost of products and services includes the increased cost
      of
      field support and deployment costs related to the installation and maintenance
      of Barocycler NEP3229 units.




Included
      in the cost of PCT Products and Services is a $7,335 non-cash, stock-based
      compensation charge recognized in accordance with SFAS 123R.





We
      expect
      to increase the fixed costs associated with the field service staff as we
      continue to increase our operations. We do expect, however, that the cost of
      PCT
      products and services will decrease as a percent of sales as we sell more units
      and thereby spread the fixed costs associated with product installation and
      support over a greater revenue base.




*Research
      and Development*




Research
      and development expenditures increased to $984,844 in the first nine months
      of
      2006 as compared to $374,147 in the same period of 2005. The primary reasons
      for
      the increase in research and development expenses include the growth of our
      dedicated research and development personnel from 2005 to 2006. Additionally,
      with the hiring of Dr. Edmund Ting as our Senior Vice President of Engineering
      we expanded our research and development capabilities to include engineering
      expertise. The overall increase in our applications and engineering related
      research and development investment is in support of our overall strategy to
      continue to evaluate and offer new applications and products for PCT within
      the
      life sciences sample preparation field.




Included
      in the research and development expense recognized during the nine months ending
      September 30, 2006 was $113,363 non-cash, stock-based compensation charges
      in
      accordance with SFAS 123R. We expect non-cash, stock-based compensation expense
      charged to research and development to increase for the remainder of 2006,
      and
      throughout 2007, as we continue to hire additional scientific personnel.





Consistent
      with our strategy, we plan to continue to add research and development personnel
      to our staff. We believe this additional investment in personnel will allow
      us
      to increase the level of work being performed in our internal labs in addition
      to enhancing the level of support that we can provide to our collaboration
      partners. We also believe that an increased investment in our research and
      development program will have a direct effect on the number of application
      notes
      developed and published by our own researchers and by our collaboration
      partners. We are also investing research and development resources toward the
      continued improvement of the operating performance of our current bench top
      Barocycler, including the re-engineering of several key component parts, as
      well
      as the design and development of additional Barocycler instruments, from small,
      portable units to larger, high throughput, fully automated machines. We feel
      that these scientific and engineering investments will allow us to better
      penetrate and serve our target markets, which we believe will lead to increased
      sales and an expansion of our operating margins on Barocycler instruments and
      PULSE Tubes.





*Selling
      and Marketing*




Selling
      and marketing expenses increased to $322,803 for the nine months ended September
      30, 2006 from $93,590 for the comparable period in 2005. This increase was
      driven by an overall increase in selling and marketing activities including;
      the
      April 2006 shift of Dr. Lawrence and all of his costs from research and
      development to sales and marketing, consistent with his promotion to the newly
      created position of Vice President of Marketing & Business Development, an
      increase in the number of trade shows attended and sponsored and the initiation
      of our advertising campaign.





During
      the first nine months of 2006 we recognized $32,259 of non-cash, stock-based
      compensation costs in accordance with SFAS 123R.





We
      expect
      to continue this increased focus on selling and marketing activities for the
      remainder of 2006, and into 2007, in an effort to drive our commercialization
      efforts. Within the next two fiscal quarters we expect to hire at least two
      experienced sales professionals, and one coordinator to support our increasing
      selling and marketing activities.




*General
      and Administrative*




-21-


General
      and administrative costs totaled $1,665,172 for the nine months ended September
      30, 2006, as compared to $1,361,157 for the comparable period in 2005. The
      increase in general and administrative costs is due to the recognition of stock
      option expense and the addition of administrative staff to support our
      increasing operations.




Included
      in our general and administrative costs was a non-cash, stock-based compensation
      charge of $390,263 recognized in accordance with SFAS 123R. Of this amount,
      $313,071 related to charges for options granted to the independent members
      of
      our board of directors in 2006. In accordance with SFAS 123R, options that
      are
      fully vested upon grant, such as options granted to the independent members
      of
      our board of directors, are to be expensed for the entire fair value in the
      period of grant.





We
      expect
      that general and administrative costs will increase in the fourth quarter of
      2006, and throughout 2007, relative the first three quarters of the year as
      we
      continue to develop our infrastructure to support our planned increase in
      operations.




*Operating
      Loss from Continuing Operations*




The
      operating loss of the PCT business from continuing operations was $2,987,098
      for
      the nine months ended September 30, 2006 as compared to operating loss from
      continuing operations of $1,868,563 for the comparable period in 2005. The
      increase in operating loss from continuing operations was the result of
      increases in activities within all aspects of our business, including a
      significant increase in staff and activities within our research and development
      and sales and marketing functions, as well as non-cash stock-based compensation
      charges related to option grants to the independent members of our board of
      directors and employees.




The
      operating loss from continuing operations for the nine months ended September
      30, 2006 included $543,220 of non-cash, stock-based compensation charges
      recognized in accordance with SFAS 123R. The same period for 2005 did not
      include any such charges as we adopted the modified prospective approach to
      implementing SFAS 123R on January 1, 2006, and therefore we are not required
      to
      restate prior periods, which did not include any stock-based compensation
      charges in the financial statements.





We
      plan
      to continue increasing the level of activity in our sales and marketing and
      research and development functions for the remainder of 2006, and throughout
      2007. Consequently we expect our operating loss from continuing operations
      for
      2006, and 2007, to exceed that of 2005.




*Gain
      on Sale of Securities*




In
      the
      nine months ended September 30, 2006, we recorded a gain on the sale of 57,900
      shares of our Panacos Pharmaceuticals shares in accordance with SFAS 115 *“Accounting
      for Certain Investments in Debt and Equity Securities”* as
      securities available for sale. The shares sold in the nine month period
      generated a pre-tax gain of $517,938. During the same period in 2005 we realized
      gain on securities sold of $2,838,491, from the sale of 328,986 shares of
      Panacos Pharmaceuticals common stock.




*Other
      Operating (Charges), net*




The
      non-PCT related activities of PBI Source Scientific, Inc. reflect the
      operating results of Source Scientific, LLC. Source Scientific, LLC generated
      an
      operating profit of $46,000 during the nine months ended September 30, 2006;
      however, we did not reflect any of this profit in our consolidated financial
      statements. In accordance with the provisions of SEC SAB Topic No. 5E we only
      recognize an operating loss generated from Source Scientific LLC to the extent
      it exceeds net profit in the same fiscal year. For the comparative quarter
      ended
      September 30, 2005, we recorded an operating charge of $528,285.





We
      expect
      that Source Scientific LLC will be profitable in the fourth quarter; we
      therefore expect Source Scientific, LLC to record a net profit for the year.
      According to the provisions of SAB Topic 5E, this expected net profit will
      not
      be included in our consolidated results. If Source Scientific, LLC is
      unsuccessful generating a profit during the forth quarter and the loss exceeds
      the year to date profit of approximately $46,000 than we will record this entire
      net loss for the year.





*Interest
      Income*




Interest
      income totaled $305,982 for the nine months ended September 30, 2006 as compared
      to interest income of $187,559 in the prior year period. The increase in
      interest income in 2006 as compared to 2005 is primarily due to higher average
      cash balances and higher interest rates earned on cash and cash
      equivalents.




*Income
      Taxes*




-22-


In
      the
      nine months ended September 30, 2006, we recorded a tax benefit from continuing
      operations of $408,344. During the same period in 2005, we recorded a tax
      provision of $457,535. During 2006 we recorded an income tax benefit for federal
      purposes because we have significant tax carrybacks, against which we can apply
      our current operating loss. This benefit from federal income taxes is being
      partially offset by the provision for additional state tax due to Massachusetts
      from 2004. This additional provision was the result of a Massachusetts
      Department of Revenue Audit, which was concluded during the third quarter of
      2006. Our effective benefit rate is also adversely effected by the
      non-deductibility of more than $180,000 of non-cash, stock-based compensation
      expense associated with SFAS 123R. We expect the benefit rate for the entire
      year to approximate that which is reflected in the nine months ended September
      30, 2006.




*Income
      from Discontinued Operations*




For
      the
      nine months ended September 30, 2006, the net income from discontinued
      operations was $0, as compared to net income of $1,995 for the same period
      in
      2005.




*Gain
      on Sale of Net Assets Related to Discontinued Operations*




For
      the
      nine months ended September 30, 2006, there were no sales of assets related
      to
      discontinued operations. For the nine months ended September 30, 2005, we
      recorded a benefit of $701,699 for the overpayment of 2004 taxes related to
      the
      sale of net assets in 2004. The impact resulted from the utilization of
      favorable treatments of tax credits, utilization of installment sale tax
      treatment related to sale of assets, and treatment of our 70% interest in Source
      Scientific LLC.





*Net
      Loss*




For
      the
      nine months ended September 30, 2006, we realized a net loss $1,754,834 compared
      to a net income of $875,361 for the nine months ended September 30, 2005. The
      shift from profitability in 2005 to loss in 2006 is due primarily to the gain
      from the sale of Panacos shares of approximately $2.8 million that we realized
      in the third quarter of 2005, as compared to the $517,938 gain that we realized
      in 2006. Also contributing to the higher loss in 2006 versus 2005 was the
      increased spending in all functional areas of our business, particularly sales
      and marketing and research and development. We expect to continue our
      operational scale-up for the remainder of the year; therefore we expect to
      realize a net loss for 2006.




**LIQUIDITY
      AND FINANCIAL CONDITION**




As
      of September 30, 2006, our working capital position was $6,353,424, the primary
      components of which were cash and cash equivalents, income taxes receivable,
      and
      prepaid expenses and deposits, partially offset by accounts payable, accrued
      employee compensation, other accrued expenses, and accrued income taxes. As
      of
      December 31, 2005, our working capital balance was $7,740,736, the primary
      components of which were cash and cash equivalents, escrow deposits and income
      taxes receivable. This decrease in working capital of $1,387,312 was primarily
      a
      result of the use of cash to fund our operations for the first nine months
      of
      2006 and the repurchase of 106,600 shares of our common stock pursuant to our
      stock buy-back program. These expenditures were partially offset by the proceeds
      generated from the sale of Panacos shares, interest income earned during the
      period and the receipt of the remaining escrow funds from SeraCare Life
      Sciences. We expect our working capital position to decline as we fund our
      operations from our cash and cash equivalents. We believe that we have
      sufficient working capital to fund our operations at their current level, and
      with planned increases in many areas of our business, into 2008. The extent
      to
      which we increase our operational costs is dependent upon our view of the
      investment required to successfully commercialize PCT.




Net
      cash
      used in continuing operations for the nine months ended September 30, 2006
      was
      $1,862,409 as compared to net cash used in continuing operations of $2,321,346
      for the nine months ended September 30, 2005. The cash used in operations for
      the nine months ended September 30, 2006 included our net loss, an increase
      in
      income taxes receivable, prepaid income taxes, and prepaids and deposits,
      partially offset by an increase in other accrued expenses and income taxes
      payable.




Net
      cash
      provided by investing activities for the nine months ended September 30, 2006
      was $484,366 as compared to cash generated of $2,776,512 for the same period
      in
      the prior year. The cash generated in the first nine months of 2006 was entirely
      from the sale of 57,900 shares of Panacos common stock, partially offset by
      minimal purchases of fixed assets. The cash generated in the same period in
      2005
      was entirely from the sale of 328,986 shares of Panacos common stock, also
      partially offset by purchases of fixed assets. We will continue to monitor
      the
      market price of Panacos common stock with the intent of liquidating our position
      at what we consider to be favorable terms. We expect that our investment in
      fixed assets will increase in future quarters as we continue to increase our
      staff and operating facilities.




-23-


Net
      cash
      used in financing activities for the nine months ended September 30, 2006 was
      $303,740, primarily relating to the use of approximately $308,000 to purchase
      106,600 shares of our common stock from an unaffiliated shareholder for $2.88
      per share, partially offset by proceeds generated by the exercise of 2,000
      stock
      options. The stock purchase from the unaffiliated shareholder was made pursuant
      to the approval by our board of directors in September 2006, in which our board
      of directors authorized us to repurchase up to $500,000 of our shares of common
      stock in the open market or in privately negotiated transactions. During the
      first nine months of 2005 we used cash in financing activities of $16,437,342,
      primarily related to the February 2005 issuer tender offer in which we purchased
      from stockholders an aggregate of 5,203,001 shares of our common
      stock.




**RELATED
      PARTY TRANSACTION**




As
      of
      September 30, 2006, we evaluated the recoverability of the $1,000,000 loan
      receivable from Mr. Schumacher, which is reflected on the balance sheet in
      stockholders' equity as a loan receivable. Our evaluation of the recoverability
      of the loan receivable included an analysis of the value of the 479,657 shares
      of our common stock that are held as collateral. This test included a review
      of
      the current trading price of our common stock. After performing the impairment
      test, we determined that the loan receivable was not impaired. We will continue
      to monitor and test the collateral for impairment due in large part to the
      relatively low trading volume of our common stock and recent volatility in
      stock
      price, ranging from a low of $2.94 per share to a high of $4.79 per share from
      January 1, 2006 to September 30, 2006.





**COMMITMENTS
      AND CONTINGENCIES**




*Royalty
      Commitments*




In
      1998,
      we acquired all the remaining common stock outstanding of BioSeq Inc., a
      development stage company involved with PCT. In accordance with the provisions
      of a technology transfer agreement assumed in the transaction, we are obligated
      to pay a 5% royalty on net sales until March 2016. For purposes of the
      royalty calculation, net sales include the trade revenues related to units
      sold
      or leased as well as PULSE Tube revenues. The royalty obligation that we accrued
      for the first nine months of 2006 was approximately $8,000.




*Research
      and Development Collaboration*




On
      February 1, 2006, we entered into an agreement with the University of New
      Hampshire, pursuant to which UNH agreed to perform certain research and
      development services for us through December 31, 2006. Subject to the terms
      of
      the agreement, we will pay UNH an aggregate of $157,850 for the services they
      provide.




*Operating
      Leases*





On
      March
      1, 2006, we entered into a sub-lease agreement with Proteome Systems, Inc.,
      pursuant to which we have agreed to lease approximately 650 sq. feet of
      laboratory space plus 100 sq. feet of office space from Proteome Systems in
      Woburn, Massachusetts. The lease period will expire on December 31, 2006. We
      will pay $2,350 per month for the use of these facilities.





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





*Purchase
      Commitments*




In
      April
      2006, we executed a purchase order with Source Scientific, LLC under which
      we
      agreed to purchase 25 Barocycler NEP3229 units. In connection with this purchase
      order, we submitted a deposit to Source Scientific, LLC for $200,000. In
      accordance with the terms of the agreement, we expect that the units will be
      completed during the fourth quarter of this year, and the first quarter of
      next
      year. As of September 30, 2006 we were billed for two units, one was shipped
      directly to a customer as a sale and one is being held for future sale and
      is
      classified as finished goods inventory.




**CRITICAL
      ACCOUNTING POLICIES**





The
      critical accounting policies we utilized in the preparation of the accompanying
      interim financial statements are set forth in Part II, Item 6 of our Annual
      Report on Form 10-KSB/A for the year ended December 31, 2005, under the heading
      "Management's Discussion and Analysis of Financial Condition or Plan of
      Operation”. Additionally, we have adopted the following:




-24-


*Correction
      of an Accounting Error*





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




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




We
      elected to remedy these errors by restating our Annual Report on Form 10-KSB,
      for the year ended December 31, 2005 and our Quarterly Report on Form 10-QSB
      for
      the quarter ended September 30, 2005. The December 31, 2005 balance sheet
      presented in this Quarterly Report on Form 10-QSB for the quarter ended
      September 30, 2006 reflects the appropriate adjustments to the income tax
      accounts and to retained earnings.





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





*Accounting
      for Income Taxes*





In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, *“Accounting
      for Uncertainty in Income Taxes”* (“FIN
      48”), which applies to all tax positions accounted for under SFAS
      No. 109. FIN 48 prescribes a recognition threshold and measurement
      attribute for the financial statement recognition and measurement of a tax
      position taken or expected to be taken in a tax return. FIN 48 also provides
      guidance on de-recognition of such tax positions, classification, interest
      and
      penalties, accounting in interim periods and disclosure. FIN 48 is applicable
      to
      the Company as of January 1, 2007. We are in the process of evaluating FIN
      48 and the effect it will have on our financial position and results of
      operations.





**ITEM
      3. CONTROLS AND PROCEDURES**




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




As
      of
      September 30, 2006, we carried out an evaluation, under the supervision and
      with
      the participation of our management, including our President and Chief Executive
      Officer (Principal Executive Officer) and Chief Financial Officer (Principal
      Financial Officer) of the effectiveness of the design and operation of our
      disclosure controls and procedures, as defined in Rules 13a-15(e) and
      15d-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation,
      our President and Chief Executive Officer (Principal Executive Officer) and
      Chief Financial Officer (Principal Financial Officer) concluded that our
      disclosure controls and procedures are effective in enabling us to record,
      process, summarize and report information required to be included in our
      periodic SEC filings within the required time period.





There
      have been no changes in our internal control over financial reporting that
      occurred during the period covered by this Report that have materially affected,
      or are reasonably likely to materially affect, our internal control over
      financial reporting.





-25-





**PART
      II. OTHER INFORMATION**





**ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS**





**Period**
            **(a)
                Total Number of Shares (or Units) Purchased**
            **(b)
                Average Price Paid per Share (or Unit)**
            **(c)
                Total Number of Shares (or Units) Purchased as Part of Publicly Announced
                Plans or Programs**
            **(d)
                Maximum Number (or Approximate Dollar Value) of Shares (or Units)
                that May
                Yet Be Purchased Under the Plans or Programs**September
                22, 2006 (1)
            106,600
            $2.88
            106,600
            $192,000





(1) **** On
      September 25, 2006, we announced that our board of directors authorized us
      to
      repurchase up to $500,000 of our outstanding common stock in open market or
      in
      privately negotiated transactions. The timing and amount of share repurchases,
      if any, will depend on a number of factors, including market and business
      conditions. The repurchases may be commenced or suspended at any time without
      prior notice and without further announcement. On September 22, 2006, pursuant
      to this authorization, we purchased 106,600 shares of our common stock at $2.88
      per share from Kyowa Medex Company Ltd., the Japanese distributor of our legacy
      business.




**ITEM
      6. EXHIBITS**




**Exhibits**
            
            **Reference**31.1
            Principal
                Executive Officer Certification Pursuant to Item 601(b)(31) of Regulation
                S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
                of
                2002
            
            Filed
                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





-26-





**SIGNATURES**




In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned thereunto duly
      authorized.




**PRESSURE
                BIOSCIENCE, INC.**Date: November
                13, 2006
            By:
            /s/ Richard
                T. SchumacherRichard
                T. Schumacher
              President,
                Chief Executive Officer & Treasurer
              (Principal
                Executive Officer)




By:
            /s/ Edward
                H. MylesEdward
                H. Myles
              Vice
                President of Finance & Chief Financial Officer
              (Principal
                Financial and Accounting Officer)






-27-