**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 June 30, 2005  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 asSpecified in its Charter)

 
| **Massachusetts**                        |   | **04-2652826**      |
|------------------------------------------|--------|---------------------|
| (State or Other Jurisdiction of          |   | (I.R.S. Employer    |
| Incorporation 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

 

Checkwhether the Issuer: (1) has filed all reports required to be filed by Section13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

 

ý Yes     o No

 

The number ofshares outstanding of the Issuer’s common stock as of June 30, 2005 was 2,424,189.

 

Transitional Small Business Disclosure Format (check one):

 

o Yes     ý No

 

 

----

 

TABLEOF CONTENTS

 
| PART I                                   |                                                                                                                                                         | 3      |
|------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                     |                                                                                                                                                         |   |
| Item 1.  Financial  Statements | 3                                                                                                                                                            |
|                                     | Condensed Consolidated Balance Sheets as of June 30, 2005 (unaudited) and as of December 31, 2004                                                            | 3      |
|                                     |                                                                                                                                                         |   |
|                                     | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months and Six Months Ended June 30, 2005 and 2004 (Unaudited) | 4      |
|                                     |                                                                                                                                                         |   |
|                                     | Condensed Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2005 and 2004 (Unaudited)                                                  | 6      |
|                                     |                                                                                                                                                         |   |
|                                     | Notes to Condensed Consolidated Financial Statements as of June 30, 2005 (Unaudited)                                                                         | 7      |
|                                     |                                                                                                                                                         |   |
| Item 2.                                  | Management’s Discussion and  Analysis or Plan of Operation                                                                                              | 16     |
|                                     |                                                                                                                                                         |   |
| Item 3.                                  | Controls and Procedures                                                                                                                                      | 27     |
|                                     |                                                                                                                                                         |   |
| PART II                                  |                                                                                                                                                         | 27     |
|                                     |                                                                                                                                                         |   |
| Item 1.                                  | Legal Proceedings                                                                                                                                            | 27     |
|                                     |                                                                                                                                                         |   |
| Item 2.                                  | Unregistered Sales of Equity  Securities and Use of Proceeds                                                                                                 | 27     |
|                                     |                                                                                                                                                         |   |
| Item 3.                                  | Defaults Upon Senior  Securities                                                                                                                             | 27     |
|                                     |                                                                                                                                                         |   |
| Item 4.                                  | Submission of Matters to a  Vote of Security Holders                                                                                                         | 27     |
|                                     |                                                                                                                                                         |   |
| Item 5.                                  | Other Information                                                                                                                                            | 28     |
|                                     |                                                                                                                                                         |   |
| Item 6.                                  | Exhibits                                                                                                                                                     | 28     |

 

2

----

 

**Part I. Financial Information**

 

**Item 1. Financial Statements**

** **

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

**(FORMERLY BOSTON BIOMEDICA, INC. AND SUBSIDIARIES)**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

** **
| ** **                                                                                                                | ** ** | **June 30,**    | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|-----------------|------------|------------------|------------|
| ** **                                                                                                                | ** ** | **2005**        | ** ** | **2004**         | ** ** |
| ** **                                                                                                                | ** ** | **(unaudited)** | ** ** | ** **       | ** ** |
| ASSETS                                                                                                                    |       |            |       |             |       |
| CURRENT ASSETS:                                                                                                           |       |            |       |             |       |
| Cash and cash equivalents                                                                                                 |       | $               | 4,177,269  |             | $          | 21,201,790 |   |
| Restricted cash                                                                                                           |       | 45,580          |       | 29,816           |       |
| Accounts receivable, less allowances of  $121,087 and $205,000                                                            |       | 7,775           |       | 213,532          |       |
| Inventories (net)                                                                                                         |       | 298,963         |       | 157,817          |       |
| Investments in marketable securities                                                                                      |       | 1,762           |       | 3,553            |       |
| Escrow deposit related to sale of assets to  SeraCare                                                                     |       | 1,101,049       |       | —           |       |
| Deferred costs                                                                                                            |       | —          |       | 131,078          |       |
| Prepaid expenses and other current assets                                                                                 |       | 4,977           |       | 29,950           |       |
| Total current assets                                                                                                      |       | 5,637,376       |       | 21,767,536       |       |
|                                                                                                                      |       |            |       |             |       |
| Property and equipment, net                                                                                               |       | 42,983          |       | 19,793           |       |
|                                                                                                                      |       |            |       |             |       |
| OTHER ASSETS:                                                                                                             |       |            |       |             |       |
| Intangible assets, net                                                                                                    |       | 449,870         |       | 474,188          |       |
| Assets transferred under contractual  arrangements                                                                        |       | 1,278,304       |       | 1,319,997        |       |
| Escrow deposit related to sale of assets to  SeraCare                                                                     |       | —          |       | 1,096,756        |       |
| Income tax receivable                                                                                                     |       | 452,725         |       | —           |       |
| Investments in marketable securities  available for sale                                                                  |       | 5,469,768       |       | 9,178            |       |
| Total other assets                                                                                                        |       | 7,650,667       |       | 2,900,119        |       |
|                                                                                                                      |       |            |       |             |       |
| TOTAL ASSETS                                                                                                              |       | $               | 13,331,026 |             | $          | 24,687,448 |   |
|                                                                                                                      |       |            |       |             |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                 |       |            |       |             |       |
|                                                                                                                      |       |            |       |             |       |
| CURRENT LIABILITIES:                                                                                                      |       |            |       |             |       |
| Accounts payable                                                                                                          |       | $               | 167,215    |             | $          | 41,272 |   |
| Accrued employee compensation                                                                                             |       | 490,149         |       | 86,525           |       |
| Accrued legal / audit                                                                                                     |       | 10,000          |       | 91,960           |       |
| Accrued SeraCare liabilities                                                                                              |       | 104,922         |       | 46,259           |       |
| Other accrued expenses                                                                                                    |       | 99,432          |       | 213,078          |       |
| Income taxes payable                                                                                                      |       | 175,011         |       | 175,011          |       |
| Liabilities from discontinued operations                                                                                  |       | 55,697          |       | 108,049          |       |
| Total current liabilities                                                                                                 |       | 1,102,426       |       | 762,154          |       |
|                                                                                                                      |       |            |       |             |       |
| LONG TERM LIABILITIES                                                                                                     |       |            |       |             |       |
| Liabilities from discontinued operations                                                                                  |       | 34,000          |       | 34,000           |       |
| Deferred tax liability                                                                                                    |       | 1,963,748       |       | —           |       |
| Liabilities transferred under contractual  arrangements                                                                   |       | 817,817         |       | 499,148          |       |
| Total Long Term Liabilities                                                                                               |       | 2,815,565       |       | 533,148          |       |
|                                                                                                                      |       |            |       |             |       |
| Total Liabilities                                                                                                         |       | 3,917,991       |       | 1,295,302        |       |
|                                                                                                                      |       |            |       |             |       |
| COMMITMENTS AND CONTINGENCIES                                                                                             |       |            |       |             |       |
|                                                                                                                      |       |            |       |             |       |
| STOCKHOLDERS’ EQUITY:                                                                                                |       |            |       |             |       |
| Common stock, $.01 par value; 20,000,000  shares authorized, 2,424,189 and 6,872,915 issued and outstanding  respectively |       | 24,242          |       | 68,729           |       |
| Additional paid-in capital                                                                                                |       | 6,027,020       |       | 22,286,395       |       |
| Loan receivable and accrued interest from  Director / CEO                                                                 |       | (1,174,382      | )          | (1,134,262       | )          |
| Accumulated other comprehensive income                                                                                    |       | 3,496,842       |       | —           |       |
| Retained earnings                                                                                                         |       | 1,039,313       |       | 2,171,284        |       |
|                                                                                                                      |       |            |       |             |       |
| Total stockholders’ equity                                                                                           |       | 9,413,035       |       | 23,392,146       |       |
|                                                                                                                      |       |            |       |             |       |
| TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY                                                                         |       | $               | 13,331,026 |             | $          | 24,687,448 |   |

 

The accompanying notes are an integral part ofthese condensed consolidated financial statements

 

3

----

 

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

**(FORMERLY BOSTON BIOMEDICA, INC. AND SUBSIDIARIES)**

**CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS**

**(UNAUDITED)**

 
| ** **                                                                                                                                                                                                                       | ** ** | **For the three months ended** | ** ** | **For the six months ended** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                                                                                                       | ** ** | **June 30**                    | ** ** | **June 30**                  | ** ** |
| ** **                                                                                                                                                                                                                       | ** ** | **2005**                       | ** ** | **2004**                     | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                                                                                                                                                             |       |                           |       |                         |       |   |   |   |   |
| REVENUE:                                                                                                                                                                                                                         |       |                           |       |                         |       |   |   |   |   |
| Grant Revenues                                                                                                                                                                                                                   |       | $                              | —     |                         | $          | 102,375 |   | $ | — |   | $ | 225,536 |   |
| PCT Products, services, other                                                                                                                                                                                                    |       | 7,612                          |       | 5,540                        |       | 10,242 |   | 10,556 |   |
| Total revenue                                                                                                                                                                                                                    |       | 7,612                          |       | 107,915                      |       | 10,242 |   | 236,092 |   |
|                                                                                                                                                                                                                             |       |                           |       |                         |       |   |   |   |   |
| COSTS AND EXPENSES:                                                                                                                                                                                                              |       |                           |       |                         |       |   |   |   |   |
| Cost of PCT products & services                                                                                                                                                                                              |       | 21,166                         |       | 17,279                       |       | 27,687 |   | 35,019 |   |
| Research and development                                                                                                                                                                                                         |       | 114,591                        |       | 177,975                      |       | 217,618 |   | 432,771 |   |
| Selling and marketing                                                                                                                                                                                                            |       | 38,376                         |       | 41,646                       |       | 53,636 |   | 125,880 |   |
| General and administrative                                                                                                                                                                                                       |       | 723,102                        |       | 279,620                      |       | 1,031,990 |   | 622,000 |   |
| Total operating costs and expenses                                                                                                                                                                                               |       | 897,235                        |       | 516,520                      |       | 1,330,931 |   | 1,215,670 |   |
|                                                                                                                                                                                                                             |       |                           |       |                         |       |   |   |   |   |
| Operating loss from continuing operations                                                                                                                                                                                        |       | (889,623                       | )          | (408,605                     | )          | (1,320,689 | ) | (979,578 | ) |
|                                                                                                                                                                                                                             |       |                           |       |                         |       |   |   |   |   |
| Other operating charges, net                                                                                                                                                                                                     |       | (152,285                       | )          | (215,429                     | )          | (387,637 | ) | (302,996 | ) |
| Interest income                                                                                                                                                                                                                  |       | 36,956                         |       | 1,548                        |       | 115,888 |   | 3,538 |   |
| Interest expense                                                                                                                                                                                                                 |       | —                         |       | (43,155                      | )          | — |   | (50,970 | ) |
|                                                                                                                                                                                                                             |       |                           |       |                         |       |   |   |   |   |
| Loss from continuing operations before  income taxes                                                                                                                                                                             |       | (1,004,952                     | )          | (665,641                     | )          | (1,592,438 | ) | (1,330,006 | ) |
|                                                                                                                                                                                                                             |       |                           |       |                         |       |   |   |   |   |
| Income tax benefit                                                                                                                                                                                                               |       | 255,390                        |       | 79,282                       |       | 455,136 |   | 244,036 |   |
|                                                                                                                                                                                                                             |       |                           |       |                         |       |   |   |   |   |
| Loss from continuing operations                                                                                                                                                                                                  |       | (749,562                       | )          | (586,359                     | )          | (1,137,302 | ) | (1,085,970 | ) |
|                                                                                                                                                                                                                             |       |                           |       |                         |       |   |   |   |   |
| Discontinued operations:                                                                                                                                                                                                         |       |                           |       |                         |       |   |   |   |   |
| Income from discontinued operations (net of  income tax benefit of $0 and $2,411 for the three and six months ended in  2005 and and provision of $79,281 and $165,854 respectively for the three and  six months ended in 2004) |       | 656                            |       | 237,283                      |       | 5,335 |   | 581,159 |   |
|                                                                                                                                                                                                                             |       |                           |       |                         |       |   |   |   |   |
| Net loss                                                                                                                                                                                                                         |       | $                              | (748,906   | )                            | $          | (349,076 | ) | $ | (1,131,967 | ) | $ | (504,811 | ) |
|                                                                                                                                                                                                                             |       |                           |       |                         |       |   |   |   |   |
| Loss per share from continuing operations  basic & diluted                                                                                                                                                                   |       | $                              | (0.31      | )                            | $          | (0.09 | ) | $ | (0.32 | ) | $ | (0.16 | ) |
| Income per share from discontinued  operations, basic & diluted                                                                                                                                                              |       | $                              | 0.00       |                         | $          | 0.04 |   | $ | 0.00 |   | $ | 0.09 |   |
|                                                                                                                                                                                                                             |       |                           |       |                         |       |   |   |   |   |
| Net loss per share, basic & diluted                                                                                                                                                                                          |       | $                              | (0.31      | )                            | $          | (0.05 | ) | $ | (0.32 | ) | $ | (0.07 | ) |
|                                                                                                                                                                                                                             |       |                           |       |                         |       |   |   |   |   |
| Weighted average number of shares used to  calculate per share (loss) / income                                                                                                                                                   |       | 2,424,189                      |       | 6,844,090                    |       | 3,530,226 |   | 6,836,337 |   |

 

The accompanying notes are an integral part ofthese condensed consolidated financial statements

 

4

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

**(FORMERLY BOSTON BIOMEDICA, INC. AND SUBSIDIARIES)**

**CONDENSED CONSOLIDATED STATEMENTS OFCOMPREHENSIVE INCOME / (LOSS)**

** **

**(UNAUDITED**)

 
| ** **                                                       | ** ** | **For the three months ended** | ** ** | **For the six months ended** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------|------------|------------------------------|------------|
| ** **                                                       | ** ** | **June 30,**                   | ** ** | **June 30,**                 | ** ** |
| ** **                                                       | ** ** | **2005**                       | ** ** | **2004**                     | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                             |       |                           |       |                         |       |   |   |   |   |
| Other Comprehensive Income:                                      |       |                           |       |                         |       |   |   |   |   |
|                                                             |       |                           |       |                         |       |   |   |   |   |
| Net loss                                                         |       | $                              | (748,906   | )                            | $          | (349,076 | ) | $ | (1,131,967 | ) | $ | (504,811 | ) |
|                                                             |       |                           |       |                         |       |   |   |   |   |
| Unrealized gain on marketable securities  during the period      |       | 2,410,750                      |       | —                       |       | 5,460,590 |   | — |   |
|                                                             |       |                           |       |                         |       |   |   |   |   |
| Less: Income tax related to items of other  comprehensive income |       | (1,012,515                     | )          | —                       |       | (1,963,748 | ) | — |   |
|                                                             |       |                           |       |                         |       |   |   |   |   |
| Total other comprehensive income, net of  taxes                  |       | 1,398,235                      |       | —                       |       | 3,496,842 |   | — |   |
|                                                             |       |                           |       |                         |       |   |   |   |   |
| Comprehensive income / (loss)                                    |       | $                              | 649,329    |                         | $          | (349,076 | ) | $ | 2,364,875 |   | $ | (504,811 | ) |
|                                                                  |            |                                |            |                              |            |  |  |  |  |  |  |  |  |  |

 

The accompanying notes are an integral part ofthese condensed consolidated financial statements

 

5

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**PR****ESSURE BIOSCIENCES, INC., AND SUBSIDIARIES**

**(FORMERLY BOSTON BIOMEDICA INC. AND SUBSIDIARIES)**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

 
| ** **                                                                                           | ** ** | **For the six months ended** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                                           | ** ** | **June 30 ,**                | ** ** |
| ** **                                                                                           | ** ** | **2005**                     | ** ** | **2004** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                                |       |                         |       |   |   |
| Net loss                                                                                             |       | $                            | (1,131,967 | ) | $ | (504,811 | ) |
| Less income from discontinued operations                                                             |       | 5,335                        |       | 581,159 |   |
| Loss from continuing operations                                                                      |       | (1,137,302                   | )          | (1,085,970 | ) |
|                                                                                                 |       |                         |       |   |   |
| Adjustments to reconcile loss from  continuing operations to net cash used in operating activities : |       |                         |       |   |   |
|                                                                                                 |       |                         |       |   |   |
| Depreciation and amortization                                                                        |       | 39,274                       |       | 76,803 |   |
| Provision for doubtful accounts                                                                      |       | —                       |       | 250 |   |
| Interest accrued on loan outstanding from  Director / CEO                                            |       | (40,121                      | )          | — |   |
|                                                                                                 |       |                         |       |   |   |
| Changes in operating assets and liabilities:                                                         |       |                         |       |   |   |
| Accounts receivable                                                                                  |       | 205,757                      |       | (3,789 | ) |
| Inventories                                                                                          |       | (141,146                     | )          | 16,239 |   |
| Investments in marketable securities                                                                 |       | 1,791                        |       | 244 |   |
| Deferred costs, prepaid expenses and other  current assets                                           |       | 156,049                      |       | 52,587 |   |
| Assets and liabilities transferred under  contractual obligations, (net)                             |       | 360,363                      |       | (38,709 | ) |
| Income tax receivable                                                                                |       | (452,725                     | )          | — |   |
| Deferred tax liability                                                                               |       | —                       |       | (100,366 | ) |
| Accounts payable                                                                                     |       | 135,943                      |       | 125,975 |   |
| Accrued employee compensation                                                                        |       | 436,182                      |       | 37,517 |   |
| Other accrued expenses                                                                               |       | (179,501                     | )          | 73,119 |   |
| Deferred Revenue & other current  liabilities                                                    |       | —                       |       | 2,700 |   |
| Deposits and deferred costs                                                                          |       | (4,292                       | )          | — |   |
| Net cash used in operating activities                                                                |       | (619,728                     | )          | (843,400 | ) |
|                                                                                                 |       |                         |       |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                                |       |                         |       |   |   |
| Payments for additions to property and  equipment                                                    |       | (38,147                      | )          | — |   |
| Net cash used in investing activities                                                                |       | (38,147                      | )          | — |   |
|                                                                                                 |       |                         |       |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                                |       |                         |       |   |   |
| Proceeds from issuance of common stock                                                               |       | —                       |       | 64,333 |   |
| Use of funds in repurchase of common stock                                                           |       | (16,303,862                  | )          | — |   |
| Pledge of restricted cash as security for  loan from bank to Director / CEO                          |       | —                       |       | 1,000,000 |   |
| Conversion of pledge of restricted cash as  security for loan from Director / CEO                    |       | —                       |       | (1,000,000 | ) |
| Restricted cash payable to Seracare                                                                  |       | (15,764                      | )          | — |   |
| Deferred costs                                                                                       |       | —                       |       | (517,267 | ) |
| Borrowings from line of credit                                                                       |       | —                       |       | 523,897 |   |
| Restricted cash - line of credit                                                                     |       | —                       |       | (33,050 | ) |
| Net cash (used in) provided by financing  activities                                                 |       | (16,319,626                  | )          | 37,913 |   |
| DECREASE IN CASH AND CASH EQUIVALENTS:                                                               |       | (16,977,501                  | )          | (805,487 | ) |
| Change in cash and cash equivalents (used  in) / provided by discontinued operations                 |       | (47,019                      | )          | 244,286 |   |
| Cash and cash equivalents, beginning of  period                                                      |       | 21,201,790                   |       | 967,185 |   |
| Cash and cash equivalents, end of period                                                             |       | $                            | 4,177,269  |   | $ | 405,984 |   |
|                                                                                                      |            |                              |            |  |  |  |  |  |

 

The accompanying notes are an integral part ofthese condensed consolidated financial statements

 

6

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**1)            Basis of Presentation and Summaryof Significant Accounting Policies**

 

*Overview*

 

The accompanyingunaudited condensed consolidated financial statements include the accounts ofPressure BioSciences Inc. (formerly Boston Biomedica Inc. andreferred to herein as the “Company”, “Pressure BioSciences” or “PBI”), and itswholly-owned subsidiaries, PBI Biotech Research Laboratories, Inc.(formerly known as BBI Biotech Research Laboratories, Inc. and referred toherein as “PBI Biotech” or “BBI Biotech”), PBI Source Scientific, Inc.(formerly known as BBI Source Scientific, Inc. and referred to herein as “PBISource” or “BBI Source”), and PBI BioSeq, Inc. (formerly known as BBIBioSeq, Inc. and referred to herein as “PBI BioSeq” or “BBI BioSeq”).

 

The accompanyingunaudited condensed consolidated financial statements of Pressure BioScienceshave been prepared in accordance with generally accepted accounting principlesfor interim financial information and with the instructions to Form 10-QSB.Accordingly, they do not include all of the information and footnotes requiredby generally accepted accounting principles for complete financial statements.In the opinion of management, all adjustments (consisting of only normalrecurring adjustments) considered necessary for a fair presentation have beenincluded. Operating results for the three and six months ended June 30, 2005are not necessarily indicative of the results that may be expected for the yearending December 31, 2005.  For furtherinformation, refer to the audited consolidated financial statements andfootnotes thereto included in the Company’s Annual Report on Form 10-KSB (the “Form10-KSB”) for the fiscal year ended December 31, 2004.

 

Effective September 14,2004, pursuant to an Asset Purchase Agreement dated April 16, 2004, as amended(the “Asset Purchase Agreement”) between the Company, PBI Biotech ResearchLaboratories, Inc., and SeraCare Life Sciences, Inc. (“SeraCare”), the Companycompleted the sale of substantially all of the assets and selected liabilitiesof its PBI Diagnostics and PBI Biotech divisions to SeraCare (the “Asset Sale”).  In connection with the Asset Sale, theCompany changed its legal name from Boston Biomedica, Inc. to PressureBioSciences, Inc. effective September 14, 2004. The accompanying unaudited condensed consolidated financial statementshave been reclassified to report the results of operations for the BBIDiagnostics and BBI Biotech divisions (also referred to as “business units”) asdiscontinued operations.

 

In June 2004, PBISource Scientific, Inc. transferred certain of its assets and liabilitiesto a newly formed limited liability company known as Source Scientific, LLC. Atthe time of the transfer, PBI Source Scientific, Inc. owned 100% of theownership interests of Source Scientific, LLC. PBI Source Scientific, Inc.subsequently sold 70% of its ownership interests of Source Scientific, LLC toMr. Richard Henson and Mr. Bruce A. Sargeant pursuant to a purchaseagreement (the “Source Scientific Agreement”). As a result of the sale of 70%of PBI Source Scientific’s ownership interests, Mr. Henson andMr. Sargeant each own 35% and PBI Source Scientific owns the remaining 30%of Source Scientific, LLC.  Under theSource Scientific Agreement, the Company received notes receivable in theaggregate amount of $900,000 (the “Notes”) payable at the end of three yearsbearing 8% interest. Despite the Company’s intent to exit the laboratoryinstrumentation business, the Company may be viewed as having a continuinginvolvement in the business of Source Scientific, LLC due to the fact that theCompany has the right to designate one or potentially three members of theBoard of Managers of Source Scientific, LLC. Because of this factor, eventhough the transaction is treated as a divestiture for legal purposes, theCompany has not recognized the transaction as a divestiture for accountingpurposes in accordance with Securities and Exchange Commission (“SEC”) StaffAccounting Bulletin (“SAB”) Topic 5E, *Accountingfor Divestiture of a Subsidiary or Other Business Operation*. Inaccordance with SAB Topic 5E, the Company has recorded the assets andliabilities associated with the Source Scientific, LLC operation on the Company’sunaudited condensed consolidated balance sheet as of June 30, 2005 under thecaptions “Assets transferred under contractual arrangements” and “Liabilitiestransferred under contractual arrangements” and has recorded a charge to incomeunder the caption “Other operating credits and charges, net” in the Company’sunaudited condensed consolidated statement of operations for the three and six monthsended June 30, 2005 and 2004 equal to the amount of the loss attributable tothe business of Source Scientific for the respective periods presented. Inaccordance with SAB Topic 5E, the Company will continue this accountingtreatment until circumstances have changed or until the net assets of theSource Scientific, LLC business have been written down to zero (or a netliability is recognized in accordance with U.S. Generally Accepted AccountingPrinciples (“GAAP”)).

 

7

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Asa result of the above transactions, the unaudited condensed consolidatedfinancial statements included herein, and the accompanying notes to suchcondensed consolidated financial statements, report the results of the Company’sremaining operations, which consist of all pressure cycling technology (PCT)related activities, including the PCTrelated activities of PBI Source, PBI BioSeq, and the portion of corporateactivities directly associated with the Company’s remaining corporate functionsincluding costs associated with being a public company.  As described above, operating results ofPBI Source, excluding any PCT related activities, together with SourceScientific, LLC are reported as “Other operating credits and charges, net”hereunder. The operating results of the Company’s PBI Diagnostics and PBIBiotech divisions, together with the results of the discontinued operations ofthe Company’s clinical laboratory testing services segment (sold in February2001) are reported as “Discontinued Operations” hereunder.   Certain amounts included in the prior period’sfinancial statements have been reclassified to conform to the current period’spresentation.  All significant intercompanyaccounts and transactions have been eliminated in consolidation.

 

*Use of Estimates*

 

To prepare the unaudited condensedconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States, management is required to makesignificant estimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets and liabilities atthe date of the unaudited condensed consolidated financial statements and thereported amounts of revenues and expenses during the reporting period. Inaddition, significant estimates were made in estimating future cash flows toquantify impairment of assets, in estimates regarding the realizability ofloans (plus accrued interest) made to a director/Chief Executive Officerincluding sufficiency of collateral, deferred tax assets, the net realizablevalue of the Company’s inventory, as well as an estimate for remainingliabilities associated with discontinued operations. ** **On an on-going basis, the Companyevaluates its estimates.  The Companybases its estimates on historical experience and on various other assumptionsthat are believed to be reasonable under the circumstances, the results ofwhich form the basis for making judgments about the carrying values of assetsand liabilities that are not readily apparent from other sources. Actualresults could differ from the estimates and assumptions used by management.

 

*Cash and Cash Equivalents*

 

The Company’s policy is to invest available cash in short-term,investment grade, interest-bearing obligations, including money market fundsand certificates of deposit.  Investmentspurchased with initial maturities of three months or less are valued at costplus accrued interest, which approximates fair market value.

 

As of June 30, 2005, theCompany had $4,177,269 invested in US Treasury money market funds andcertificates of deposits which are in increments of less than $100,000 andinsured under the FDIC.

 

The Company’s restrictedcash consisted of payments from customers of its former business units whoinadvertently remit payments to the Company in error. The cash is deposited inthe Company’s lockbox system, analyzed, and where appropriate, remitted toSeraCare in a timely fashion. The balances reflected are those affected by timingof funds transferred to SeraCare. At the time the cash is classified asrestricted, a corresponding liability is established to have no effect on netassets of the Company.

 

*Investment in MarketableSecurities*

 

The Company’s investment in long term marketable securities reflects itsholdings of common stock of V.I. Technologies (“Vitex”), a publicly tradedcompany listed on the Nasdaq National Market.  The Company held shares in PanacosPharmaceuticals, a private company, and this investment was reflected on a costbasis as presented on the December 31, 2004 financial statements.  As a result of Vitex’s acquisition of PanacosPharmaceuticals shares in March 2005, and the Company’s subsequent receipt of sharesof Vitex common stock in exchange for all of the shares of Panacos, the Company’sinvestment commencing with the first quarter of fiscal 2005 has been accountedfor under SFAS 115 “Accounting for Certain Investments in Debt and EquitySecurities”, as available for sale. At June 30, 2005 the fair value of theCompany’s shares of Vitex common stock was approximately $5.5 million based on theclosing price of $5.40 per share of Vitex common stock as reported on theNasdaq National Market on June 30, 2005.

 

8

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*Stock-Based Compensation*

 

The Company has electedto follow Accounting Principles Board Opinion No. 25, “Accounting forStock Issued to Employees” (APB 25) and related interpretations inaccounting for its employee stock options. Under APB 25, the intrinsicvalue method is used to account for stock options granted to employees. TheCompany has adopted the disclosure-only provisions of Statement of FinancialAccounting Standards No. 123, “Accounting for Stock-Based Compensation”(SFAS 123).

 

As the Company accounts for its plans under therecognition and measurement principles of APB 25, “Accounting for Stock Issuedto Employees,” and related interpretations, no compensation cost has beenrecognized; under SFAS 123 for the Company’s employee stock option plans becausethe exercise price of employee stock options equals the market price of theunderlying stock on the date of grant, no compensation expense is recorded.  SFAS 123 was amended by SFAS 148 “Accountingfor Stock-Based Compensation- Transition and Disclosure”, which requirescompanies to disclose in interim financial statements the pro forma effect onnet income (loss) per common share of the estimated fair market value of stockoptions or warrants issued to employees. Had compensation cost forawards under those plans been determined based on the grant date fair values,consistent with the method required under SFAS 123, the Company’s net lossand net loss per share would have been impacted by the pro forma amounts indicatedbelow:

** **
| ** **                                                                                   | ** ** | **For the Three**         | ** ** | **For the Six**           | ** ** |
|----------------------------------------------------------------------------------------------|------------|---------------------------|------------|---------------------------|------------|
| ** **                                                                                   | ** ** | **Months Ended June 30,** | ** ** | **Months Ended June 30,** | ** ** |
| ** **                                                                                   | ** ** | **2005**                  | ** ** | **2004**                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net loss - as reported                                                                       |       | $                         | (748,906   | )                         | $          | (349,076 | ) | $ | (1,131,967 | ) | $ | (504,811 | ) |
| Add back: Stock-based compensation in net  loss, as reported                                 |       | —                    |       | —                    |       | — |   | — |   |
| Deduct: Stock-based employee compensation  expense determined under fair value based methods |       | (287,257                  | )          | (144,008                  | )          | (287,508 | ) | (144,008 | )  |
| Net loss - pro forma                                                                         |       | $                         | (1,036,163 | )                         | $          | (493,084 | ) | $ | (1,419,475 | ) | $ | (648,819 | ) |
| Basic and Diluted net loss per share - as  reported                                          |       | $                         | (0.31      | )                         | $          | (0.05 | ) | $ | (0.32 | ) | $ | (0.07 | ) |
| Basic and Diluted net loss per share - pro  forma                                            |       | $                         | (0.43      | )                         | $          | (0.07 | ) | $ | (0.40 | ) | $ | (0.09 | ) |

 

On June 16, 2005, theCompany’s stockholders approved the Company’s 2005 Equity Incentive Plan,pursuant to which an aggregate of 1,000,000 shares of common stock of theCompany are reserved for issuance upon exercise of stock options or otherequity awards made under the plan.  Underthe plan, the Company may award stock options, stock issuances and other equityinterests in the Company to employees, officers, directors, consultants andadvisors of the Company and its subsidiaries and to any other persons the Boardof Directors determines to have made or is expected to make contributions tothe Company.

 

**(2) Recent Accounting Standards**

 

In December 2004,the FASB issued FASB Statement No. 123 (revised 2004), “Share-BasedPayment” (“FAS 123(R)”). FAS 123(R) replaces FASB Statement No. 123, “Accountingfor Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accountingfor Stock Issued to Employees”. FAS 123(R) requires that the compensation costrelating to share-based payment transactions be recognized in financialstatements. That cost will be measured based on the fair value of the equity orliability instruments issued. The provisions of this Statement are effectivefor Small Business Issuers for the first fiscal year that begins after December15, 2005. The Company is currently evaluating the method of adoption and theimpact of FAS 123(R) on its financial position and results of operations.  The Company plans to continue to evaluate theform of any stock based incentive compensation it may offer in the future andits impact on the Company.

 

In May 2005, the FASBissued FASB Statement No. 154 “Accounting Changes and Error Corrections”—areplacement of APB Opinion No. 20 and FASB Statement No. 3. This Statementreplaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3,Reporting Accounting Changes in Interim Financial Statements, and changes therequirements for the accounting for and reporting of a change in accountingprinciple. This Statement applies to all voluntary changes in accountingprinciple. It also applies to changes required by an

 

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accounting pronouncement in the unusual instance thatthe pronouncement does not include specific transition provisions. The Companywill apply the provisions of this Statement should it incur any accountingchanges or should the need arise to correct errors.

 

**(3) ****Discontinued Operations**

** **

(a) BBI Diagnostics andBBI Biotech Segments

 

On September 14, 2004, the Companycompleted the sale of substantially all of the assets and selected liabilitiesof its BBI Diagnostics and BBI Biotech divisions, previously classified asassets and liabilities held for sale as of June 30, 2004, to SeraCare pursuantto the Asset Purchase Agreement, for a purchase price of $30 million incash of which $27.5 million was paid at the closing and the remaining$2.5 million was deposited in escrow pursuant to an escrow agreementexpiring in March 2006. Following the release to SeraCare of $1.4 millionof the escrow funds to satisfy the Final Adjustment Amount in February 2005,approximately $1.1 million remains in escrow until March 2006 to secure ourcontinuing indemnification obligations for breaches of representations andwarranties, covenants or other agreements that remain in accordance with theterms of the Asset Purchase Agreement. The amounts associated with the sale ofthese assets and selected liabilities to SeraCare are reported as discontinuedoperations in the accompanying financial statements, in accordance withparagraphs 30 and 42 of Statement of Financial Accounting Standards No. 144 “Accountingfor the Impairment or Disposal of Long-Lived Assets”.

 

(b) Clinical LaboratoryTesting Services Segment

 

In February 2001, theCompany sold the business and certain assets and liabilities of its clinicallaboratory business, BBI Clinical Laboratories, Inc. (“BBICL”), a wholly-ownedsubsidiary of the Company, to a third party for an adjusted purchase price of$8,958,000.  The Company retained certainother assets and liabilities of BBICL, primarily property, plant and equipment,together with the facility lease subsequent to the closing date.  The Company wrote down all of the retainedassets not otherwise redistributed to other business units to their estimatednet realizable value.  The Company’sestimate of remaining short and long term accrued liabilities to exit theclinical laboratory testing business is approximately $90,000 as of June 30,2005.  The major component of thisaccrual is for potential audit adjustments associated with the sale of assetsand the long term record retention of medical and related records.

 

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

 

In June 2004, PBISource Scientific, Inc. transferred certain of its assets and liabilitiesto a newly formed limited liability company known as Source Scientific, LLC. Atthe time of the transfer, PBI Source Scientific, Inc. owned 100% of theownership interests of Source Scientific, LLC. PBI Source Scientific, Inc.subsequently sold 70% of its ownership interests of Source Scientific, LLC toMr. Richard Henson and Mr. Bruce A. Sargeant pursuant to a purchaseagreement (the “Source Scientific Agreement”). As a result of the sale of 70%of PBI Source Scientific’s ownership interests, Mr. Henson andMr. Sargeant each own 35% and PBI Source Scientific owns the remaining 30%of Source Scientific, LLC.  Under theSource Scientific Agreement, the Company received notes receivable in theaggregate amount of $900,000 (the “Notes”) payable at the end of three yearsbearing 8% interest. Despite the Company’s intent to exit the laboratoryinstrumentation business, the Company may be viewed as having a continuinginvolvement in the business of Source Scientific, LLC due to the fact that theCompany has the right to designate one or potentially three members of theBoard of Managers of Source Scientific, LLC. Because of this factor, eventhough the transaction is treated as a divestiture for legal purposes, theCompany has not recognized the transaction as a divestiture for accountingpurposes in accordance with Securities and Exchange Commission (“SEC”) StaffAccounting Bulletin (“SAB”) Topic 5E, *Accountingfor Divestiture of a Subsidiary or Other Business Operation*. Inaccordance with SAB Topic 5E, the Company has recorded the assets andliabilities associated with the Source Scientific, LLC operation on the Company’sunaudited condensed consolidated balance sheet as of June 30, 2005 under thecaptions “Assets transferred under contractual arrangements” and “Liabilitiestransferred under contractual arrangements” and has recorded a charge to incomeunder the caption “Other operating credits and charges, net” in the Company’sunaudited condensed consolidated statement of operations for the three and sixmonths ended June 30, 2005 and 2004 equal to the amount of the lossattributable to the business of Source Scientific for the respective periodspresented. In accordance with SAB Topic 5E, the Company will continue thisaccounting treatment until circumstances have changed or until the net assetsof the Source Scientific, LLC business 

 

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havebeen written down to zero (or a net liability is recognized in accordance withU.S. Generally Accepted Accounting Principles (“GAAP”)).

 

As of June 30, 2005 assets and liabilitiestransferred under contractual arrangement consist of the following:

 
| ** **                                                            | ** ** | **June 30, 2005** | ** ** |
|-----------------------------------------------------------------------|------------|-------------------|------------|
| Cash                                                                  |       | $                 | 200,844    |   |
| Accounts receivable, net                                              |       | 238,661           |       |
| Inventory                                                             |       | 370,353           |       |
| Prepaid assets                                                        |       | 85,060            |       |
| Fixed assets, net                                                     |       | 94,549            |       |
| Goodwill                                                              |       | 227,084           |       |
| All other assets                                                      |       | 61,753            |       |
| Total assets transferred under contractual  arrangement               |       | $                 | 1,278,304  |   |
|                                                                  |       |              |       |
| Accounts payable                                                      |       | $                 | (213,772   | ) |
| Accrued expenses and compensation                                     |       | (357,335          | )          |
| Deferred revenue                                                      |       | (188,850          | )          |
| Equity contributions                                                  |       | (57,860           | )          |
| Total liabilities transferred under contractual  arrangement          |       | $                 | (817,817   | ) |
|                                                                  |       |              |       |
| Net assets and liabilities transferred under  contractual obligations |       | $                 | 460,487    |   |

 

**(5) Computation of Net Income (Loss) per Share**

 

Basic income (loss) per share is computed by dividingincome (loss) available to common shareholders by the weighted average numberof common shares outstanding. Diluted income (loss) per share is computed bydividing income (loss) available to common shareholders by the weighted averagenumber of common shares outstanding plus additional common shares that wouldhave been outstanding if potential dilutive common shares had been issued. Forpurposes of this calculation, stock options are considered common stockequivalents in periods in which they have a dilutive effect. Options and warrantsthat are antidilutive are excluded from the calculation.  Potentially dilutive securities having a neteffect of 399,722 and 112,599 common shares for the three and six months ended June30, 2005 and 107,281 and 58,245 common shares for the three and six monthsended June 30, 2004 respectively, and were not included in the computation of dilutedincome (loss) per share for these periods because to do so would have beenantidilutive.  Accordingly, reconciliationbetween basic and diluted income (loss) per share has not been presented.

 

**(6)  Related Party Transaction**

 

In January 2002, theCompany pledged a $1,000,000 interest bearing deposit at a financialinstitution to secure its limited guaranty of loans in the aggregate amount of$2,418,000 from the financial institution to an entity controlled by Richard T.Schumacher, a Director and the Company’s current President and Chief ExecutiveOfficer. In January 2003, the $1,000,000 held in the interest bearingdeposit account pledged to the financial institution to secure the Company’slimited guaranty was used by the financial institution to satisfy its limitedguaranty obligation to the financial institution. As of June 30, 2005, theCompany maintained a $1.0 million loan receivable together with associatedaccrued interest of $174,382 from Mr. Schumacher. The Company previouslymaintained a junior security interest in collateral pledged byMr. Schumacher to the financial institution. The collateral includes allof Mr. Schumacher’s shares of PBI common stock. Following the payment infull by Mr. Schumacher of his loan to the financial institution inFebruary 2005, the Company became the holder of a first priority securityinterest in 489,659 of Mr. Schumacher’s shares of common stock of PressureBioSciences to secure the repayment of the Company’s $1,000,000 loan receivabletogether with associated accrued interest of $174,382 from Mr. Schumacher.The 

 

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collateral and personal assets of Mr. Schumachermay not be sufficient to permit the Company to fully recover the principal,interest and other costs associated with this loan receivable. If the value ofthe collateral decreases, the Company may have to write down or write off theloan receivable or associated accrued interest. Therefore, the Company cannotbe certain that it will collect the full amount of the loan receivable orassociated accrued interest.

 

As of June 30, 2005, theCompany evaluated the recoverability of a $1,000,000 loan receivable together withassociated accrued interest of $174,382 from Mr. Richard T. Schumacher,which is reflected on the balance sheet in stockholders’ equity as a loanreceivable and accrued interest as of June 30, 2005. Interest is accrued at arate of prime plus 2%, or 8% at June 30, 2005. The Company’s review included anevaluation of the collateral associated with the loan, which consists of commonstock of Pressure BioSciences. In February 2005, Mr. Schumacherrepaid in full a loan outstanding between an entity controlled by him and afinancial institution with proceeds from the sale of 130,000 shares of theCompany’s common stock in connection with the Company’s tender offer completedon February 11, 2005. As a result, the Company maintains a first prioritysecurity interest in this collateral previously held by the financial institution,which consists of 489,659 shares of common stock of Pressure BioSciences as ofJune 30, 2005.

 

In connection with theCompany’s evaluation of the recoverability of the loan receivable andassociated accrued interest, as of June 30, 2005, the Company performed a testfor impairment of the loan receivable together with associated accrued interestof $174,382 by analyzing the value of the collateral. This test included, amongother things, a review of the current trading price of the Company’s commonstock after taking into account factors that may affect the Company’s abilityto sell such stock in the event it were to foreclose on the collateral to repaythe loan receivable and any accrued and unpaid interest. After performing the impairmenttest, the Company determined that the loan receivable together with associatedaccrued interest was not impaired. The ultimate value that the Company mayrecover is dependent on numerous factors including the Company’s stock price,market conditions relative to the value of and ability to sell the collateral,and the financial status of the Company’s President and Chief ExecutiveOfficer. Based on the Company’s assessment as of June 30, 2005, the Company estimatesthat the value of the collateral approximates the amount of the recorded loanreceivable and accrued interest.  Ifactual market conditions are less favorable, the Company’s stock price declinesor other factors arise that are significantly different than those experiencedas of June 30, 2005, an impairment of the loan receivable together withassociated accrued interest is likely to be required.  The Company plans to continue to monitor andtest the collateral for impairment due in large part to the relatively lowtrading volume of the Company’s common stock and recent volatility in stock price,ranging from a low of $2.50 per share to a high of $3.97 per share since June30, 2005.

 

On June 30, 2005, theCompany entered into a letter agreement with Mr. Schumacher, and agreed to payMr. Schumacher a lump sum payment of $400,000 (i) as a reimbursement of costsand expenses, as well as lost wages and severance benefits, resulting from histermination of employment in February 2003, and (ii) as a bonus to reward Mr.Schumacher for his valuable contributions to the Company and the Company’sstockholders in the overall restructuring and repositioning of the Company overthe past two years.  In addition, Mr.Schumacher agreed to release the Company from any and all claims (see Note 16).

 

**(7)  Segment Reporting andRelated Information**

 

SFAS No. 131, “Disclosuresabout Segments of an Enterprise and Related Information,” establishes standardsfor the way that public business enterprises report information about operatingsegments in annual financial statements and requires selected information aboutoperating segments in interim financial reports. It also establishes standardsfor related disclosures about products and services, geographic areas and majorcustomers. Operating segments are components of an enterprise for whichseparate financial information is available that is evaluated regularly bysenior management in deciding how to allocate resources and in assessing theperformance of each segment. The Company is organized along legal entity linesand senior management regularly reviews financial results for all entities,focusing primarily on revenue and operating income. The Company’s underlyingaccounting records are maintained on a legal entity basis for government andpublic reporting requirements, as well as for segment performance and internalmanagement reporting.

 

Following the Company’s saleof its core businesses and its laboratory instrumentation business unit, thesingle remaining segment is the pressure cycling technology (PCT) family ofproducts and services.

 

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**(8) Debt**

 

The Company does notcurrently have debt obligations beyond its lease for the Gaithersburg, MDoffice as described in Note 10, nor does the Company have a line of credit fromwhich it can borrow.

** **

**(9) Inventories**

 

Inventories are represented primarily component partsused in the manufacture of PCT products and units in process of manufacture,and were comprised as follows:

 
| ** **      | ** ** | ** **        | ** ** | **As of**        | ** ** |
|-----------------|------------|-------------------|------------|------------------|------------|
| ** **      | ** ** | **As of**         | ** ** | **December 31,** | ** ** |
| ** **      | ** ** | **June 30, 2005** | ** ** | **2004**         | ** ** |
|            |       |              |       |             |       |
| Raw materials   |       | $                 | 129,894    |             | $          | 122,253 |   |
| Work-in-process |       | 169,069           |       | 31,764           |       |
| Finished goods  |       | —            |       | 3,800            |       |
|            |       | $                 | 298,963    |             | $          | 157,817 |   |

 

**(10) ****Commitments andContingencies**

* *

*Leases*

 

On May 5, 2005, the Company entered into a lease agreement withSaul Holdings Limited Partnership, to lease approximately 2,784 square feet ofoffice space located at 209 Perry Parkway, Gaithersburg, Maryland for a term oftwelve months with a base annual rent in the amount of $55,680, or $4,640 permonth during the initial term of the lease, plus $1,245 per month for operatingexpenses.

* *

*Royalty Commitments*

 

In 1998, the Company acquired all the remaining common stockoutstanding of BioSeq Inc., a development stage company involved with PCT.In accordance with the provisions of a technology transfer agreement assumed inthe transaction, the Company is obligated to pay a 5% royalty on net salesuntil March 2016 of future sales by the Company utilizing PCT. The Companyannounced the availability of its PCT products for commercial sale in thelatter part of year 2002. The Company’s minimum royalty payment requirementsceased in the fourth quarter of 2003 in accordance with contractual provisions.Royalty payments have averaged approximately $200 per quarter during 2004 andin the first fiscal quarter of 2005. The royalty payment in the second quarterof 2005 was approximately $380.

* *

*Purchase Commitments*

 

In June 2004, Source Scientific, LLC agreed to provideengineering, manufacturing, and other related services for the Company’spressure cycling technology products until September 30, 2005. Under theagreement, it was estimated that the Company would pay $25,000 per month as anoffset for services rendered by Source Scientific, LLC.  The maximum amount that the Company committedto pay to Source Scientific, LLC during the term of the agreement was $350,000.Since June 2004, the Company has paid Source Scientific, LLC an aggregate of approximately$525,000 under this agreement.  Accordingly, the Company has no further minimum commitments under theagreement.  The Company expects tocontinue to utilize the services of Source Scientific, LLC for the Company’spressure cycling technology products.

* *

*Indemnifications*

 

In conjunction with the sale of the former BBI Diagnostics and BBIBiotech business units, the Company has agreed to indemnify the other partieswith respect to certain liabilities related to the operation of the business.The scope and duration of such indemnity obligations vary. Where appropriate,an obligation for such indemnifications is recorded as a liability, however, amaximum obligation cannot be reasonably estimated. Other than obligationsrecorded as liabilities at the time of divestiture, historically the Companyhas not made significant payments for these indemnifications. The Companybelieves the estimated fair value of these agreements is minimal.

 

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In connection with the sale of substantially all of the assets of theCompany’s BBI Diagnostics and BBI Biotech business units to SeraCare, pursuantto the Asset Purchase Agreement, the Company agreed to indemnify SeraCare forany losses from breaches of most of the Company’s representations, warrantiesor covenants that occur prior to June 14, 2006. The Company’sindemnification obligations for breaches of some representations andwarranties, however, extend for a longer period of time. The Company’sindemnification obligations are limited by an overall cap equal to the adjustedpurchase price.

 

In November 2004, in accordance with the terms of the AssetPurchase Agreement, SeraCare delivered the closing balance sheet, whichreflected a deficiency of approximately $3.1 million when compared to thetarget net asset value of $8.5 million. The Company objected to certaincalculations in the closing balance sheet, including, without limitation,SeraCare’s calculation of accounts receivable and inventory. InDecember 2004, the Company settled its dispute with SeraCare concerningthe collectibility of accounts receivable sold to SeraCare in connection withthe Asset Purchase Agreement. The Company agreed that, solely for purposes ofsettling its dispute with SeraCare, $412,192 of accounts receivable would bedeemed past due, therefore resulting in an adjustment to the purchase pricerequiring the Company to pay SeraCare that amount. The Company also agreed thatthe $412,192 deficiency would be released from the $2.5 million held inescrow; thereby leaving approximately $2.1 million remaining in escrow. InFebruary 2005, the Company further agreed with SeraCare to settle theparties remaining differences relating to the closing balance sheet, includingthe calculation of inventory, by releasing to SeraCare an additional $1,000,000from the escrow account. Additionally, the parties released all claims they mayhave had against the other with respect to the closing balance sheet andcertain other representations and warranties contained in the Asset PurchaseAgreement relating to the closing balance sheet items. Following the release ofthe escrow funds, approximately $1.1 million remains in escrow untilMarch 2006 to secure the Company’s continuing indemnification obligationsfor breaches of representations and warranties, covenants or other agreementsthat remain in accordance with the terms of the Asset Purchase Agreement. Thecombined effect of these two settlements relating to the closing balance sheetresulted in a $1,412,192 reduction in the purchase price and a correspondingreduction in the gain on sale.

 

On March 22, 2005, the Company received a claim for indemnificationfrom SeraCare relating to testing and other services performed by the Companyfor the University of Pittsburgh prior to the sale of the BBI Core Businessesto SeraCare.  The claim forindemnification is for an unspecified amount relating to the cost of retestingcertain of the samples previously tested by the Company.  The Company believes the cost of retesting tobe not material at this time. However, this claim for indemnification, as wellas the possibility of additional notices or claims for indemnification fromSeraCare could reduce or eliminate altogether the amount the Company ultimatelyreceives from the escrow account.  If theCompany is required to pay an additional amount in excess of the escrow amount,the Company will have less cash available to fund its operations, its businessmay be harmed and, if it is subject to additional indemnification claims orunanticipated expenses or liabilities, it may be difficult to continue theCompany’s business as planned unless it is able to obtain equity or debtfinancing.

 

**(11)  Investments in Marketable Securities**

 

On March 11, 2005, Vitex announced that it had closed its mergerwith Panacos Pharmaceuticals, Inc. (“Panacos”), pursuant to the Agreementand Plan of Merger dated as of June 2, 2004, as amended onNovember 5, 2004, November 28, 2004, December 8, 2004, andFebruary 14, 2005 (the “Merger Agreement”). The merger was approved by thestockholders of both Vitex and Panacos at their respective meetings onMarch 10, 2005. Panacos stockholders received an aggregate ofapproximately 227,500,000 shares of Vitex common stock, or slightly over 80% ofthe outstanding shares of Vitex Common Stock, after giving effect to themerger, and before giving effect to Vitex’s 1:10 reverse stock split, which wasannounced on March 14, 2005. The shares of Vitex common stock issued tothe Panacos stockholders were registered with the Securities and ExchangeCommission on a Registration Statement on Form S-4. Panacos stockholdersreceived 6.75275 shares of Vitex common stock for each share of Panacos commonor preferred stock held by them at the effective time of the merger. As aresult of the merger and the subsequent reverse stock split, as of June 30,2005, the Company owned 1,012,920 shares of Vitex common stock in place of itsPanacos capital stock. Fifteen percent of Vitex stock owned by former owners ofPanacos stock, including fifteen percent of the Vitex common stock owned by theCompany, or 151,938 shares, which are being held in escrow per the MergerAgreement until September 2006. On June 30, 2005, the closing price of Vitexcommon stock was $5.40 per share as quoted on the Nasdaq National Market.

 

14

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**(12)   Fixed Assets**

 

Fixed assets are comprisedprimarily of PCT related demonstration equipment, of which one PCT BarocyclerTMunit has been placed with a third party pursuant to an open term rentalagreement.  Depreciation on PCTdemonstration units is allocated over the expected useful life of approximatelytwo years.  Upon the Company’s sale ofassets to SeraCare in September 2004 and establishment of new corporateoffices, approximately $38,000 has been capitalized related to office furnitureand computer and related communication equipment. Property and equipment at June30, 2005 consisted of the following:

 

| ** **                             | ** ** | **June 30, 2005** | ** ** |
|----------------------------------------|------------|-------------------|------------|
| Laboratory and manufacturing equipment |       | $                 | 130,493    |   |
| Office equipment                       |       | 56,260            |       |
| PCT demonstration equipment            |       | 210,536           |       |
|                                   |       | 397,289           |       |
|                                   |       |              |       |
| Less accumulated depreciation          |       | 354,306           |       |
|                                   |       |              |       |
| Net book value                         |       | $                 | 42,983     |   |

 

Depreciation expense for the three and six months endedJune 30, 2005 was $7,865 and $15,625.

 

**(13)   Intangible Assets **

 

The Company hasclassified as intangible assets those costs associated with the fair value ofcertain assets of the PCT business previously acquired by the Company. Intangibleassets as of June 30, 2005 reflect acquired patents and related capitalizedcosts associated with the Company’s pressure cycling technology which beingamortized to expense on a straight line basis at the rate of  $12,158 per quarter over the remaining usefullife. The Company’s policy is to expense all patent related legal costs asincurred. Intangible assets at June 30, 2005 consisted of the following:   

 

| ** **                    | ** ** | **As of June 30,  2005** | ** ** |
|-------------------------------|------------|--------------------------|------------|
| PCT Patents                   |       | $                        | 778,156    |   |
| Less accumulated amortization |       | (328,286                 | )          |
|                          |       |                     |       |
| Net book value                |       | 449,870                  |       |
|                               |            |                          |            |  |

 

**(14)  Income Tax Receivable**

 

For the six months ended June 30, 2005 theCompany has recorded a tax benefit of $452,725 based upon the operating lossesgenerated.  It is the Company’sexpectation to carry back the losses and related tax benefit to recover taxespaid in fiscal year 2004.  In the year2004 we recorded expense and paid income tax of approximately $3.2 millionprimarily as a result of the gain generated by the sale of its BBI Diagnosticsand BBI Biotech operating units.

 

**(15)  Stockholders’ Equity**

 

Pursuant to the completionof the Company’s tender offer on February 11, 2005, 5,203,001 shares werepurchased from shareholders at $3.50 per share which included 754,275 sharesissued upon exercise of stock 

 

15

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options.  The Company utilized approximately $16.3million of available cash, net of proceeds from the exercise of the stockoptions, to complete the transaction.  Thepurchase of the shares were accounted for under the treasury method and cost inexcess or par value for the common shares are charged to additional paid incapital.

 

**(16)  Subsequent Events**

 

On August 9, 2005 the Company announced that between July 19, 2005 and August 3, 2005 it sold an aggregate of 232,792 shares of Vitex for which it received approximately $1,771,000 in cash proceeds, net of charges and commission.  The Company continues to hold an additional 628,190 shares of Vitex, and may receive an additional 151,938 shares which are being held in escrow until September 2006, per the terms of the March 2005 merger between Vitex and Panacos Pharmaceuticals. The closing price per share of Vitex common stock as reported on the Nasdaq National Market on August 8, 2005 was $7.42.

 

On July 7, 2005, followingthe Company’s payments to Mr. Schumacher pursuant to that certain letteragreement dated June 30, 2005 described in note 6 above, Mr. Schumacher paidthe Company all unpaid interest accrued through June 30, 2005 in the amount of$174,382 on his $1,000,000 outstanding indebtedness to the Company.

 

**ITEM 2.   MANAGEMENT’SDISCUSSION AND ANALYSIS OR PLAN OF OPERATION.**

 

***Overview***

 

Following the closing of the sale of the assets and selectedliabilities of BBI Diagnostics and BBI Biotech to SeraCare Life Sciences onSeptember 14, 2004, the transfer of certain assets and liabilities of PBISource Scientific, Inc. to Source Scientific, LLC and subsequent sale of70% of our ownership interests of Source Scientific, LLC in June 2004, ouroperations now consist primarily of our pressure cycling technology (PCT)business. The results of operations discussed herein focus on the PCT businessactivities and the corporate functions associated with being a public company.Operating results of PBI Source Scientific, Inc., excluding any PCTrelated activities, together with Source Scientific, LLC, are reported as “Otheroperating charges” hereunder. The operating results of our BBI Diagnostics andBBI Biotech divisions prior to their sale on September 14, 2004, togetherwith the results of the discontinued operations of our clinical laboratorytesting services segment (sold in February 2001), are reported as “DiscontinuedOperations” hereunder. Certain amounts included in the prior period’s financialstatements have been reclassified to conform to the current period’spresentation.

 

Our pressure cycling technology uses an instrument that is capable ofcycling pressure between ambient and high levels at controlled temperatures torapidly and repeatedly control the interactions of biomolecules. PCT utilizesour BarocyclerTM instrument and disposable PULSETM Tubes to release nucleic acidsand proteins from plant/animal cells and tissues, as well as other organismsthat are not easily disrupted by standard chemical and physical methods. Webelieve that our patented and proprietary pressure cycling technology employs aunique approach that has the potential for broad applications in a number ofestablished and emerging fields, including genomics, proteomics, drug discoveryand development, protein purification, pathogen inactivation,immunodiagnostics, food safety, and DNA sequencing.

 

To date, we have primarily applied PCT to the area of samplepreparation for genomics and proteomics. We have also developed scientificcollaborations with several leading laboratories and academic institutions inthe United States, which we expect will remain ongoing into 2005 and beyond. Wefurther expect that the data generated by our collaborators will be publiclyreleased in scientific publications and presentations, and that this could havean important positive impact on future sales of our PCT products. We haveinvestigated the use of PCT for the inactivation of pathogens in human bloodplasma, therapeutics, and diagnostic reagents and believe we have demonstrated thetechnical feasibility of applying PCT to immunodiagnostics, proteinpurification, pathogen inactivation, food safety, and DNA sequencing. We haveobtained thirteen US and four foreign patents containing multiple claimscovering the foregoing areas.

 

16

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As of June 30, 2005 we have invested in excess of $12.4 million inthe development of our pressure cycling technology since 1997, with the fundscoming from both internal and public sources. To date, we have received sevenSmall Business Innovative Research (“SBIR”) grants from the National Institutesof Health (“NIH”) aggregating approximately $2,000,000 (including two SBIRPhase II grants each in excess of $750,000) to develop PCT in the areas ofmicrobial inactivation, sample processing, and Mycobacterium samplepreparation. Most recently, in May 2004 we were awarded a $150,000 SBIRPhase I grant to study the use of PCT in applications to combat bio-terrorism.We have recently submitted proposals for three additional SBIR research grants andone non-SBIR grant and intend to continue to submit proposals to obtain grantsin the future.

 

In September 2002, we released for sale our first commercial PCTinstrument, the BarocyclerTM NEP 2017. In 2002, we also released for sale PULSETMTubes, which are single-use, disposable processing and storage tubes that workin conjunction with the BarocyclerTM NEP 2017. Sales of these products have beenextremely limited. To date we have leased one and sold two pressure cycling technologysystems (“PCT Sample Preparation System”) and a limited number of PULSETM Tubes.We believe that sales of our pressure cycling technology products have beenadversely affected primarily as a result of the following factors: (1) theinitial design and selling price of the BarocyclerTM, (2) the limitedamount of research data available demonstrating its capabilities and potential,(3) the absence of a strong sales and marketing management team,(4) the absence of a strong promotional campaign after the commercialrelease of the BarocyclerTM NEP 2017, (5) the inability to execute oursales plan as a result of financial constraints, (6) current US economicconditions and uncertainties which negatively affected capital spending onlaboratory instruments, (7) the financial condition of our company during2003 and 2004, (8) the focus of our resources on other projects, includingthe sale of our BBI Diagnostics, BBI Biotech, and the transfer of selectedassets and liabilities of our laboratory instrumentation business units, aprocess that began in October 2002 and was completed inSeptember 2004, (9) the time required to complete post-transaction issuesrelated to the sale of BBI Diagnostics and BBI Biotech, and (10) the effortrequired during 2005 to restructure the Company including the effort to build anew corporate infrastructure.

 

To address some of these factors associated with the disappointingsales of the BarocyclerTM NEP 2017, we have developed a less expensive andsmaller, bench top version of the BarocyclerTM, the NEP 3229, which we expectwill facilitate an easier and quicker purchase decision by potential customers.We have also generated additional research data to support our sales efforts.We believe that the new bench top BarocyclerTM will fill an immediate andgrowing need in the genomics and proteomics sample preparation market for asmaller, more affordable instrument that still provides the quality,reproducibility, and safety of the NEP 2017 PCT Sample Preparation System.

 

To increase market awareness of our products, in June 2005 we initiateda program to place up to twelve BarocyclerTM NEP3229 units in selected strategiccustomer sites for a three month trial period, which we believe will providepotential customers with the opportunity to develop and collect independent andobjective data and statistical information. We believe that we will be able togenerate sales of our products from these customers after the customerexperiences the performance, reliability, and safety of the sample preparationprocess provided by the PCT Sample Preparation System. After the trial period,it is our expectation that a number of users will either purchase or lease thePCT BarocyclerTM instrument.  During Juneand July 2005, we placed three bench top instruments under a “reagent rentalagreement”, whereby the “collaborating sites” have full use of the instrumentin their own facility, have agreed to purchase a certain number of PULSETM Tubesover the trial period, and have further agreed to use the PCT SamplePreparation System to generate data for public dissemination.

 

**Recent Business Developments**

 

On June 30, 2005, we enteredinto a letter agreement with Mr. Schumacher, and agreed to pay Mr. Schumacher alump sum payment of $400,000 (i) as a reimbursement of costs and expenses, aswell as lost wages and severance benefits, resulting from his termination ofemployment in February 2003, and (ii) as a bonus to reward Mr. Schumacher forhis valuable contributions to the Company and our stockholders in the overallrestructuring and repositioning of our company over the past two years.  In addition, Mr. Schumacher agreed to releaseus from any and all claims.  On July 7,2005, following our payment to Mr. Schumacher pursuant to the letter agreement,Mr. Schumacher paid us all unpaid interest accrued through June 30, 2005 in theamount of $174,382 on his $1,000,000 outstanding indebtedness to us.

 

On August 9, 2005 weannounced that between July 19, 2005 and August 3, 2005 we sold an aggregate of

 

17

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232,792shares of Vitex for which we received approximately $1,771,000 in cash proceeds,net of charges and commission.  Wecontinue to hold an additional 628,190 shares of Vitex, and may receive anadditional 151,938 shares which are being held in escrow until September 2006,per the terms of the March 10, 2005 merger between Vitex and Panacos Pharmaceuticals.The closing price per share of Vitex common stock as reported on the NasdaqNational Market on August 8, 2005 was $7.42.

 

**RESULTS OF OPERATIONS**

** **

**THREE MONTHS ENDED JUNE 30, 2005 AND 2004**

* *

*Revenue*

 

We had total revenue of $7,612 for the three months ended June 30,2005, as compared to $107,915 for the three months ended June 30, 2004, a declineof $100,303.

 

Grant Revenue:  Grant revenue has consisted predominately ofSBIR (Small Business Innovation Research) funding activity through the NationalInstitutes of Health. Grant revenue is reflective of high research anddevelopment costs, and consists predominately of “cost plus” contacts.  There was no grant revenue for the threemonths ended June 30, 2005 compared to $102,375 for the corresponding period in2004. The decrease in PCT grants and services revenue was primarily related tothe completion of work in early and mid-2004 on two Phase-II SBIR Grantsresulting in a lower level of research conducted under these grants.  We expect to continue to submit new SBIR andother research grant proposals to fund future research.

 

PCT products & services:  Product revenue totaled $7,612 for the three months ended June 30, 2005,compared to $5,540 for the corresponding period of 2004. Product revenue in2005 and 2004 includes lease payments from one customer and sales of PULSETMTubes to three customers. There were no BarocyclerTM sales in the quarters endedJune 30, 2005 or June 30, 2004. We believe that sales of our pressure cyclingtechnology products have been adversely affected due to a number of factors,including, among others, the initial selling price of the BarocyclerTM, thelimited amount of research data available demonstrating its capabilities andpotential, the absence of a strong sales and marketing team, our inability toexecute our sales plan as a result of the our prior financial constraints, andother factors affecting capital spending on laboratory instruments.

 

In late 2004, we committed to the purchase of 18 bench top BarocyclerTMNEP3229 units from Source Scientific LLC, twelve of which were to be madeavailable for shipment to customers and collaborators by the summer of 2005,with the remaining six to be used for internal and demo purposes.

 

To increase market awareness of our products, in June 2005 we initiateda program to place up to twelve BarocyclerTM NEP3229 units in selected strategiccustomer sites for a three month trial period, which we believe will providepotential customers with the opportunity to develop and collect independent andobjective data and statistical information. We believe that we will be able togenerate sales of our products from these customers after the customerexperiences the performance, reliability, and safety of the sample preparationprocess provided by the PCT Sample Preparation System. After the trial period,it is our expectation that a number of users will either purchase or lease thePCT BarocyclerTM instrument.

 

During June and July 2005, we placed three bench top instruments undera “reagent rental agreement”, whereby the “collaborating sites” have full useof the instrument in their own facility, have agreed to purchase a certainnumber of PULSETM Tubes over the trial period, and have further agreed to usethe PCT Sample Preparation System to generate data for publicdissemination.  One site is a majorgovernment research institute working in cancer; another is a Canadianuniversity working in forensics, environmental issues, and infectious diseases;and the third is a U.S. medical school affiliated laboratory performing anumber of basic and esoteric proteomic studies for life science researchersnationwide.  We have also discussed thepossible placement of the BarocyclerTM NEP3229 with over a dozen additional,targeted organizations, and we remain optimistic that we will be successful inplacing the remaining units at some of these sites prior to year’s end.

 

In June 2005, we also received a commitment to purchase one PCT BenchTop Sample Preparation System, and a commitment for a one-year lease agreementon another, both from organizations that were targeted for a three month trial,but that chose to purchase the PCT Bench Top Sample Preparation System instead.We expect to ship these two PCT Sample Preparation Systems in the third quarterof 2005.

 

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*Cost of Grant Revenue*

 

We did not perform any services or incur any costs under grant projectsduring the second quarter of 2005 compared to the second quarter of 2004.

* *

*Cost of PCT Products and Services*

 

The cost of PCT products and services was $21,166 for the three monthsended June 30, 2005 compared to $17,279 for the comparable period of 2004. Theincrease in 2005 was primarily the result of a higher sales volume of PULSETMTubes related to rentals of BarocyclerTM units pursuant to reagent rentalagreements.

* *

*Research and Development*

 

PCT related research and development expenditures decreased to $114,591in the three months ended June 30, 2005 from $177,975 for the comparable periodof 2004, a decrease of $63,384. This decrease was primarily due to the lowerlevel of research and development expenditures on SBIR grants as describedabove, reduced headcount and other spending in response to reduction inrevenue, and more efficient expenditures on the development of the new benchtop BarocyclerTM through our outsourcing partner, Source Scientific, LLC. Asdescribed elsewhere, in connection with the Source Scientific Agreement, SourceScientific, LLC agreed to provide engineering, manufacturing, and other relatedservices for our pressure cycling technology products until September 30,2005. During the three months ended June 30, 2005 we incurred charges ofapproximately $10,000.

* *

*Selling and Marketing*

 

PCT related selling and marketing expenses decreased to $38,376 for thethree months ended June 30, 2005 from $41,646 for the comparable period of2004, a decrease of $3,270. The decrease was due to reduced headcount, reducedattendance at trade shows, and less marketing materials.

* *

*General and Administrative*

 

General and administrative costs totaled $723,102 in the three monthsended June 30, 2005, as compared to $279,620 for the comparable period of 2004,an increase of $443,482. The increase was primarily due to a compensationcharge of $400,000relating to payments made to Mr. Schumacher (i) as areimbursement of costs and expenses, as well as lost wages and severancebenefits, resulting from his termination of employment in February 2003, and(ii) as a bonus to reward Mr. Schumacher for his valuable contributions to theCompany and our stockholders in the overall restructuring and repositioning ofour company over the past two years.

* *

*Operating Loss from Continuing Operations*

 

The operating loss of the PCT business was $889,623 in the three monthsended June 30, 2005 as compared to an operating loss of $408,605 for thecomparable period in 2004 an increase in loss of $481,018. The increase in theoperating loss for the three months ended June 30, 2005 compared to the sameperiod of 2004 was primarily due to the compensation charge of $400,000 andrelated taxes on the Company resulting from payments made to Mr. Schumacher describedabove.

* *

*Other Operating Charges, net*

 

The non-PCT related activities of PBI Source Scientific, Inc., whichreflects the activity of Source Scientific, LLC, had an operating loss of $152,285for the three months ended June 30, 2005, as compared to an operating loss of $215,429for the three months ended June 30, 2004. The decreased loss was the result of increasedproductivity improvements and improved volume generated by Source ScientificLLC.

* *

*Net Interest (Expense)/Income*

 

Net interest income totaled$36,956 for the three months ended June 30, 2005 as compared to net interestexpense of $41,607 for the three months ended June 30, 2004. Increased netinterest income was in part the result of 

 

19

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interestearned on investments from proceeds associated with the sale of our BBIDiagnostics and BBI Biotech (BBI Core Businesses) to SeraCare. In 2005, werecognized the benefit of accrued interest related from the Director / CEO’sloan receivable. In 2004, accrued interest related to the loan receivable wasnot recognized. Additionally, in 2004 the interest payment on our line ofcredit totaled $43,155.

* *

*Income Taxes*

 

In the second fiscal quarter of 2005 we recorded a benefit fromcontinuing operations of $255,390. In the year ended 2004, as a result of thesale of certain assets and liabilities to SeraCare, and the resulting gain onthe sale, we estimated and paid taxes of $3.2 million.  Additionally, we maintained a full valuationallowance for our deferred tax assets largely comprised of temporarydifferences in accordance with Statement of Financial Accounting StandardsNo. 109 and in consideration of three consecutive years of losses fromcontinuing operations. We have, however, elected to record a tax benefit atthis time as we anticipate utilizing carrying back losses anticipated in 2005to recover taxes recorded and paid in 2004.

* *

*Discontinued Operations*

 

Net income from discontinued operations was $656 netof taxes for the three months ended June 30, 2005 compared to $237,283 in netincome for the three months ended June 30, 2004 net of taxes.  The decrease in net income from discontinuedoperations is a result of operating margin generated from revenues realized andincluded in the June 2004 quarter, where those businesses are not part of our operationsin 2005.

* *

*Net Income (Loss)*

 

Overall, for the quarter ended June 30, 2005 we had a net loss of $748,906compared to a net loss of for the quarter ended June 30, 2004 of $349,076 forthe reasons described above.

 

**SIX MONTHS ENDED JUNE 30, 2005 AND 2004**

* *

*Revenue*

 

We had total revenue of $10,242 for the six months ended June 30, 2005,as compared to $236,092 for the six months ended June 30, 2004, a decline of $225,850.

 

Grant Revenue:Grant revenue has consisted predominately of SBIR funding activity through theNational Institutes of Health. There was no grant revenue for the six monthsended June 30, 2005 compared to $225,536 for the corresponding period in 2004.The decrease in PCT grants and services revenue was primarily related to thecompletion of work in early and mid-2004 on two Phase-II SBIR Grants resultingin a lower level of research conducted under SBIR research grants in 2005.  We expect to continue to submit new SBIR andother research grant proposals to fund future research.

 

PCT products & services:  Product revenue totaled $10,242 for the six months ended June 30, 2005,compared to $10,556 for the corresponding period of 2004. Product revenue in2005 and 2004 included lease payments from one customer and sales of PULSETMTubes from several customers. There were no BarocyclerTM sales in the six monthsended June 30, 2005 and 2004.

* *

*Cost of Grant Services*

 

We did not perform any services or incur any costs under grant projectsduring the six months ended June 30, 2005 compared to six months ended June 30,2004.

* *

*Cost of PCT Products and Services*

 

The cost of PCT products and services was $27,687 in the six monthsended June 30, 2005 compared to $35,019 for the comparable period of 2004. Thedecrease in 2005 was primarily the result of a reduced sales volume and lowerinventory reserves taken in the 2005 versus 2004 period.

 

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*Research and Development*

 

PCT related research and development expenditures decreased to $217,618in the six months ended June 30, 2005 from $432,771 for the comparable periodof 2004. The decrease was primarily due to the lower level of research anddevelopment expenditures related to the SBIR grants as described above, reducedheadcount and other spending in response to reduction in revenues, and moreefficient expenditures on the development of the new bench top BarocyclerTMthrough our outsourcing partner, Source Scientific, LLC. As describedelsewhere, in connection with the Source Scientific Agreement, SourceScientific, LLC agreed to provide engineering, manufacturing, and other relatedservices for our pressure cycling technology products until September 30,2005. During the six months ended June 30, 2005 we incurred charges ofapproximately $170,000.

* *

*Selling and Marketing*

 

PCT related selling and marketing expenses decreased to $53,636 for thesix months ended June 30, 2005 from $125,880 for the comparable period of 2004.The decrease was due to reduced headcount, a reduction in trade shows attended,and less marketing materials.

* *

*General and Administrative*

 

General and administrative costs for the six months June 30, 2005 totaled$1,031,990, compared to $622,000 for the same period of 2004, an increase of$409,990.   The increase was primarilydue to a compensation charge of $400,000 relating to payments made to Mr.Schumacher (i) as a reimbursement of costs and expenses, as well as lost wagesand severance benefits, resulting from his termination of employment inFebruary 2003, and (ii) as a bonus to reward Mr. Schumacher for his valuablecontributions to the Company and our stockholders in the overall restructuringand repositioning of our company over the past two years.

* *

*Operating Loss from Continuing Operations*

 

The operating loss of the PCT business was $1,320,689 in the six monthsended June 30, 2005 as compared to an operating loss of $979,578 for the comparableperiod in 2004. The increase in the operating loss for the six months endedJune 30, 2005 compared to the same period of 2004 was primarily due to thecompensation charge of $400,000 resulting from payments made to Mr. Schumacherdescribed above partially offset by lower research and development costs alongwith lower sales and marketing expenses.

* *

*Other Operating Charges, net*

 

The non-PCT related activities of PBI Source Scientific, Inc., whichreflects the activity of Source Scientific, LLC, had an operating loss of $387,637for the six months ended June 30, 2005, as compared to an operating loss of $302,996for the six months ended June 30, 2004. The increased loss was the result oflower revenues caused by a delay in orders and reduced margins generated bySource Scientific LLC.

* *

*Net Interest (Expense)/Income*

 

Net interest income totaled $115,888 for the six months ended June 30,2005 as compared to net interest expense of $47,432 for the six months ended June30, 2004. Increased net interest income was in part the result of interestearned on investments from proceeds associated with the sale of our BBIDiagnostics and BBI Biotech (BBI Core Businesses) to SeraCare. In addition, werecognized the benefit of accrued interest related from the Director / CEO’sloan receivable totaling $40,121 for the six months in 2005.   Additionally, in 2004 the interest payment onour line of credit totaled $50,970.

* *

*Income Taxes*

 

For the six months ended June 30, 2005 we recorded a tax benefit on theloss from continuing operations of $455,136 compared to a benefit in the sixmonths ended June 30, 2004 of $244,036 related to our operating loss fromcontinuing operations.  In 2004, as aresult of the sale of certain assets and liabilities to SeraCare, and theresulting gain on the sale, we estimated and paid taxes of $3.2 million.  Additionally, we maintained a full valuationallowance for our deferred tax assets largely comprised of temporarydifferences in accordance with Statement of Financial Accounting StandardsNo. 109 and in consideration of three consecutive years of losses fromcontinuing operations. We have, however, elected to record a tax benefit atthis time as we anticipate utilizing carry back losses anticipated in 2005 torecover taxes recorded and paid in 2004.

 

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*Discontinued Operations*

 

Net income from discontinued operations was $5,335 netof taxes for the six months ended June 30, 2005 compared to $581,159 in netincome for the six months ended June 30, 2004 net of taxes.  The decrease in net income from discontinuedoperations is a result of operating margin generated from revenues and margin realizedfrom the former BBI Diagnostics and BBI BioTech operations which are includedin the six months 2004 financial statements, where those businesses are notpart of our 2005 operations.

* *

*Net Income (Loss)*

 

Overall, for the six months ended June 30, 2005 we had a net loss of $1,131,967compared to a net loss of for the six months ended June 30, 2004 of $504,811for the reasons described above.

 

***LIQUIDITY AND FINANCIAL CONDITION***

 

As a result of the completion of the Company’s tender offer on February17, 2005, our working capital position, as of June 30, 2005, excludingrestricted cash decreased to $4,489,370 from $20,975,566 as of December 31,2004.  The decrease was a result of theuse of cash in the repurchase of shares from stockholders. We believe however, thatthe current amount of our working capital is adequate to meet our business planthrough 2006.

 

Net cash used by operating activities for the six months ended June 30,2005 was $619,728 as compared to net cash used by operations of $843,400 forthe six months ended June 30, 2004. The cash used in operations for the first sixmonths of fiscal 2005 was primarily in support of operating losses offsetfavorably by decreases in deferred costs and assets and liabilities transferredunder contractual obligations.

 

Net cash used by investing activities for the six months ended June 30,2005 was $38,147 and these funds were utilized to purchase capital equipment inareas of computer and related communications equipment and office furnitureassociated with the new corporate headquarters office in West Bridgewater,Massachusetts and laboratory and office equipment in our laboratory inGaithersburg, Maryland.

 

Net cash used in financing activities for the six months ended June 30,2005 was $16,319,626 as compared to cash provided from financing activities of$37,913 for same period of fiscal 2004. In February 2005, we utilizedapproximately $16.3 million to complete our issuer tender offer in which wepurchased from stockholders 5,203,001 shares of our common stock, whichincluded 754,275 shares issued upon exercise of stock options.

 

Net cash used in discontinued operations for the six months ended June30, 2005 was $47,020 as compared to cash provided from discontinued operationsof $244,286 for same period of fiscal 2004. The decrease in net income from discontinued operations is a result ofoperating margin generated from revenues and margin realized from the formerBBI Diagnostics and BBI Biotech operations which are included in the six months2004 financial statements, where those businesses are not part of the Company’s2005 operations.

 

*Investment in V.I. Technologies (former PanacosPharmaceuticals Investment)*

 

On June 11, 2005, V.I. Technologies, Inc. (“Vitex”) announcedthat it had closed its merger with Panacos Pharmaceuticals, Inc. (“Panacos”),pursuant to the Agreement and Plan of Merger dated as of June 2, 2004, asamended on November 5, 2004, November 28, 2004, December 8,2004, and February 14, 2005 (the “Merger Agreement”). The merger wasapproved by the stockholders of both Vitex and Panacos at their respectivemeetings on June 10, 2005. Panacos stockholders received an aggregate ofapproximately 227,500,000 shares of Vitex common stock, or slightly over 80% ofthe outstanding shares of Vitex Common Stock, after giving effect to themerger, and before giving effect to Vitex’s 1:10 reverse stock split, which wasannounced on June 14, 2005. The shares of Vitex common stock issued to thePanacos stockholders were registered with the Securities and ExchangeCommission on a Registration Statement on Form S-4. Panacos stockholdersreceived 6.75275 shares of Vitex common stock for each share of Panacos commonor preferred stock held by them at the effective time of the merger. As aresult of the merger and the subsequent reverse stock split as of June 30, 2005we owned 1,012,920 shares of Vitex common stock in place of our Panacos capitalstock. Fifteen percent of Vitex stock owned by former 

 

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ownersof Panacos stock, including fifteen percent of the Vitex common stock owned byus, which are being held in escrow per the Merger Agreement. On June 30,2005, the closing price of Vitex common stock was $5.40 per share as quoted onthe Nasdaq National Market.

 

On August 9, 2005 weannounced that between July 19, 2005 and August 3, 2005 we sold an aggregate of232,792 shares of Vitex for which we received approximately $1,771,000 in cashproceeds, net of charges and commission. We continue to hold an additional 628,190 shares of Vitex, and mayreceive an additional 151,938 shares which are being held in escrow until September2006, per the terms of the March 10, 2005 merger between Vitex and PanacosPharmaceuticals. The closing price per share of Vitex common stock as reportedon the Nasdaq National Market on August 8, 2005 was $7.42.  We may decide to sell additional shares fromtime to time, based on market conditions, our financial needs and plans, andother considerations we deem relevant.

 

*Related Party Transaction*

 

As of June 30, 2005, theCompany evaluated the recoverability of a $1,000,000 loan receivable togetherwith associated accrued interest of $174,382 from Mr. Richard T.Schumacher, which is reflected on the balance sheet in stockholders’ equity asa loan receivable and accrued interest as of June 30, 2005. Interest is accruedat a rate of prime plus 2%, or 8% at June 30, 2005. The Company’s reviewincluded an evaluation of the collateral associated with the loan, whichconsists of common stock of Pressure BioSciences. In February 2005,Mr. Schumacher repaid in full a loan outstanding between an entity controlledby him and a financial institution with proceeds from the sale of 130,000shares of the Company’s common stock in connection with the Company’s tenderoffer completed on February 11, 2005. As a result, the Company maintains afirst priority security interest in this collateral previously held by thefinancial institution, which consists of 489,659 shares of common stock ofPressure BioSciences as of June 30, 2005.

 

In connection with ourevaluation of the recoverability of our loan receivable and associated accruedinterest, we performed a test for impairment of our loan receivable togetherwith associated accrued interest by analyzing the value of the collateral. Thistest included, among other things, a review of the current trading price of ourcommon stock after taking into account factors that may affect our ability tosell such stock in the event we were to foreclose on the collateral to repaythe loan receivable and any accrued and unpaid interest. After performing ourimpairment test, we determined that the loan receivable together withassociated accrued interest was not impaired. The ultimate value that we mayrecover is dependent on numerous factors including our stock price, marketconditions relative to the value of and ability to sell the collateral, and thefinancial status of our President and Chief Executive Officer. Based on ourassessment as of June 30, 2005, we estimate that the value of the collateralapproximates the amount of our recorded loan receivable and accrued interest.  If actual market conditions are lessfavorable, our stock price declines or other factors arise that aresignificantly different than those experienced as of June 30, 2005, animpairment of the loan receivable together with associated accrued interest islikely to be required.  We plan tocontinue to monitor and test the collateral for impairment due in large part tothe relatively low trading volume of our common stock and recent volatility inour stock price, ranging from a low of $2.50 per share to a high of $3.97 pershare since June 30, 2005.

 

On June 30, 2005, we enteredinto a letter agreement with  Mr.Schumacher pursuant to which we agreed to pay Mr. Schumacher a lump sum paymentof $400,000 (i) as a reimbursement of costs and expenses, as well as lost wagesand severance benefits, resulting from his termination of employment inFebruary 2003, and (ii) as a bonus to reward Mr. Schumacher for his valuablecontributions to the Company and our stockholders in the overall restructuringand repositioning of our company over the past two years. Immediately followingthis payment on July 7, 2005, Mr. Schumacher paid us all unpaid interestaccrued to June 30, 2005 in the amount of $174,382 on his $1,000,000outstanding indebtedness to us. Mr. Schumacher agreed to release us from anyand all claims.

 

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**Recent Accounting Pronouncements**

 

In December 2004,the FASB issued FASB Statement No. 123 (revised 2004), “Share-BasedPayment” (“FAS 123(R)”). FAS 123(R) replaces FASB Statement No. 123, “Accountingfor Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accountingfor Stock Issued to Employees”. FAS 123(R) requires that the compensation costrelating to share-based payment transactions be recognized in financialstatements. That cost will be measured based on the fair value of the equity orliability instruments issued. The provisions of this Statement are effectivefor Small Business Issuers for the first fiscal year that begins after December15, 2005. The Company is currently evaluating the method of adoption and theimpact of FAS 123(R) on its financial position and results of operations.  The Company plans to continue to evaluate theform of any stock based incentive compensation it may offer in the future andits impact on the Company.

 

In May 2005, the FASBissued FASB Statement No. 154 “Accounting Changes and Error Corrections—areplacement of APB Opinion No. 20 and FASB Statement No. 3. This Statementreplaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3,Reporting Accounting Changes in Interim Financial Statements, and changes therequirements for the accounting for and reporting of a change in accountingprinciple. This Statement applies to all voluntary changes in accounting principle.It also applies to changes required by an accounting pronouncement in theunusual instance that the pronouncement does not include specific transitionprovisions. We will apply the provisions of this statement should it incur anyaccounting changes or should the need arise to correct errors.

 

**CRITICALACCOUNTING POLICIES**

 

Thecritical accounting policies we utilized in the preparation of the accompanyingfinancial statements are set forth in Part II, Item 6 of our Annual Report onForm 10-KSB for the year ended December 31, 2004, under the heading “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”. There have been no material changes to these policies since December 31,2004, except as follows:

 

*Investment in MarketableSecurities*

 

Our investment in long termmarketable securities currently reflects our holdings of V.I. Technologiescommon stock.  Previously, we held sharesin Panacos Pharmaceuticals, a private company, and its holdings were reflectedon a cost basis as presented on the December 31, 2004 balance sheet.  As a result of V.I. Technologies acquisitionof Panacos Pharmaceuticals shares during 2005, and our subsequent receipt ofV.I. Technologies shares, a NASDAQ publicly traded company, our investment isnow accounted for under Financial Accounting Standard 115 (Accounting forCertain Investments in Debt and Equity Securities), as available for sale. At June30, 2005 the fair value of the shares of common stock of Vitex we held wasapproximately $5.5 million based on the $5.40 closing price per share of Vitexcommon stock as reported on the Nasdaq National Market on June 30, 2005.

 

**CONTRACTUALOBLIGATIONS**

 

Therehave been no material changes to our contractual obligations and commitmentsfrom those described in our Annual Report on Form 10-KSB, except as follows:

 

OnMay 5, 2005, we entered into a lease agreement (the “Lease”) with Saul HoldingsLimited Partnership, pursuant to which have agreed to lease approximately 2,784square feet of office space located at 209 Perry Parkway, Gaithersburg,Maryland 20877 for a term of twelve months.

 

InJune 2004, Source Scientific, LLC agreed to provide engineering,manufacturing, and other related services for our pressure cycling technologyproducts until September 30, 2005. Under the agreement, it was estimatedthat we would pay $25,000 per month as an offset for services rendered bySource Scientific, LLC.  The maximumamount that we committed to pay to Source Scientific, LLC during the term ofthe agreement was $350,000. Since June 2004, we have paid Source Scientific,LLC an aggregate of approximately $525,000 under this agreement.  Accordingly, we have no further minimumcommitments under the agreement.  Weexpect to continue to utilize the services of Source Scientific, LLC for ourpressure cycling technology products.

 

The following is a summary of our futurecontractual obligations as of June 30, 2005: 

 

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| ** **                                           | ** ** | **Payments Due by Period** | ** **  |
|------------------------------------------------------|------------|----------------------------|-------------|
| **Contractual  Obligations**                         | ** ** | **Total**                  | ** **  | **Less than  1 year** | ** ** | **More than  1 year** | ** ** |
|                                                 |       |                       |        |   |   |   |   |
| Lease for Maryland operating office (1)              |       | $                          | 61,340      |   | $ | 61,340 |   | 0 |   |
| Obligations relating to Discontinued  Operations (2) |       | 89,697                     |        | 55,697 |   | 34,000 |   |
|                                                 |       |                       |        |   |   |   |   |
| **Total Contractual Obligations**                    | ** ** | **$**                      | **151,037** | ** ** | **$** | **117,037** | ** ** | **$** | **34,000** | ** ** |
|                                                      |            |                            |             |  |  |  |  |  |  |  |

 

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(1)  On May 5, 2005 we entered into a lease withSaul Holdings Limited Partnership and agreed to lease approximately 2,784square feet of office space located at 209 Perry Parkway, Gaithersburg,Maryland 20877 for a term of twelve months.  We will pay base annual rentin the amount of $55,680, or $4,640 per month during the initial term of theLease, plus $1,245 per month for operating expense.

 

(2)  In December 2000, we exited theclinical laboratory testing services segment and in February 2001, we soldthe assets of our wholly owned subsidiary, BBI Clinical Laboratories, Inc. toSpecialty Laboratories, Inc. of Santa Monica, CA.  Our estimate ofremaining short and long term accrued liabilities to exit the clinicallaboratory testing business is $89,697 as of June 30, 2005.   Seealso Note 3b in the condensed consolidated financial statements included inPart I, Item 1 of this Form 10-QSB.

 

**FORWARD-LOOKINGSTATEMENTS**

 

This Quarterly Report onForm 10-QSB contains forward-looking statements which involve risks anduncertainties, including statements regarding the Company’s plans, objectives,expectations and intentions.  In somecases, 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 toidentify forward-looking statements. Such statements include, withoutlimitation, statements made regarding the expected recovery and value of theloan receivable from our President and Chief Executive Officer; our belief thatwe have sufficient liquidity to finance operations through 2006;  the amount of cash necessary to operate ourbusiness; our ability to raise additional capital when and if needed;  our plans to continue to utilize the servicesof Source Scientific, LLC; our plans and expectations with respect to sales ofour pressure cycling technology products and services; our plans andexpectation with respect to the use of our available cash; and the anticipatedfuture financial performance of our company and products.  These forward-looking statements are onlypredictions and involve known and unknown risks, uncertainties, and otherfactors that may cause our actual results, levels of activity, performance, orachievements to be materially different from any future results, levels ofactivity, performance, or achievements expressed or implied by suchforward-looking statements. Also, these forward-looking statements representour best estimates and assumptions only as of the date of this report.  Except as otherwise required by law, weexpressly disclaim any obligation or undertaking to release publicly anyupdates or revisions to any forward-looking statement contained in the reportto reflect any change in our expectations or any change in events, conditions,or circumstances on which any of our forward-looking statements are based.

 

Factors, risks and uncertainties which might causeactual results to differ materially from those projected in the forward-lookingstatements contained herein include the following:

 

•                  We may requireadditional capital to further develop our pressure cycling technology productsand services and cannot assure that additional capital will be available onacceptable terms or at all.

 

•                  Our business maybe harmed if we encounter problems, delays, expenses and complications thattypically affect early-stage companies.

 

•                  Our business isdependent on the success of our pressure cycling technology products andservices, which has a limited operating history and has generated substantiallosses and only a limited amount of revenues to date.

 

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•                  Our pressurecycling technology business has a history of operating losses.

 

•                  Our pressurecycling technology products and services are new and have limited marketawareness or acceptance.

 

•                  The sales cycle ofour pressure cycling technology products has been lengthy and as a result, wehave incurred and may continue to incur significant expenses and we may notgenerate any significant revenue related to those products.

 

•                  If we are unableto protect our patents and other proprietary technology relating to ourpressure cycling technology products, our business will be harmed.

 

•                  If we infringe onthe intellectual property rights of others, our business will be harmed.

 

•                  We may be unableto adequately respond to rapid changes in technology.

 

•                  The market price of Vitex common stock could decline and we may be ableto sell Vitex shares at such times or prices as we may desire.

 

•                  The shares of Vitex common stock currently held in escrow may not bereleased to us in September 2006.

 

•                  We may not be ableto compete successfully.

 

•                  We currently havevery few employees and our future success is dependent on the continuedservices of Richard T. Schumacher, our President and Chief Executive Officer.

 

•                  We rely on thirdparties for our manufacturing, engineering and other related services.

 

•                  In connection withthe sale of our BBI Core Businesses, we continue to be exposed to contingentliabilities up to an amount equal to the purchase price for the BBI CoreBusinesses, which could prevent us from pursuing our remaining businessoperations in the event an indemnification claim is brought against us.

 

•                  We may not be ableto fully collect the $900,000 in aggregate principal amount of promissorynotes, which we received in connection with the sale of 70% of the ownershipinterests in Source Scientific, LLC.

 

•                  We may not be ableto fully collect the principal and interest due on a $1,000,000 loan receivablefrom our President and Chief Executive Officer, which could harm our businessand financial condition.

 

•                  The market pricefor our common stock may fluctuate due to low trading volume, and it may bedifficult for you to sell your stock at the prices and times you desire.

 

•                  Mr. RichardT. Schumacher controls a significant percentage of voting power and mayexercise his voting power in a manner adverse to other stockholders’ interests.

 

•                  Provisions in ourcharter and by-laws and our stockholders rights plan may discourage orfrustrate stockholders’ attempts to remove or replace our current management.

 

Certain of these andother factors which might cause actual results to differ materially from thoseprojected are more fully set forth under the caption “Risk Factors” in theCompany’s Annual Report on Form 10-KSB for the year ended December 31, 2004 andin the Company’s other reports and statements the Company files from time totime with the SEC.

 

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**ITEM3.  CONTROLS AND PROCEDURES**

 

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

 

As of June 30, 2005, we carried out an evaluation, under thesupervision and with the participation of our management, including ourPresident and Chief Executive Officer (Principal Executive Officer) and ChiefFinancial Officer (Principal Financial Officer) of the effectiveness of thedesign and operation of our disclosure controls and procedures, as defined inRules 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 FinancialOfficer) concluded that our disclosure controls and procedures are effective inenabling us to record, process, summarize and report information required to beincluded in our periodic SEC filings within the required time period.

 

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

 

**PART II. OTHER INFORMATION**

 

**ITEM 1.    LEGAL PROCEEDINGS**

 

None.

 

**ITEM2.    UNREGISTERED SALES OF EQUITYSECURITES****AND USE OF PROCEEDS**

 

 None

 

**ITEM 3.    DEFAULT UPONSENIOR SECURITIES**

 

None.

 

**ITEM 4.  SUBMISSION OF MATTERS TOA VOTE OF SECURITY HOLDERS**

 

TheCompany held a Special Meeting in Lieu of Annual Meeting of Stockholders on June16, 2005 (the “Meeting”). At the Meeting, the stockholders elected one ClassIII director to hold office until the 2008 Annual Meeting of Stockholders anduntil his successor is duly elected and qualified and to adopt the Company’s2005 Equity Incentive Plan.  The votingresults with respect to each matter were as follows:

 

Proposal1 - In the election of directors, Mr. Richard T. Schumacher was elected as aClass III director, with 1,905,410 shares voting in favor and 41,269 shares withheld.   The terms of each of Mr. J. Donald Payne,Mr. P. Thomas Vogel, R. Wayne Fritzche and Calvin A. Saravis all continuedfollowing the Meeting.  Mr. Kevin W.Quinlan’s term expired at the Meeting.

 

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Proposal2 - The proposal to adopt the Company’s 2005 Equity Incentive Plan was approvedby the stockholders as follows: 

 
| **For**   | ** ** | **Against** | ** ** | **Abstained** | ** ** | **Broker Non-Votes(1)** | ** ** |
|-----------|------------|-------------|------------|---------------|------------|-------------------------|------------|
| 1,003,071 |       | 73,303      |       | 6,292         |       | 864,013                 |       |

 

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(1) The affirmative vote of the majority of theshares present in person or represented by proxy at the Meeting and entitled tovote on the proposal was required to pass Proposal 2.  Significantly fewer shares voted on Proposal2 than voted on Proposal 1, the election of directors. “Broker non-votes”accounted for this difference in voted shares. For certain types of “non-routine”proposals, such as Proposal 2, brokers do not have the discretionary authorityto vote their clients’ shares, and therefore they must refrain from voting onsuch proposals in the absence of instructions from their clients.

 

**ITEM 5.  OTHER INFORMATION**

 

None.

 

**ITEM6.  EXHIBITS**

 
| **Exhibits** | ** ** | ** **                                                                                                                                                                                                                                                                              | ** ** | **Reference**  |
|--------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------|
|         |       |                                                                                                                                                                                                                                                                                    |       |           |
| 10.1         |       | Letter Agreement dated  June 30, 2005 by and between Pressure BioSciences and Richard T. Schumacher  filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with  the Securities and Exchange Commission on July 7, 2005.                                         |       | *              |
| 10.2         |       | Flex Space Office Lease  dated May 5, 2005 by and between Saul Holdings Limited Partnership and  Pressure BioSciences, Inc. filed as Exhibit 10.1 to the Company’s  Current Report on  Form  8-K filed with the Securities and Exchange Commission on May 11, 2005. |       | *              |
| 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 herewith |
| 31.1         |       | 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 herewith |
| 32.1         |       | 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 herewith |
| 32.1         |       | 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 |

 

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  * Inaccordance with Rule 12b-32 under the Securities Exchange Act of 1934, asamended, reference is made to the document previously filed with the Securitiesand Exchange Commission, which document is hereby incorporated by reference.

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
|   | PRESSURE  BIOSCIENCES, INC. |
|--------|-----------------------------|
|   | (Registrant)                |
|   |                        |   |
|   |                        |   |
| Date:  | August  15, 2005            |   |   | By: |  /s/  Richard  T. Schumacher | * * |
|   |                        | Richard  T. Schumacher |
|   |                        | President,  Chief Executive Officer and Treasurer |
|   |                        |   |
|   |                        |   |
|   | * *                    | By: | /s/  Steven  E. Hebert | * * |
|   |                        | Steven  E. Hebert |
|   |                        | Vice  President-Finance and Chief Financial Officer |
|   |                        | (Principal  Financial and Accounting Officer) |
|        |                             |  |  |  |  |  |  |

 

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