**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C. 20549**

 

## **Form 10-QSB**

 

**(MarkOne)**

 

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

 

**For thequarterly period ended September 30, 2005 or**

 

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

 

**For thetransition period from                        to                                **

 

**Commissionfile number   0-21615**

** **

**PRESSURE BIOSCIENCES, INC.**

(ExactName of Small Business Issuer as Specified 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’stelephone 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

 

Indicate by checkmark whether the registrant is a shell company (as defined in Exchange Act Rule12b-2).

 

o Yes      ý No

 

The number ofshares outstanding of the Issuer’s common stock as of November 8, 2005 was2,424,189**.**

 

Transitional Small Business Disclosure Format (check one):

 

o Yes      ý No

 

----

 

TABLE OF CONTENTS

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

 

2

----

 

**Part I. Financial Information**

 

**Item 1.Financial Statements**

 

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

**(FORMERLYBOSTON BIOMEDICA, INC. AND SUBSIDIARIES)**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

** **
| ** **                                                                                                                | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|------------------|------------|
| ** **                                                                                                                | ** ** | **2005**          | ** ** | **2004**         | ** ** |
| ** **                                                                                                                | ** ** | **(unaudited)**   | ** ** | ** **       | ** ** |
| ASSETS                                                                                                                    |       |              |       |             |       |
| CURRENT ASSETS:                                                                                                           |       |              |       |             |       |
| Cash and cash equivalents                                                                                                 |       | $                 | 6,090,097  |             | $          | 21,201,790 |   |
| Restricted cash                                                                                                           |       | 163,296           |       | 29,816           |       |
| Accounts receivable, less allowances of $115,907 and $205,000                                                             |       | 9,666             |       | 213,532          |       |
| Inventories (net)                                                                                                         |       | 343,948           |       | 157,817          |       |
| Investments in marketable securities                                                                                      |       | 1,766             |       | 3,553            |       |
| Escrow deposit related to sale of assets to SeraCare                                                                      |       | 1,108,486         |       | —           |       |
| Prepaid income taxes                                                                                                      |       | 189,253           |       | —           |       |
| Income tax receivable                                                                                                     |       | 122,666           |       | —           |       |
| Prepaid expenses, deposits, and other current assets                                                                      |       | 83,386            |       | 161,028          |       |
| Total current assets                                                                                                      |       | 8,112,564         |       | 21,767,536       |       |
|                                                                                                                      |       |              |       |             |       |
| Property and equipment, net                                                                                               |       | 60,019            |       | 19,793           |       |
|                                                                                                                      |       |              |       |             |       |
| OTHER ASSETS:                                                                                                             |       |              |       |             |       |
| Intangible assets, net                                                                                                    |       | 437,712           |       | 474,188          |       |
| Assets transferred under contractual arrangements                                                                         |       | 1,387,531         |       | 1,319,997        |       |
| Escrow deposit related to sale of assets to SeraCare                                                                      |       | —            |       | 1,096,756        |       |
| Investments in marketable securities available for sale                                                                   |       | 6,661,517         |       | 9,178            |       |
| Total other assets                                                                                                        |       | 8,486,761         |       | 2,900,119        |       |
|                                                                                                                      |       |              |       |             |       |
| TOTAL ASSETS                                                                                                              |       | $                 | 16,659,344 |             | $          | 24,687,448 |   |
|                                                                                                                      |       |              |       |             |       |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                                                |       |              |       |             |       |
|                                                                                                                      |       |              |       |             |       |
| CURRENT LIABILITIES:                                                                                                      |       |              |       |             |       |
| Accounts payable                                                                                                          |       | $                 | 77,432     |             | $          | 41,272 |   |
| Accrued employee compensation                                                                                             |       | 71,633            |       | 86,525           |       |
| Accrued SeraCare liabilities                                                                                              |       | 251,669           |       | 46,259           |       |
| Other accrued expenses                                                                                                    |       | 139,069           |       | 305,038          |       |
| Income taxes payable                                                                                                      |       | —            |       | 175,011          |       |
| Liabilities from discontinued operations                                                                                  |       | 54,888            |       | 108,049          |       |
| Total current liabilities                                                                                                 |       | 594,691           |       | 762,154          |       |
|                                                                                                                      |       |              |       |             |       |
| LONG TERM LIABILITIES                                                                                                     |       |              |       |             |       |
| Liabilities from discontinued operations                                                                                  |       | 34,000            |       | 34,000           |       |
| Deferred tax liability                                                                                                    |       | 2,575,220         |       | —           |       |
| Liabilities transferred under contractual arrangements                                                                    |       | 1,057,437         |       | 499,148          |       |
| Total Long Term Liabilities                                                                                               |       | 3,666,657         |       | 533,148          |       |
|                                                                                                                      |       |              |       |             |       |
| Total Liabilities                                                                                                         |       | 4,261,348         |       | 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                                                                  |       | (1,000,000        | )          | (1,134,262       | )          |
| Accumulated other comprehensive income                                                                                    |       | 4,080,142         |       | —           |       |
| Retained earnings                                                                                                         |       | 3,266,592         |       | 2,171,284        |       |
|                                                                                                                      |       |              |       |             |       |
| Total stockholders’ equity                                                                                           |       | 12,397,996        |       | 23,392,146       |       |
|                                                                                                                      |       |              |       |             |       |
| TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY                                                                         |       | $                 | 16,659,344 |             | $          | 24,687,448 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements

 

3

----

 

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

**(FORMERLYBOSTON BIOMEDICA, INC. AND SUBSIDIARIES)**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**(UNAUDITED)**

 
| ** **                                                                                                                                                                                                                                              | ** ** | **For the three months ended** | ** ** | **For the nine months ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|-------------------------------|------------|
| ** **                                                                                                                                                                                                                                              | ** ** | **September 30**               | ** ** | **September 30**              | ** ** |
| ** **                                                                                                                                                                                                                                              | ** ** | **2005**                       | ** ** | **2004**                      | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                                                                                                                                                                                    |       |                           |       |                          |       |   |   |   |   |
| REVENUE:                                                                                                                                                                                                                                                |       |                           |       |                          |       |   |   |   |   |
| PCT Products, services, other                                                                                                                                                                                                                           |       | $                              | 11,742     |                          | $          | 2,383 |   | $ | 21,984 |   | $ | 12,939 |   |
| Grant Revenues                                                                                                                                                                                                                                          |       | —                         |       | 66,518                        |       | — |   | 292,054 |   |
| Total revenue                                                                                                                                                                                                                                           |       | 11,742                         |       | 68,901                        |       | 21,984 |   | 304,993 |   |
|                                                                                                                                                                                                                                                    |       |                           |       |                          |       |   |   |   |   |
| COSTS AND EXPENSES:                                                                                                                                                                                                                                     |       |                           |       |                          |       |   |   |   |   |
| Cost of PCT products & services                                                                                                                                                                                                                     |       | 33,966                         |       | 20,654                        |       | 61,653 |   | 55,673 |   |
| Research and development                                                                                                                                                                                                                                |       | 156,529                        |       | 239,315                       |       | 374,147 |   | 672,087 |   |
| Selling and marketing                                                                                                                                                                                                                                   |       | 39,954                         |       | 12,278                        |       | 93,590 |   | 138,158 |   |
| General and administrative                                                                                                                                                                                                                              |       | 320,195                        |       | 140,597                       |       | 1,361,157 |   | 762,597 |   |
| Stock based compensation                                                                                                                                                                                                                                |       | —                         |       | 281,737                       |       | — |   | 281,737 |   |
| Total operating costs and expenses                                                                                                                                                                                                                      |       | 550,644                        |       | 694,581                       |       | 1,890,547 |   | 1,910,252 |   |
|                                                                                                                                                                                                                                                    |       |                           |       |                          |       |   |   |   |   |
| Operating loss from continuing operations                                                                                                                                                                                                               |       | (538,902                       | )          | (625,680                      | )          | (1,868,563 | ) | (1,605,259 | ) |
|                                                                                                                                                                                                                                                    |       |                           |       |                          |       |   |   |   |   |
| OTHER INCOME (EXPENSES):                                                                                                                                                                                                                                |       |                           |       |                          |       |   |   |   |   |
| Realized gain on securities available for sale                                                                                                                                                                                                          |       | 2,838,491                      |       | —                        |       | 2,838,491 |   | — |   |
| Other operating (charges), net                                                                                                                                                                                                                          |       | (140,648                       | )          | (30,612                       | )          | (528,285 | ) | (333,607 | ) |
| Interest income                                                                                                                                                                                                                                         |       | 62,699                         |       | 11,705                        |       | 187,559 |   | 15,243 |   |
| Interest expense                                                                                                                                                                                                                                        |       | —                         |       | (18,483                       | )          | — |   | (69,453 | ) |
| Total other income (expenses)                                                                                                                                                                                                                           |       | 2,760,542                      |       | (37,390                       | )          | 2,497,765 |   | (387,817 | ) |
|                                                                                                                                                                                                                                                    |       |                           |       |                          |       |   |   |   |   |
| Income (loss) from  continuing operations before income taxes                                                                                                                                                                                           |       | 2,221,640                      |       | (663,070                      | )          | 629,202 |   | (1,993,076 | ) |
|                                                                                                                                                                                                                                                    |       |                           |       |                          |       |   |   |   |   |
| Income tax (provision)  benefit from continuing operations                                                                                                                                                                                              |       | (912,671                       | )          | —                        |       | (457,535 | ) | 244,036 |   |
|                                                                                                                                                                                                                                                    |       |                           |       |                          |       |   |   |   |   |
| Income (loss) from continuing operations                                                                                                                                                                                                                |       | 1,308,969                      |       | (663,070                      | )          | 171,667 |   | (1,749,040 | ) |
| Discontinued operations:                                                                                                                                                                                                                                |       |                           |       |                          |       |   |   |   |   |
| (Loss) / income from discontinued operations (net of income tax  benefit of $1,720 and provision of $913 for the three and nine months ended  in 2005, and provision of $79,281 and $165,851 respectively for the three and  nine months ended in 2004) |       | (3,340                         | )          | (440,212                      | )          | 1,995 |   | 140,946 |   |
|                                                                                                                                                                                                                                                    |       |                           |       |                          |       |   |   |   |   |
| Gain on sale of net assets related to discontinued operations (includes  effect of income taxes refunds of $921,648 in 2005, and net of income taxes  accrued of $3,925,200 in 2004)                                                                    |       | 921,648                        |       | 15,868,025                    |       | 921,648 |   | 15,868,025 |   |
| Net income from discontinued operations                                                                                                                                                                                                                 |       | 918,308                        |       | 15,427,813                    |       | 923,643 |   | 16,008,971 |   |
|                                                                                                                                                                                                                                                    |       |                           |       |                          |       |   |   |   |   |
| Net income                                                                                                                                                                                                                                              |       | $                              | 2,227,277  |                          | $          | 14,764,743 |   | $ | 1,095,310 |   | $ | 14,259,931 |   |
|                                                                                                                                                                                                                                                    |       |                           |       |                          |       |   |   |   |   |
| Income / (loss) per share  from continuing operations - basic                                                                                                                                                                                           |       | $                              | 0.54       |                          | $          | (0.10 | ) | $ | 0.05 |   | $ | (0.26 | ) |
| Income per share from  discontinued - basic                                                                                                                                                                                                             |       | $                              | 0.38       |                          | $          | 2.25 |   | $ | 0.30 |   | $ | 2.34 |   |
| Net income per share,  basic                                                                                                                                                                                                                            |       | $                              | 0.92       |                          | $          | 2.15 |   | $ | 0.35 |   | $ | 2.08 |   |
|                                                                                                                                                                                                                                                    |       |                           |       |                          |       |   |   |   |   |
| Income / (loss) per share  from continuing operations - diluted                                                                                                                                                                                         |       | $                              | 0.52       |                          | $          | (0.10 | ) | $ | 0.05 |   | $ | (0.26 | ) |
| Income per share from  discontinued - diluted                                                                                                                                                                                                           |       | $                              | 0.36       |                          | $          | 2.25 |   | $ | 0.30 |   | $ | 2.34 |   |
| Net income per share,  diluted                                                                                                                                                                                                                          |       | $                              | 0.88       |                          | $          | 2.15 |   | $ | 0.35 |   | $ | 2.08 |   |
|                                                                                                                                                                                                                                                    |       |                           |       |                          |       |   |   |   |   |
| Weighted average number of shares used to calculate basic per share  (loss) / income                                                                                                                                                                    |       | 2,424,189                      |       | 6,824,075                     |       | 3,157,495 |   | 6,843,329 |   |
|                                                                                                                                                                                                                                                    |       |                           |       |                          |       |   |   |   |   |
| Weighted average number of shares used to calculate diluted per share  (loss) / income                                                                                                                                                                  |       | 2,537,987                      |       | 6,824,075                     |       | 3,202,101 |   | 6,843,329 |   |
|                                                                                                                                                                                                                                                         |            |                                |            |                               |            |  |  |  |  |  |  |  |  |  |  |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements

 

4

----

 

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

**(FORMERLYBOSTON BIOMEDICA, INC. AND SUBSIDIARIES)**

**CONDENSED CONSOLIDATED STATEMENTSOF COMPREHENSIVE INCOME**

**(UNAUDITED**)

 
| ** **                                                       | ** ** | **For the three months ended** | ** ** | **For the nine months ended** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------|------------|-------------------------------|------------|
| ** **                                                       | ** ** | **September 30**               | ** ** | **September 30**              | ** ** |
| ** **                                                       | ** ** | **2005**                       | ** ** | **2004**                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| Other Comprehensive  Income:                                     |       |                           |       |                          |       |   |   |   |   |
|                                                             |       |                           |       |                          |       |   |   |   |   |
| Net income                                                       |       | $                              | 2,227,277  |                          | $          | 14,764,743 |   | $ | 1,095,310 |   | $ | 14,259,931 |   |
|                                                             |       |                           |       |                          |       |   |   |   |   |
| Unrealized gain on marketable securities during the period       |       | 1,194,772                      |       | —                        |       | 6,655,362 |   | — |   |
|                                                             |       |                           |       |                          |       |   |   |   |   |
| Less: Income tax related  to items of other comprehensive income |       | (611,472                       | )          | —                        |       | (2,575,220 | ) | — |   |
|                                                             |       |                           |       |                          |       |   |   |   |   |
| Total other comprehensive income, net of taxes                   |       | 583,300                        |       | —                        |       | 4,080,142 |   | — |   |
|                                                             |       |                           |       |                          |       |   |   |   |   |
| Comprehensive income                                             |       | $                              | 2,810,577  |                          | $          | 14,764,743 |   | $ | 5,175,452 |   | $ | 14,259,931 |   |
|                                                                  |            |                                |            |                               |            |  |  |  |  |  |  |  |  |  |  |  |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements

 

5

----

 

**PR****ESSURE BIOSCIENCES, INC., ANDSUBSIDIARIES**

**(FORMERLYBOSTON BIOMEDICA INC. AND SUBSIDIARIES)**

**CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS**

**(UNAUDITED)**

 
| ** **                                                                                                    | ** ** | **For the nine months ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                                                                    | ** ** | **September 30**              | ** ** |
| ** **                                                                                                    | ** ** | **2005**                      | ** ** | **2004** | ** ** |
| CASH FLOWS FROM OPERATING  ACTIVITIES:                                                                        |       |                          |       |   |   |
| Net income                                                                                                    |       | $                             | 1,095,310  |   | $ | 14,259,931 |   |
| Less income from discontinued operations                                                                      |       | 923,643                       |       | 16,008,971 |   |
| Income (loss) from continuing operations                                                                      |       | 171,667                       |       | (1,749,040 | ) |
|                                                                                                          |       |                          |       |   |   |
| Adjustments to reconcile income (loss) from continuing operations to  net cash used in operating activities : |       |                          |       |   |   |
|                                                                                                          |       |                          |       |   |   |
| Depreciation and amortization                                                                                 |       | 61,248                        |       | 115,203 |   |
| Stock based compensation                                                                                      |       | —                        |       | 281,737 |   |
| Provision for doubtful accounts                                                                               |       | —                        |       | 250 |   |
| Realized gain on sale of marketable securities                                                                |       | (2,838,491                    | )          | — |   |
| Accrued interest received on loan outstanding from Director / CEO                                             |       | 134,262                       |       | — |   |
|                                                                                                          |       |                          |       |   |   |
| Changes in operating  assets and liabilities:                                                                 |       |                          |       |   |   |
| Accounts receivable                                                                                           |       | 203,867                       |       | (8,629 | ) |
| Inventories                                                                                                   |       | (186,131                      | )          | 35,783 |   |
| Investments in marketable securities                                                                          |       | 1,787                         |       | 3,243 |   |
| Income tax receivable                                                                                         |       | (122,666                      | )          | — |   |
| Prepaid income taxes                                                                                          |       | (189,253                      | )          | — |   |
| Escrow deposits and deferred costs                                                                            |       | (11,729                       | )          | — |   |
| Prepaid expenses and other current assets                                                                     |       | 77,640                        |       | 34,869 |   |
| Assets and liabilities transferred under contractual obligations,  (net)                                      |       | 490,755                       |       | (8,095 | ) |
| Other accrued expenses                                                                                        |       | (165,969                      | )          | 306,363 |   |
| Income tax payable                                                                                            |       | (175,011                      | )          | — |   |
| Accounts payable                                                                                              |       | 36,160                        |       | (113,568 | ) |
| Accrued employee compensation                                                                                 |       | (14,891                       | )          | 21,505 |   |
| Accrued expenses due Seracare                                                                                 |       | 205,409                       |       | — |   |
| Deferred tax liability                                                                                        |       | —                        |       | (100,364 | ) |
| Net cash used in operating activities                                                                         |       | (2,321,346                    | )          | (1,180,743 | ) |
|                                                                                                          |       |                          |       |   |   |
| CASH FLOWS FROM INVESTING  ACTIVITIES:                                                                        |       |                          |       |   |   |
| Payments for additions to property and equipment                                                              |       | (64,998                       | )          | — |   |
| Proceeds from sale of marketable securities                                                                   |       | 2,841,510                     |       | — |   |
| Net cash provided by investing activities                                                                     |       | 2,776,512                     |       | — |   |
|                                                                                                          |       |                          |       |   |   |
| CASH FLOWS FROM FINANCING  ACTIVITIES:                                                                        |       |                          |       |   |   |
| Proceeds from issuance of common stock                                                                        |       | —                        |       | 86,905 |   |
| Use of funds in repurchase of common stock & warrants                                                     |       | (16,303,862                   | )          | — |   |
| Escrow deposits related to sale of assets Seracare                                                            |       | —                        |       | (2,503,632 | ) |
| Restricted cash due SeraCare                                                                                  |       | (133,480                      | )          | — |   |
|                                                                                                          |       |                          |       |   |   |
| Net cash used in financing activities                                                                         |       | (16,437,342                   | )          | (2,416,728 | ) |
|                                                                                                          |       |                          |       |   |   |
| DECREASE IN CASH AND CASH  EQUIVALENTS:                                                                       |       | (15,982,176                   | )          | (3,597,470 | ) |
| Change in cash and cash equivalents provided by discontinued  operations                                      |       | 870,483                       |       | 28,225,626 |   |
| Cash and cash equivalents, beginning of period                                                                |       | 21,201,790                    |       | 967,185 |   |
| Cash and cash equivalents, end of period                                                                      |       | $                             | 6,090,097  |   | $ | 25,595,341 |   |
|                                                                                                               |            |                               |            |  |  |  |  |  |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements

 

6

----

 

**1****) Basisof Presentation and Summary of 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 nine months ended September 30,2005 are not necessarily indicative of the results that may be expected for theyear ending December 31, 2005.  Forfurther information, 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 PBIDiagnostics and PBI Biotech divisions (also referred to as “business units”) asdiscontinued operations.

 

In June 2004, PBI Source Scientific, Inc.transferred certain of its assets and liabilities to a newly formed limitedliability company known as Source Scientific, LLC. At the time of the transfer,PBI Source Scientific, Inc. owned 100% of the ownership interests ofSource Scientific, LLC. PBI Source Scientific, Inc. subsequently sold 70% ofits ownership interests of Source Scientific, LLC to Mr. Richard Hensonand Mr. Bruce A. Sargeant pursuant to a purchase agreement (the “SourceScientific Agreement”). As a result of the sale of 70% of PBI Source’sownership interests, Mr. Henson and Mr. Sargeant each own 35% and PBISource owns the remaining 30% of Source Scientific, LLC.  Under the Source Scientific Agreement, theCompany received notes receivable in the aggregate amount of $900,000 (the “Notes”)payable at the end of three years bearing 8% interest. Despite the Company’sintent to exit the laboratory instrumentation business, the Company may beviewed as having a continuing involvement in the business of Source Scientific,LLC due to the fact that the Company has the right to designate one or potentiallythree members of the Board of Managers of Source Scientific, LLC. Because ofthis factor, even though the transaction is treated as a divestiture for legalpurposes, the Company has not recognized the transaction as a divestiture foraccounting purposes in accordance with Securities and Exchange Commission (“SEC”)Staff Accounting 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 September 30, 2005 underthe captions “Assets transferred under contractual arrangements” and “Liabilitiestransferred under contractual arrangements” and has recorded a charge to incomeunder the caption “Other operating (charges), net” in the Company’s unauditedcondensed consolidated statement of operations for the three and nine monthsended September 30, 2005 and 2004 equal to the amount of the loss attributableto the business of Source Scientific LLC for the respective periods presented.In accordance 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

----

 

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 charges, net” hereunder. Theoperating results of the Company’s PBI Diagnostics and PBI Biotech divisions,together with the results of the discontinued operations of the Company’sclinical laboratory testing services segment (sold in February 2001) arereported as “Discontinued Operations” hereunder.   Certain amounts included in the prior period’sfinancial statements have been reclassified to conform to the current period’spresentation.  All significantintercompany accounts 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. Actual resultscould differ from the estimates and assumptions used by management.

 

*Cash and Cash Equivalents*

 

As of September 30, 2005,the Company had $6,090,097 invested in US Treasury money market funds andcertificates of deposits which were in increments of less than $100,000 andinsured under the FDIC.

 

TheCompany’s policy is to invest available cash in short-term, investment grade,interest-bearing obligations, including money market funds and certificates ofdeposit.  Investments purchased withinitial maturities of three months or less are valued at cost plus accruedinterest, which approximates fair market value.

 

The Company’s restrictedcash of $163,296 consisted of payments from customers of its former businessunits who inadvertently remitted payments to the Company in error. The cash isdeposited in the Company’s lockbox system, analyzed, and where appropriate,remitted to SeraCare in a timely fashion. The balances reflected are thoseaffected by timing of funds transferred to SeraCare. At the time the cash isclassified as restricted, a corresponding liability is established to have noeffect on net assets of the Company.

 

*Investmentin Marketable Securities*

 

The Company’s investment in marketable securitiesreflects its holdings of common stock of Panacos Pharmaceuticals Inc. (formerlyV.I. Technologies (“Vitex”)), a publicly traded company listed on the NasdaqNational Market.  The Company held sharesin Panacos Pharmaceuticals Inc. (Panacos), a private company prior to itsmerger with Vitex in March 2005, and this investment was reflected on a costbasis as presented on the December 31, 2004 financial statements.  As a result of Vitex’s merger with PanacosPharmaceuticals in March 2005, and the Company’s subsequent receipt of sharesof Vitex common stock in exchange for all of its 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 September 30, 2005 the fair value of theCompany’s remaining shares of Panacos common stock was approximately $6.7million based on the closing price of $9.74 per share of Panacos common stockas reported on the Nasdaq National Market on September 30, 2005 (See Note 11).

 

8

----

 

*Stock-Based Compensation*

 

The Company has elected to follow Accounting Principles Board OpinionNo. 25, “Accounting for Stock Issued to Employees” (APB 25) andrelated interpretations in accounting for its employee stock options. UnderAPB 25, the intrinsic value method is used to account for stock optionsgranted to employees. The Company has adopted the disclosure-only provisions ofStatement of Financial Accounting Standards No. 123, “Accounting for Stock-BasedCompensation” (SFAS 123).

 

As the Company accounts for its plans underthe recognition and measurement principles of APB 25, “Accounting for StockIssued to Employees,” and related interpretations, no compensation cost hasbeen recognized under SFAS 123 because the exercise price of employee stock optionsequals the market price of the underlying stock on the date of grant, nocompensation expense is recorded.  SFAS 123was amended by SFAS 148 “Accounting for Stock-Based Compensation- Transitionand Disclosure”, which requires companies to disclose in interim financialstatements the pro forma effect on net income per common share of the estimatedfair market value of stock options or warrants issued to employees. Had compensation cost for awards under those plansbeen determined based on the grant date fair values, consistent with the methodrequired under SFAS 123, the Company’s net income and net income per sharewould have been impacted by the pro forma amounts indicated below:

** **
| ** **                                                                                   | ** ** | **For the Three**              | ** ** | **For the Nine**               | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| ** **                                                                                   | ** ** | **Months Ended September 30,** | ** ** | **Months Ended September 30,** | ** ** |
| ** **                                                                                   | ** ** | **2005**                       | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income - as reported                                                                     |       | $                              | 2,227,277  |                           | $          | 14,764,743 |   | $ | 1,095,310 |   | $ | 14,259,931 |   |
| Add back: Stock-based compensation in net income, as reported                                |       | —                         |       | 281,737                        |       | — |   | 281,737 |   |
| Deduct: Stock-based employee compensation expense determined under  fair value based methods |       | (29,785                        | )          | (281,994                       | )          | (117,293 | ) | (355,996 | ) |
| Net income - pro forma                                                                       |       | $                              | 2,197,492  |                           | $          | 14,764,486 |   | $ | 978,017 |   | $ | 14,185,672 |   |
|                                                                                         |       |                           |       |                           |       |   |   |   |   |
| Basic net income per share  - as reported                                                    |       | $                              | 0.92       |                           | $          | 2.15 |   | $ | 0.35 |   | $ | 2.08 |   |
| Basic net income per share  - pro forma                                                      |       | $                              | 0.91       |                           | $          | 2.15 |   | $ | 0.31 |   | $ | 2.07 |   |
|                                                                                         |       |                           |       |                           |       |   |   |   |   |
| Diluted net income per  share - as reported                                                  |       | $                              | 0.88       |                           | $          | 2.15 |   | $ | 0.35 |   | $ | 2.08 |   |
| Diluted net income per  share - pro forma                                                    |       | $                              | 0.87       |                           | $          | 2.15 |   | $ | 0.31 |   | $ | 2.08 |   |
|                                                                                              |            |                                |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

On June 16, 2005, the Company’s stockholders approved the Company’s2005 Equity Incentive Plan (the “Plan”), pursuant to which an aggregate of1,000,000 shares of common stock of the Company are reserved for issuance uponexercise of stock options or other equity awards made under the Plan.  Under the Plan, the Company may award stockoptions, stock issuances and other equity interests in the Company toemployees, officers, directors, consultants and advisors of the Company and itssubsidiaries and to any other persons the Board of Directors determines to havemade or is expected to make contributions to the Company.  Since approval of the Plan, 360,000 optionshave been granted under the Plan.

 

**(2) Recent Accounting Standards**

 

In May 2005 the FASB issued Statement of FinancialAccounting Standards (SFAS) No. 154, “Accounting Changes and Error Corrections,a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS 154requires retrospective application to prior periods’ financial statements forchanges in accounting principle, unless it is impracticable to determine eitherthe period-specific effects or the cumulative effect of the change. SFAS 154also requires that retrospective application of a change in accountingprinciple be limited to the direct effects of the change. Indirect effects of achange in accounting principle, such as a change in non-discretionaryprofit-sharing 

 

9

----

 

payments resulting from an accounting change, should be recognized inthe period of the accounting change. SFAS 154 also requires that a change indepreciation, amortization, or depletion method for long-lived, non-financialassets be accounted for as a change in accounting estimate affected by a changein accounting principle. SFAS 154 is effective for accounting changes andcorrections of errors made in fiscal years beginning after December 15, 2005.Early adoption is permitted for accounting changes and corrections of errorsmade in fiscal years beginning after the date this Statement is issued. TheCompany is required to adopt the provisions of SFAS 154, as applicable,beginning in fiscal 2007. We do not expect the adoption of this standard tohave a material impact on our consolidated financial position, results ofoperations or cash flows.

 

In December 2004, the Financial Accounting StandardsBoard (FASB) issued a revision of Statement of Financial Accounting StandardsNo. 123, “Accounting for Stock-Based Compensation” (SFAS 123R). SFAS 123Rsupersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” andits related implementation guidance and eliminates the alternative to useOpinion 25’s intrinsic value method of accounting that was provided inStatement 123 as originally issued. Under Opinion 25, issuing stock options toemployees generally resulted in recognition of no compensation cost. SFAS123(R) requires all entities recognize compensation expense in an amount equal tothe fair value of share-based payments (e.g. stock options and restrictedstock) granted to employees. This applies to all transactions involving theissuance of our own equity in exchange for goods or services, includingemployee services. Upon adoption of SFAS 123(R), all stock option awards toemployees will be recognized as expense in the income statement, typically overany related vesting period. SFAS 123(R) carried forward the guidance from SFAS123 for payment transactions with non-employees. The Securities and ExchangeCommission amended the compliance date on April 14, 2005, to requirepublic companies to adopt the standard as of the beginning of the first annualperiod that begins after June 15, 2005. We will, therefore, be required toadopt SFAS 123(R) in the first quarter of 2006.

 

SFAS 123(R) permits public companies to adopt its requirements usingone of two methods: 

 

1.               Modified Prospective Method under which compensationcost is recognized beginning with the effective date (a) based on therequirements of SFAS 123(R) for all share-based payments granted after theeffective date and (b) based on the requirements of SFAS 123 for allawards granted to employees prior to the effective date of SFAS 123(R) thatremain unvested on the effective date.

 

2.               Modified Retrospective Method which includes therequirements of the modified prospective method described above, but alsopermits entities to restate based on the amounts previously recognized underSFAS 123 for purposes of pro forma disclosures either (a) all priorperiods presented or (b) prior interim periods of the year of adoption.

 

At this time, we have not determined which method ofadoption we will use.

 

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

 

(a) BBI Diagnostics and BBI 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 September 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”.

 

10

----

 

(b) Clinical Laboratory Testing Services Segment

 

In February 2001, the Company sold the business andcertain assets and liabilities of its clinical laboratory business, BBIClinical Laboratories, Inc. (“BBICL”), a wholly-owned subsidiary of theCompany, to a third party for an adjusted purchase price of $8,958,000.  The Company retained certain other assets andliabilities of BBICL, primarily property, plant and equipment, together withthe 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 $89,000 as of September30, 2005.  The major component of thisaccrual is for potential tax audit adjustments associated with the sale ofassets and the long term record retention of medical and related records. Thestatute of limitations for the relevant tax year lapses in the last quarter of2005 and will be adjusted accordingly.

 

**(4) Assets and LiabilitiesTransferred Under Contractual Arrangement**

 

In June 2004, PBI Source Scientific, Inc.transferred certain of its assets and liabilities to a newly formed limitedliability company known as Source Scientific, LLC. At the time of the transfer,PBI Source Scientific, Inc. owned 100% of the ownership interests ofSource Scientific, LLC. PBI Source Scientific, Inc. subsequently sold 70%of its ownership interests of Source Scientific, LLC to Mr. Richard Hensonand Mr. Bruce A. Sargeant pursuant to a purchase agreement (the “SourceScientific Agreement”). As a result of the sale of 70% of PBI Source’sownership interests, Mr. Henson and Mr. Sargeant each own 35% and PBISource owns the remaining 30% of Source Scientific, LLC.  Under the Source Scientific Agreement, theCompany received notes receivable in the aggregate amount of $900,000 (the “Notes”)payable at the end of three years bearing 8% interest. Despite the Company’sintent to exit the laboratory instrumentation business, the Company may beviewed as having a continuing involvement in the business of Source Scientific,LLC due to the fact that the Company has the right to designate one or potentiallythree members of the Board of Managers of Source Scientific, LLC. Because ofthis factor, even though the transaction is treated as a divestiture for legalpurposes, the Company has not recognized the transaction as a divestiture foraccounting purposes in accordance with Securities and Exchange Commission (“SEC”)Staff Accounting Bulletin (“SAB”) Topic 5E, *Accountingfor Divestiture of a Subsidiary or Other Business Operation*. Inaccordance with SAB Topic 5E, the Company has recorded the assets and liabilitiesassociated with the Source Scientific, LLC operation on the Company’s unauditedcondensed consolidated balance sheet as of September 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 (charges), net” in the Company’s unauditedcondensed consolidated statements of operations for the three and nine monthsended September 30, 2005 and 2004 equal to the amount of the loss attributableto the 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. GAAP.   As of September 30, 2005 assets andliabilities transferred under contractual arrangement consist of the following:

 

11

----

 

| ** **                                                           | ** ** | **September 30,** | ** ** |
|----------------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                           | ** ** | **2005**          | ** ** |
| Cash                                                                 |       | $                 | 122,797    |   |
| Accounts receivable, net                                             |       | 210,685           |       |
| Inventory                                                            |       | 559,356           |       |
| Prepaid assets                                                       |       | 106,754           |       |
| Fixed assets, net                                                    |       | 99,102            |       |
| Goodwill                                                             |       | 227,084           |       |
| All other assets                                                     |       | 61,753            |       |
| Total assets transferred  under contractual arrangement              |       | 1,387,531         |       |
|                                                                 |       |              |       |
| Accounts payable                                                     |       | (323,149          | )          |
| Accrued expenses and  compensation                                   |       | (268,845          | )          |
| Deferred revenue                                                     |       | (407,583          | )          |
| Equity contributions                                                 |       | (57,860           | )          |
| Total liabilities  transferred under contractual arrangement         |       | (1,057,437        | )          |
|                                                                 |       |              |       |
| Net assets and liabilities transferred under contractual obligations |       | $                 | 330,094    |   |

 

12

----

 

**(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 that areanti-dilutive are excluded from the calculation.

 

Potentially dilutive securities having a net effect of113,798 and 44,606 common shares for the three and nine months ended September30, 2005 are reflected below.  Optionsthat are anti-dilutive of 24,500 and 79,000 common shares for the three andnine months ended September 30, 2005 respectively, were not included in thecomputation of diluted income (loss) per share for these periods because to doso would have been antidilutive. Potentially dilutive securities having a net effect of 131,233 and80,898 common shares for the three and nine months ended September 30, 2004were not included in the calculation as to do so would have been anti-dilutive.Options that were anti-dilutive of 46,540 and 6,001 for the three and ninemonths ended September 2004 was not included in the computation of dilutedincome (loss) per share because to do so would have been anti-dilutive.

 
| ** **                                                                                                 | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                                 | ** ** | **2005**                             | ** ** | **2004**                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Numerator:                                                                                                 |       |                                 |       |                                |       |   |   |   |   |
| Income (loss) from continuing operations, basic & diluted                                              |       | $                                    | 1,308,969  |                                | $          | (663,070 | ) | $ | 171,667 |   | $ | (1,749,040 | ) |
|                                                                                                       |       |                                 |       |                                |       |   |   |   |   |
| Denominator:                                                                                               |       |                                 |       |                                |       |   |   |   |   |
| Weighted Average Shares Outstanding, basic                                                                 |       | 2,424,189                            |       | 6,824,075                           |       | 3,157,495 |   | 6,843,329 |   |
|                                                                                                       |       |                                 |       |                                |       |   |   |   |   |
| Net effect of dilutive common stock equivalents-based on treasury  stock method using average market price |       | 113,798                              |       | —                              |       | 44,606 |   | — |   |
| Weighted Average Shares Outstanding, diluted                                                               |       | 2,537,987                            |       | 6,824,075                           |       | 3,202,101 |   | 6,843,329 |   |
|                                                                                                       |       |                                 |       |                                |       |   |   |   |   |
| Income (loss) per share from continuing operations,  - basic                                               |       | $                                    | 0.54       |                                | $          | (0.10 | ) | $ | 0.05 |   | $ | (0.26 | ) |
|                                                                                                       |       |                                 |       |                                |       |   |   |   |   |
| Income (loss)per share from continuing operations,  - diluted                                         |       | $                                    | 0.52       |                                | $          | (0.10 | ) | $ | 0.05 |   | $ | (0.26 | ) |

 

**(6) Related Party Transaction**

 

In January 2002, theCompany pledged the $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 September 30, 2005, theCompany maintained a $1.0 million loan receivable from Mr. Schumacher.The Company previously maintained a junior security interest in collateralpledged by Mr. Schumacher to the financial institution. The collateralincludes all of Mr. Schumacher’s shares of PBI common stock. Following thepayment in full by Mr. Schumacher of his loan to the financial institutionin February 2005, the Company became the holder of a first prioritysecurity interest in 489,659 of Mr. Schumacher’s shares of common stock ofPressure BioSciences to secure the repayment of the Company’s $1,000,000 loanreceivable together with associated accrued interest from Mr. Schumacherand are held as collateral. The collateral and personal assets ofMr. Schumacher may not be sufficient to permit the Company to fullyrecover the principal, interest and other costs associated with this loanreceivable. If the value of the collateral decreases, the Company may have towrite down or write off the loan receivable or associated accrued interest.Therefore, the Company cannot be certain that it will collect the full amountof the loan receivable.

 

13

----

 

As of September 30, 2005, the Company evaluated therecoverability of the $1,000,000 loan receivable from Mr. Richard T.Schumacher, which is reflected on the balance sheet in stockholders’ equity asa loan receivable and any accrued interest as of September 30, 2005. Inconnection with the Company’s evaluation of the recoverability of the loanreceivable as of September 30, 2005 the Company performed a test for impairmentof the loan receivable by analyzing the value of the collateral. This testincluded, among other things, a review of the current trading price of theCompany’s common stock after taking into account factors that may affect theCompany’s ability to sell such stock in the event it were to foreclose on thecollateral to repay the loan receivable and any accrued and unpaid interest.After performing the impairment test, the Company determined that the loanreceivable was not impaired. The ultimate value that the Company may recover isdependent on numerous factors including the Company’s stock price, marketconditions relative to the value of and ability to sell the collateral, and thefinancial status of the Company’s President and Chief Executive Officer. Basedon the Company’s assessment as of September 30, 2005, the Company estimatesthat the value of the collateral approximates the amount of the recorded loanreceivable.  If actual market conditionsare less favorable, the Company’s stock price declines or other factors arisethat are significantly different than those experienced as of September 30,2005, an impairment of the loan receivable together with associated accruedinterest is likely to be required.  TheCompany plans to continue to monitor and test the collateral for impairment duein large part to the relatively low trading volume of the Company’s commonstock and recent volatility in our stock price, ranging from a low of $2.50 pershare to a high of $6.70 per share from July 1, 2005 to September 30, 2005.

 

**(7) SegmentReporting and Related 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’ssale of its core businesses and its laboratory instrumentation business unit,the single remaining segment is the pressure cycling technology (PCT) family ofproducts and services.

 

**(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 represented are primarily finished unitsavailable for sale and those units at various stages of manufacturer.  As of September 30, 2005, finished goods includedBarocyclerTM NEP3229 units and PULSETM Tubes.

 

14

----

 

Asof September 30, 2005, inventories were comprised as follows:

 

| ** **      | ** ** | **As of**         | ** ** | **As of**        | ** ** |
|-----------------|------------|-------------------|------------|------------------|------------|
| ** **      | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
| ** **      | ** ** | **2005**          | ** ** | **2004**         | ** ** |
| ** **      | ** ** | ** **        | ** ** | ** **       | ** ** |
| Raw materials   |       | $                 | 28,593     |             | $          | 122,253 |   |
| Work-in-process |       | 71,015            |       | 31,764           |       |
| Finished goods  |       | 244,340           |       | 3,800            |       |
|            |       | $                 | 343,948    |             | $          | 157,817 |   |

 

**(10)****Commitments and Contingencies**

* *

*Leases*

* *

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

 

*RoyaltyCommitments*

* *

In 1998, the Company acquired all the remaining commonstock outstanding of BioSeq Inc., a development stage company involvedwith PCT. In accordance with the provisions of a technology transfer agreementassumed in the transaction, the Company is obligated to pay a 5% royalty on netsales until March 2016 of future sales by the Company utilizing PCT. Netsales include the trade revenues related to units sold or leased as well asPULSETM Tube revenues.  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.The royalty obligation for the third quarter of 2005 was approximately $545.

 

*PurchaseCommitments*

* *

In June 2004, Source Scientific, LLC agreed toprovide engineering, manufacturing, and other related services for the Company’spressure cycling technology products until September 30, 2005. Under theagreement, it was estimated that reimbursement to Source Scientific, LLC by theCompany was expected to be at the rate of $25,000 per month. Since the Companyhas met the minimum commitment under the agreement, and there are no futureminimum payments, all obligations are contingent upon actual services beingrendered to us by Source Scientific LLC. The Company expects to continue to utilize the services of SourceScientific, LLC for the Company’s pressure cycling technology products on apurchase order basis.

 

*Indemnifications*

* *

In connection with the sale of substantially all ofthe assets of the Company’s BBI Diagnostics and BBI Biotech business units toSeraCare, pursuant to the Asset Purchase Agreement, the Company agreed toindemnify SeraCare for any losses from breaches of most of the Company’srepresentations, warranties or covenants that occur prior to June 14,2006. The Company’s indemnification obligations for breaches of somerepresentations and warranties, however, extend for a longer period of time.The Company’s indemnification obligations are limited by an overall cap equalto the adjusted purchase price.

 

InNovember 2004, in accordance with the terms of the Asset PurchaseAgreement, SeraCare delivered the closing balance sheet, which reflected adeficiency of approximately $3.1 million when compared to the target netasset value of $8.5 million. The Company objected to certain calculationsin the closing balance sheet, including, without limitation, SeraCare’scalculation of accounts receivable and inventory. In December 2004, theCompany settled its dispute with SeraCare concerning the collectibility ofaccounts receivable sold to SeraCare in connection with the Asset PurchaseAgreement. The Company agreed that, solely for purposes of settling its disputewith SeraCare, $412,192 of accounts receivable would be deemed past due,therefore resulting in an adjustment to the purchase price requiring theCompany to pay SeraCare that amount. The Company also agreed that the $412,192deficiency would be released from the $2.5 million held in escrow; therebyleaving approximately $2.1 million 

 

15

----

 

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 until March 2006to secure the Company’s continuing indemnification obligations for breaches ofrepresentations and warranties, covenants or other agreements that remain inaccordance with the terms of the Asset Purchase Agreement. The combined effectof these two settlements relating to the closing balance sheet resulted in a$1,412,192 reduction in the purchase price and a corresponding reduction in thegain on sale.

 

On March 22, 2005,the Company received a claim for indemnification from SeraCare relating totesting and other services performed by the Company for the University ofPittsburgh prior to the sale of the BBI Diagnostics and BBI Biotech businessunits to 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. However, this claim for indemnification, as well as thepossibility of additional notices or claims for indemnification from SeraCarecould reduce or eliminate altogether the amount the Company ultimately receivesfrom the escrow account.  If the Companyis required to pay an additional amount in excess of the escrow amount, theCompany will have less cash available to fund its operations, its business maybe 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,V.I. Technologies Inc. (“Vitex”)announced that it had closed its merger with Panacos Pharmaceuticals, Inc.(“Panacos”), pursuant to the Agreement and Plan of Merger dated as ofJune 2, 2004, as amended on November 5, 2004, November 28, 2004,December 8, 2004, and February 14, 2005 (the “Merger Agreement”). Themerger was approved by the stockholders of both Vitex and Panacos at theirrespective meetings on March 10, 2005. Panacos stockholders received anaggregate of approximately 227,500,000 shares of Vitex common stock, orslightly over 80% of the outstanding shares of Vitex Common Stock, after givingeffect to the merger, and before giving effect to Vitex’s 1:10 reverse stocksplit, which was announced on March 14, 2005. The shares of Vitex commonstock issued to the Panacos stockholders were registered with the Securitiesand Exchange Commission on a Registration Statement on Form S-4. Panacosstockholders received 6.75275 shares of Vitex common stock for each share ofPanacos common or preferred stock held by them at the effective time of themerger. As a result of the merger and the subsequent reverse stock split, theCompany owned 1,012,920 shares of Vitex common stock in place of its Panacoscapital stock. Fifteen percent of Vitex stock owned by former owners of Panacosstock, including fifteen percent of the Vitex common stock owned by theCompany, or 151,938 shares, is being held in escrow per the Merger Agreementuntil September 2006.

 

On August 18, 2005, V.I. Technologies formerly changedits company name to Panacos Pharmaceticals Inc. and changed its trading symbolon the Nasdaq National Market to “PANC”. During July and August of 2005, the Company sold 328,986 shares ofPanacos stock which resulted in a realized gain of $2,838,491 during thequarter ended September 30, 2005.

 

On September 30, 2005, the closing price of Panacos common stock was$9.74 per share as quoted on the Nasdaq National Market. As of September 30,2005 the Company had remaining 683,934 shares of Panacos common stock, thatincludes 151,938 shares held in escrow noted above, which had a fair marketvalue of $6,661,517.

 

16

----

 

**(12) FixedAssets**

 

Fixed assets arecomprised primarily of PCT related demonstration equipment, of which one PCTBarocyclerTM NEP2017 unit has been placed with a third partypursuant to an open term rental agreement. Depreciation on PCT demonstration units is allocated over the expecteduseful life of approximately two years. Upon the Company’s sale of assets to SeraCare in September 2004 andestablishment of new corporate offices, approximately $40,000 has beencapitalized related to office furniture and computer and related communicationequipment and $25,000 related to lab equipment. Property and equipment atSeptember 30, 2005 consisted of the following:

 

| ** **                              | ** ** | **As of**              | ** ** |
|-----------------------------------------|------------|------------------------|------------|
| ** **                              | ** ** | **September 30, 2005** | ** ** |
|                                    |       |                   |       |
| Laboratory and  manufacturing equipment |       | $                      | 155,508    |   |
| Office equipment                        |       | 57,428                 |       |
| PCT demonstration  equipment            |       | 210,536                |       |
|                                    |       | 423,472                |       |
|                                    |       |                   |       |
| Less accumulated depreciation           |       | 363,453                |       |
| Net book value                          |       | $                      | 60,019     |   |

 

Depreciation expense for the nine months endedSeptember 30, 2005 and 2004 was and $24,772 and $78,727, respectively.

 

**(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.Intangible assets as of September 30, 2005 reflect acquired patents and relatedcapitalized costs associated with the Company’s pressure cycling technology arebeing amortized to expense on a straight line basis at the rate of $12,158 perquarter over the remaining useful life. The Company’s policy is to expense allpatent related legal costs as incurred. Intangible assets at September 30, 2005consisted of the following:

** **

| ** **                     | ** ** | **As of**              | ** ** |
|--------------------------------|------------|------------------------|------------|
| ** **                     | ** ** | **September 30, 2005** | ** ** |
|                           |       |                   |       |
| PCT Patents                    |       | $                      | 778,156    |   |
| Less accumulated  amortization |       | 340,444                |       |
| Net Book Value                 |       | $                      | 437,712    |   |

 

Amortization expense for the nine months ended September30, 2005 and 2004 was and $36,476 and $36,476 respectively.

 

**14) Prepaid Income Tax**

 

Following thecompletion and filing its 2004 federal tax return, the Company recorded prepaidincome taxes of $647,479 as a gain from discontinued operations.  The prepayment reflects an overpayment offederal taxes related to the 2004 estimated tax liability and paymentsassociated with the Company’s sale of assets to SeraCare in September 2004.****In September 2005 we performed a review of our estimated2005 tax liability which included our 

 

17

----

 

year to date operatingloss, the Panacos shares sold during the third quarter of 2005, along withestimates for the remainder of the year and determined to apply the 2004overpayment to the estimated 2005 tax obligation of $458,226, resulting in anet prepaid income tax of $189,253 as of the quarter ended September 30, 2005.

 

**15) Income Tax Receivable**

 

Pursuant tocompleting and filing its 2004 state tax returns, the Company recorded anincome tax receivable of $122,666.  Theoverpayment is related to taxes paid to the State of Maryland and associated tothe allocation of the 2004 sale of assets to SeraCare and estimated taxliability and payments made in December 2004. The Company has applied for arefund.

 

**(16) Stockholders’ Equity**

 

Pursuant to the completion of the Company’s tenderoffer on February 11, 2005, 5,203,001 shares were purchased from shareholdersat $3.50 per share which included 754,275 shares issued upon exercise of stockoptions.  The Company utilizedapproximately $16.3 million of available cash, net of proceeds from theexercise of the stock options, to complete the transaction.  The purchase of the shares was accounted forunder the treasury method and cost in excess or par value for the common shareswas charged to additional paid in capital.

 

**Recent Business Developments**

 

On November 3rd and November 4th,2005 the Company sold an aggregate of 100,000 shares of Panacos stock for whichwe received approximately $882,990, net of charges and commission.  We continue to hold an additional 431,996shares of Panacos and may receive an additional 151,938 shares which are beingheld in escrow until September 2006, per the terms of the March 10, 2005 mergerbetween Vitex and Panacos Pharmaceuticals. The closing price per share ofPanacos common stock as reported on the Nasdaq National Market on November 8,2005 was $8.83.

 

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

 

***Overview***

 

Following the closing of the sale of the assets andselected liabilities of BBI Diagnostics and BBI Biotech to SeraCare LifeSciences on September 14, 2004, the transfer of certain assets andliabilities of PBI Source Scientific, Inc. to Source Scientific, LLC andsubsequent sale of 70% of our ownership interests of Source Scientific, LLC inJune 2004, our operations now consist primarily of our pressure cyclingtechnology (PCT) business. The results of operations discussed herein focus onthe PCT business activities and the corporate functions associated with being apublic company. Operating results of PBI Source Scientific, Inc.,excluding any PCT related activities, together with Source Scientific, LLC, arereported as “Other operating charges, net” hereunder. The operating results ofour BBI Diagnostics and BBI Biotech divisions prior to their sale onSeptember 14, 2004, together with the results of the discontinuedoperations of our clinical laboratory testing services segment (sold inFebruary, 2001), are reported as “Discontinued Operations” hereunder. Certainamounts included in the prior period’s financial statements have beenreclassified to conform to the current period’s presentation.

 

Our pressure cycling technology uses an instrumentthat is capable of cycling pressure between ambient and high levels atcontrolled temperatures to rapidly and repeatedly control the interactions ofbiomolecules. PCT utilizes our BarocyclerTM instrument and disposable PULSETMTubes to release nucleic acids and proteins from plant/animal cells andtissues, as well as other organisms that are not easily disrupted by standardchemical and physical methods. We believe that our patented and proprietarypressure cycling technology employs a unique approach that has the potentialfor broad applications in a number of established and emerging fields,including genomics, proteomics, drug discovery and development, proteinpurification, pathogen inactivation, immunodiagnostics, food safety, and DNAsequencing.

 

18

----

 

To date, we have primarilyapplied PCT to the area of sample preparation for genomics and proteomics. Wehave also developed scientific collaborations with several leading laboratoriesand academic institutions in the United States, which we expect will remainongoing in 2005 and beyond. We further expect that the data generated by ourcollaborators will be publicly released in scientific publications andpresentations, and that this could have an important positive impact on futuresales of our PCT products. We have investigated the use of PCT for theinactivation of pathogens in human blood plasma, therapeutics, and diagnosticreagents and believe we have demonstrated the technical feasibility of applyingPCT to immunodiagnostics, protein purification, pathogen inactivation, foodsafety, and DNA sequencing. We have obtained thirteen US and four foreignpatents containing multiple claims covering the foregoing areas.

 

As of September 30, 2005 we have invested in excess of$12.4 million in the development of our pressure cycling technology since1997, with the funds coming from both internal and public sources. To date, wehave received seven Small Business Innovative Research (“SBIR”) grants from theNational Institutes of Health (“NIH”) aggregating approximately $2,000,000(including two SBIR Phase II grants each in excess of $750,000) to develop PCTin the areas of microbial inactivation, sample processing, and Mycobacteriumsample preparation. Most recently, in May 2004 we were awarded a $150,000SBIR Phase I grant to study the use of PCT in applications to combatbio-terrorism. We have recently submitted proposals for three additional SBIRresearch grants and one non-SBIR grant and intend to continue to submitproposals to obtain grants in the future. The review process generally takes six months for a proposal to receivefeedback regarding the grants.

 

In September 2002, we released for sale our firstcommercial PCT instrument, the BarocyclerTM NEP 2017. In 2002, we also releasedfor sale PULSETM Tubes, which are single-use, disposable processing and storagetubes that work in conjunction with the BarocyclerTM NEP 2017. Sales of theseproducts have been extremely limited. To date we have leased one and sold twopressure cycling technology systems (“PCT Sample Preparation System”) and alimited number of PULSETM Tubes. We believe that sales of our pressure cyclingtechnology products have been adversely affected primarily as a result of thefollowing factors: (1) the initial design and selling price of theBarocyclerTM, (2) the limited amount of research data availabledemonstrating its capabilities and potential, (3) the absence of a strongsales and marketing management team, (4) the absence of a strongpromotional campaign after the commercial release of the BarocyclerTM NEP 2017,(5) the inability to execute our sales plan as a result of financialconstraints prior to 2005, (6) current US economic conditions anduncertainties which negatively affected capital spending on laboratoryinstruments, (7) the financial condition of our company during 2003 and2004, (8) the focus of our resources on other projects, including the saleof our BBI Diagnostics, BBI Biotech, and selected assets and liabilities of ourlaboratory instrumentation business units, a process that began inOctober 2002 and was completed in September 2004, (9) the timerequired to complete post-transaction issues related to the sale of BBIDiagnostics and BBI Biotech, and (10) the effort required during 2005 torestructure the Company including the effort to build a new corporateinfrastructure.

 

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 June2005 we initiated a program to place up to twelve BarocyclerTM NEP3229 units inselected strategic customer sites by December 31, 2005 for a three month trialperiod, a period of time that we believe is sufficient to provide potentialcustomers with the opportunity to develop and collect independent and objectivedata and statistical information. We believe that we will be able to generatesales of our products from these customers after the customer experiences theperformance, reliability, and safety of the sample preparation process providedby the PCT Sample Preparation System. After the trial period, it is ourexpectation that a number of users will either purchase or lease the PCTBarocyclerTM instrument.

 

From June to September 2005, we installed four benchtop instruments under a “reagent rental agreement”, whereby the “collaboratingsites” have full use of the instrument in their own facility, have agreed topurchase a certain number of PULSETM Tubes over the trial period, and havefurther agreed to use the PCT Sample Preparation System to generate data forpublic dissemination.  In October 2005,we installed an additional two units in collaborating sites under the reagentrental Agreement. In September 2005 we received the first purchase order for 

 

19

----

 

the PCT Sample Preparation System, which the Company delivered andinstalled on October 6, 2005. On November 1, 2005, we received a signed leaseagreement for a second instrument.  TheCompany believes that it will be successful in placing the remaining units priorto December 31, 2005.

 

**RESULTS OF OPERATIONS**

 

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

 

*Revenue*

 

We had total revenue of $11,742 for the three monthsended September 30, 2005, as compared to $68,901 for the three months endedSeptember 30, 2004.

 

PCT products &services:   Product revenue totaled $11,742 for thethree months ended September 30, 2005, compared to $2,383 for the correspondingperiod of 2004. Product revenue in 2005 and 2004 includes lease payments fromone customer and sales in 2005 of PULSETM Tubes to five customers in associationwith the collaboration agreements noted previously. There were no BarocyclerTMsales in the quarters ended September 30, 2005 or September 30, 2004.

 

Grant Revenue: Grant revenue has consisted predominately of SBIR (Small BusinessInnovation Research) funding activity through the National Institutes ofHealth. Grant revenue is reflective of high research and development costs, andconsists predominately of “cost plus” contacts. There was no grant revenue for the three months ended September 30, 2005compared to $66,518 for the corresponding period in 2004. The decrease in PCTgrants and services revenue was primarily related to the completion of work inearly and mid-2004 on two Phase-II SBIR Grants resulting in a lower level ofresearch conducted under these grants. We expect to continue to submit new SBIR and other research grantproposals to fund future research. The review process generally takes sixmonths for a proposal to receive feedback regarding the grants.

 

During the three months ended September 30, 2005, weplaced 3 additional bench top instruments under a “reagent rental agreement”,whereby the “collaborating sites” have full use of the instrument in their ownfacility, have agreed to purchase a certain number of PULSETM Tubes over thetrial period, and have further agreed to use the PCT Sample Preparation Systemto generate data for public dissemination.

 

*Cost of PCT Products and Services*

 

The cost of PCT products and services was $33,966 forthe three months ended September 30, 2005 compared to $20,654 for thecomparable period in 2004. The increase in 2005 was primarily the result of ahigher sales volume of PULSETM Tubes related to increased PULSETM Tube revenues, transportationcosts related to rental units of BarocyclerTM units pursuant to reagent rentalagreements, and the inclusion of field support and deployment costs related tothe placement of collaboration site units.

 

*Cost of Grant Revenue*

 

We did not perform any services or incur any costsunder grant projects during the third quarter of 2005.  Costs of grant projects billed in the thirdquarter of 2004 are included in research and development.

 

*Research and Development*

 

PCT related research and development expendituresdecreased to $156,529 in the three months ended September 30, 2005 from$239,315 for the comparable period of 2004. The decrease was primarily due to the lower level of research anddevelopment expenditures on SBIR grants as described above, reduced headcount,and more efficient expenditures on the development of the new bench topBarocyclerTM 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.  Since we have met the minimumcommitment under the agreement, and there are no future minimum payments; allobligations are contingent upon actual services being rendered to us by SourceScientific LLC. We do expect to continue to utilize the services of SourceScientific, LLC for the continued development and manufacture of the Company’spressure cycling technology products.

 

20

----

 

*Selling and Marketing*

 

PCT related selling and marketing expenses increasedto $39,954 for the three months ended September 30, 2005 from $12,278 for thecomparable period of 2004, an increase of $27,676. This increase was due tohigher headcount, increased attendance at trade shows, and the cost ofplacement activities for collaboration sites.

 

*General and Administrative*

 

General and administrative costs totaled $320,195 forthe three months ended September 30, 2005, as compared to $140,597 for thecomparable period of 2004, an increase of $179,598.  This increase was primarily due to anincrease in headcount, costs of a new corporate office, and otherinfrastructure expenses not present in the same quarter 2004.

 

*StockBased Compensation*

 

In conjunction with theAsset Sale on September 14, 2004, the Company’s Board of Directors votedto extend the termination date of all stock options granted to employees of BBIDiagnostics and BBI Biotech to the later of 90 days from the closing of theSeraCare transaction or the termination of the contemplated tender offer. Inaccordance with the provisions of FASB Interpretation No. 44, we recognizednon-cash stock-based compensation of $281,737 in the third quarter of 2004.  There were no charges for the three monthsended September 30, 2005.

 

*Operating Loss from ContinuingOperations*

 

The operating loss of the PCT business was $538,902for the three months ended September 30, 2005 as compared to an operating lossof $625,680 for the comparable period in 2004, a decrease in loss of $86,778.The decrease in the operating loss for the three months ended September 30,2005 compared to the same period of 2004 was primarily due to higher charges in2004 related to the non-cash stock based compensation charge referred to aboveoffset somewhat by increased selling and general administrative expenses.

 

*Gain on Sale of Securities*

 

In the three months endedSeptember 30, 2005, we recorded a gain on the sale of 328,986 shares of ourPanacos Pharmaceuticals shares available for sale (formerly V.I.Technologies).  The shares sold in thethree month period generated a gain of $2,838,491.  We recorded a tax liability related to thesale of the securities in the quarter of $1,088,360 reflected in tax provision.As indicated in our press release of August 9, 2005, we continue to monitor thestock price and sales volume of Panacos, and may decide to sell additionalshares from time to time.

 

*Other Operating (Charges), net*

 

The non-PCT related activities of PBI SourceScientific, Inc., which reflects the activity of Source Scientific, LLC,had an operating loss of $140,648 for the three months ended September 30,2005, as compared to an operating loss of $30,612 for the three months endedSeptember 30, 2004. The increased loss was the result of lower revenues causedby a delay in orders at Source Scientific LLC.

 

*Interest Income / (Expense)*

 

Interest income totaled $62,699 for the three monthsended September 30, 2005.  There was nointerest expense for the three months ended September 30, 2005.  Interest income totaled $11,705 for the threemonths ended September 30, 2004 which was offset by interest expense of $18,483for the same period. Increased interest income was in part the result ofinterest earned on investments from the proceeds associated with the sale ofour BBI Diagnostics and BBI Biotech business units to SeraCare and interestearned on cash proceeds related to the sale of shares in PanacosPharmaceuticals’ stock.

 

In the third quarter of 2005, we have recognized thebenefit of accrued interest paid related to the Director / CEO’s loanreceivable in the amount of $21,147. In 2004, accrued interest related to theloan receivable was not recognized. Additionally, in 2004 we incurred an interest payment on a previous lineof credit totaling $18,483.

 

21

----

 

*Income Taxes*

 

In the quarter ended September 30, 2005 we recorded a nettax provision of $921,671.  We recorded atax provision of $1,088,360 as a result of the sale of securities which wassomewhat offset by a tax benefit of $175,689 related to the operating loss forthe period.  There was no benefitrecorded in the same quarter of 2004.

 

*Income (loss) from discontinuedoperations*

 

The amounts associated withthe sale of our BBI Diagnostics and BBI Biotech business units to SeraCare arereported as discontinued operations in the accompanying financial statements,in accordance with paragraphs 30 and 42 of Statement of Financial AccountingStandards No. 144 “Accounting for the Impairment or Disposal of Long-LivedAssets” as previously described above.

 

For the three monthsended September 30, 2005, the net loss from discontinued operations was $3,340,as compared to a net loss of $440,212 for the same period in 2004.  The decrease in net loss from discontinuedoperations is a result of negative operating margin generated from revenuesrealized of our former BBI Diagnostics and BBI Biotech business units includedin the September 2004 quarter. These businesses are not part of our operationsin 2005.

 

*Gain on Sale of Net Assets Relatedto Discontinued Operations*

 

For the three months endedSeptember 30, 2005, we recorded a benefit of $921,648 for the overpayment of2004 tax estimates related to the sale of net assets in 2004.  The impact resulted from the utilization offavorable treatment of tax credits, utilization of installment sale taxtreatment related to sale of assets, and treatment of the sale of the company’s70% interest in Source Scientific LLC.  For the third quarter of 2004, we recorded a benefit for the sale of theBBI Diagnostics and BBI Biotech business units of $15,868,025 net of taxestimates of $3,925,200.

 

*Net Income*

 

Overall, for the quarter ended September 30, 2005 werealized net income of $2,227,277 compared to net income for the quarter endedSeptember 30, 2004 of $14,764,743 for reasons outlined above.

 

**NINE MONTHS ENDED SEPTEMBER 30, 2005AND 2004**

 

*Revenue*

 

We had total revenue of $21,984 for the nine monthsended September 30, 2005, as compared to $304,993 for the nine months endedJune 31, 2004, a decline of $283,009.

 

PCT products &services:   Product revenue totaled $21,984 for the ninemonths ended September 30, 2005, compared to $12,939 for the correspondingperiod of 2004. Product revenue in 2005 and 2004 included lease payments fromone customer and sales of PULSETM Tubes from several customers pursuant to thecollaboration agreements in place. There were no BarocyclerTM sales in the ninemonths ended September 30, 2005 or 2004.

 

Grant Revenue: Grant revenue has consistedpredominately of SBIR funding activity through the National Institutes ofHealth. There was no grant revenue for the nine months ended September 30, 2005compared to $292,054 for the corresponding period in 2004. The decrease in PCTgrants and services revenue was primarily related to the completion of work in2004 on two Phase-II SBIR Grants resulting in a lower level of researchconducted under SBIR research grants in 2005. We expect to continue to submit new SBIR and other research grantproposals to fund future research. The review process generally takes sixmonths for a proposal to receive feedback regarding the grants.

 

22

----

 

*Cost of Grant Services*

 

We did not perform any services or incur any costsunder grant projects during the nine months ended September 30, 2005 comparedto the nine months ended September 30, 2004. Costs related to grant activities in 2004 have been included in researchand development.

 

*Cost of PCT Products and Services*

 

The cost of PCT products and services was $61,653 inthe nine months ended September 30, 2005 compared to $55,673 for the comparableperiod of 2004. The increase in 2005 was primarily the result of a higher salesvolume of PULSETM Tubes related to increased PULSETM Tube revenues,  amortization costs related to rental units ofBarocyclerTM units pursuant to reagent rental agreements, and the inclusion ofincreased field support and deployment costs related to the placement ofcollaboration site units.

 

*Research and Development*

 

PCT related research and development expendituresdecreased to $374,147 in the nine months ended September 30, 2005 from $672,087for the comparable period of 2004. The decrease was primarily due to the lowerlevel of research and development expenditures related to the SBIR grants asdescribed above, reduced headcount, and decreased expenditures on thedevelopment of the new bench top BarocyclerTM through our outsourcing partner,Source Scientific, LLC. As described elsewhere, in connection with the SourceScientific Agreement, Source Scientific, LLC agreed to provide engineering,manufacturing, and other related services for our pressure cycling technologyproducts until September 30, 2005. During the nine months ended September30, 2005 we incurred charges of approximately $170,000.

 

*Selling and Marketing*

 

PCT related selling and marketing expenses decreasedto $93,950 for the nine months ended September 30, 2005 from $138,158 for thecomparable period of 2004. The decrease was due to reduced headcount, areduction in trade shows attended in first half of 2005 verses 2004, and lowerproduction of marketing materials.

 

*General and Administrative*

 

General and administrative costs for the nine monthsended September 30, 2005 totaled $1,361,157 compared to $762,597 for the sameperiod of 2004, an increase of $598,560.  This increase was primarily due to a compensation charge of $400,000relating to payments made to Mr. Schumacher (i) as a reimbursement of costs andexpenses, 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 our stockholdersin the overall restructuring and repositioning of our company over the past twoyears. In addition, we provided reimbursement of $94,985 in the first quarterof 2005 to Mr. Schumacher for certain legal bills incurred relative to histermination as Chairman and Chief Executive Officer of PBI on February 13,2003.

 

*StockBased Compensation*

 

In conjunction with the Asset Sale onSeptember 14, 2004, the Company’s Board of Directors voted to extend the terminationdate of all stock options granted to employees of BBI Diagnostics and BBIBiotech to the later of 90 days from the closing of the SeraCare transaction orthe termination of the contemplated tender offer. In accordance with theprovisions of FASB Interpretation No. 44, we recognized non-cash stock-basedcompensation of $281,737 in the third quarter of 2004.

 

There were no charges for the nine months endedSeptember 30, 2005.

 

*Operating Loss from ContinuingOperations*

 

The operating loss of the PCT business was $1,868,563for the nine months ended September 30, 2005 as compared to an operating lossof $1,605,259 for the comparable period in 2004. The increase in the operatingloss for the nine months ended September 30, 2005 compared to the same periodof 2004 was primarily due to increased general and administrative costs asdescribed above, together with the establishment of basic infrastructure tosupport the new corporate office.

 

23

----

 

*Gain on Sale of Securities*

 

For the nine months endedSeptember 30, 2005, we recorded a gain on the sale of 328,986 shares of ourPanacos Pharmaceuticals shares. The shares sold in the nine months endedSeptember 30, 2005 generated a gain of $2,838,491. We recorded a tax liabilityfrom the sale of the securities in the nine month period of $1,088,360.  As of September 30, 2005, we had a total of683,934 Panacos shares remaining, including shares held in escrow 151,938.  As indicated in our press release of August9, 2005, we continue to monitor the stock price and sales volume of Panacos,and may decide to sell additional shares from time to time.

 

*Other Operating (Charges) net*

 

The non-PCT related activities of PBI SourceScientific, Inc., which reflects the activity of Source Scientific, LLC,had an operating loss of $528,285 for the nine months ended September 30, 2005,as compared to an operating loss of $333,607 for the nine months endedSeptember 30, 2004. The increased loss was the result of lower revenues causedby a delay in orders and reduced margins generated by Source Scientific LLC.

 

*Interest Income / (Expense)*

 

Interest income totaled $187,559 for the nine monthsended September 30, 2005.  There was nointerest expense for the nine months ended September 30, 2005.  For the nine months ended September 30, 2004we had $15,243 of interest income offset by $69,453 of interest expenseincurred as interest payment on a previous line of credit terminated inSeptember 2004.  Increased interestincome was in part the result of interest earned on investments from theproceeds associated with the sale of our BBI Diagnostics and BBI Biotechbusiness units to SeraCare and interest earned on cash proceeds related to thesale of shares in Panacos Pharmaceuticals’ stock.

 

Additionally, in the nine months ended September 30,2005, we have recognized the benefit of accrued interest paid related to theDirector / CEO’s loan receivable in the amount of $69,453. In 2004, accruedinterest related to the loan receivable was not recognized.

 

*Income Taxes*

 

For the nine months ended September 30, 2005 werecorded a net tax provision of $457,535 on income from continuing operations,as compared to a benefit in the nine months ended September 30, 2004 of$244,036 related to our operating losses from continuing operations. Werecorded a tax provision of $1,088,360 as a result of the sale of securitieswhich was somewhat offset by a tax benefit of $630,825 related to the operatingloss for the nine months ending September 30, 2005.  In 2004, as a result of the sale of certainassets and liabilities to SeraCare, and the resulting gain on the sale, weestimated and paid taxes of approximately $3.2 million.  Historically, 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 elected to record a tax benefit at this time as weanticipate utilizing the tax benefit from operating losses to mitigate the taxeffect related to the gain on sale of Panacos securities sold.

 

*Income (loss) from discontinuedoperations*

 

The amounts associatedwith the sale of our BBI Diagnostics and BBI Biotech business units to SeraCareare reported as discontinued operations in the accompanying financialstatements, in accordance with paragraphs 30 and 42 of Statement of FinancialAccounting Standards No. 144 “Accounting for the Impairment or Disposal ofLong-Lived Assets” as previously described above.

 

For the nine months endedSeptember 30, 2005, the net income from discontinued operations was $1,995, ascompared to net income of $147,946 for the same period in 2004.  The decrease in net income from discontinuedoperations is a result of operating margin generated from revenues of ourformer BBI Diagnostics and BBI Biotech business units realized and included inthe September 2004 quarter. These businesses are not part of our operations in2005.

 

*Gain on Sale of Net Assets Relatedto Discontinued Operations*

 

In the nine months endedSeptember 30, 2005, we recorded a benefit of $921,648 for the overpayment of2004 tax estimates related to the sale of net assets in 2004.  The impact resulted from the favorable treatmentof ACE credits, utilization of installment sale tax treatment related to saleof assets, and tax treatment of its sale of our 

 

24

----

 

70% interest in Source Scientific LLC.   For the same nine month period of 2004, werecorded a benefit for the sale of the BBI Diagnostics and BBI Biotechoperating units of $15,868,025 net of tax estimates of $3,925,200.

 

*Net Income*

 

For the nine months ended September 30, 2005 werealized net income of $1,095,310 compared to net income for the nine monthsended September 30, 2004 of $14,259,931 for the reasons discussed above.

 

***LIQUIDITY ANDFINANCIAL CONDITION***

 

As of September 30, 2005, our working capital positionwas $7,354,577 (excluding restricted cash of $163,296), a decrease of$10,917,278 from our working capital position of $20,975,566 as of December 31,2004. This decrease in working capital was primarily a result of the use ofcash for the repurchase of shares from stockholders as part our tender offer inFebruary 2005.

 

Net cash used in continuing operations for the ninemonths ended September 30, 2005 was $2,321,346 as compared to net cash used byoperations of $1,180,743 for the nine months ended September 30, 2004. The cashused in operations for the first nine months of fiscal 2005 was to supporton-going operations.

 

Net cash provided by investing activities for the ninemonths ended September 30, 2005 was $2,776,512. The sale of Panacos shares provided $2,841,510 in the third quarter,while funds of $64,998 were utilized to purchase property and equipmentassociated with the new corporate headquarters office in West Bridgewater,Massachusetts and our new laboratory and office space in Gaithersburg,Maryland, along with laboratory equipment for the Gaithersburg facility.

 

Net cash used in financing activities for the ninemonths ended September 30, 2005 was $16,437,342 as compared to cash used infinancing activities of $2,416,728 for same period of 2004. In February 2005,we utilized approximately $16.3 million to complete our issuer tender offer inwhich we purchased from stockholders 5,203,001 shares of our common stock,which included 754,275 shares issued upon exercise of stock options.

 

Net cash provided by discontinued operations for thenine months ended September 30, 2005 was $870,483 as compared to net cashprovided from discontinued operations of $28,225,626 for same period of2004.  The decrease in net cash fromdiscontinued operations in 2005 was the result of the generation of cash fromthe sale of net assets in September 2004.

 

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

 

On June 11, 2005, V.I. Technologies, Inc. (“Vitex”)announced that it had closed its merger with Panacos Pharmaceuticals, Inc.(“Panacos”), pursuant to the Agreement and Plan of Merger dated as ofJune 2, 2004, as amended on November 5, 2004, November 28, 2004,December 8, 2004, and February 14, 2005 (the “Merger Agreement”). Asa result of the merger and a subsequent reverse stock split, we received 1,012,920shares of Vitex common stock in place of our Panacos capital stock. Fifteenpercent of Vitex stock owned by former owners of Panacos stock, includingfifteen percent of the Vitex common stock owned by us, are being held in escrowper the Merger Agreement. On September 30, 2005, the closing price of Panacoscommon stock was $9.74 per share as quoted on the Nasdaq National Market. OnAugust 18, 2005, V.I. Technologies formerly changed its company name to PanacosPharmaceuticals Inc. and changed its trading symbol on the Nasdaq NationalMarket to “PANC”.

 

In July and August 2005 we sold an aggregate of328,986 shares of Vitex for which we received $2,841,510 in cash proceeds, netof charges and commission.  On November3, and November 4, 2005 the Company sold an aggregate of 100,000 shares ofPanacos stock for which we received approximately $882,990, net of charges andcommission.  We continue to hold anadditional 431,996 shares of Panics and may receive an additional 151,938shares which are being held in escrow until September 2006, per the terms ofthe Marth 10, 2005 merger between Vitex and Panacos Pharmaceuticals.  The closing price per share of Panacos commonstock as reported on the Nasdaq National Market on November 8, 2005 was $8.83.

 

*Related Party Transaction*

 

As of September 30, 2005, we evaluated therecoverability of a $1,000,000 loan receivable (originating January 1,2003 at an average interest rate of 6.5% per annum) from Mr. Richard T.Schumacher, a Director and our current President and Chief Executive Officer,which is reflected on our balance sheet in stockholders’ equity as of September30, 2005. Our review included an evaluation of the collateral associated withthe loan, which consists of common stock of Pressure BioSciences. In February 2005,Mr. Schumacher repaid in full a loan outstanding 

 

25

----

 

between an entity controlled by him and a financial institution withproceeds from the sale of 130,000 shares of our common stock in connection withour tender offer completed on February 11, 2005. As a result, we currentlymaintain a first priority security interest in this collateral previously heldby the financial institution, which currently consists of 489,659 shares ofcommon stock of Pressure BioSciences.

 

In connection with the Company’s evaluation of therecoverability of the loan receivable as of September 30, 2005, the Companyperformed a test for impairment of the loan receivable by analyzing the valueof the collateral. This test included, among other things, a review of thecurrent trading price of the Company’s common stock after taking into accountfactors that may affect the Company’s ability to sell such stock in the eventit were to foreclose on the collateral to repay the loan receivable and anyaccrued and unpaid interest. After performing the impairment test, the Companydetermined that the loan receivable was not impaired. The ultimate value thatthe Company may recover is dependent on numerous factors including the Company’sstock price, market conditions relative to the value of and ability to sell thecollateral, and the financial status of the Company’s President and ChiefExecutive Officer. Based on the Company’s assessment as of September 30, 2005,the Company estimates that the value of the collateral approximates the amountof the recorded loan receivable.  Ifactual market conditions are less favorable, the Company’s stock price declinesor other factors arise that are significantly different than those experiencedas of September 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 low tradingvolume of the Company’s common stock and recent volatility in our stock price,ranging from a low of $2.50 per share to a high of $6.70 per share from July 1,2005 to September 30, 2005.

 

**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 accountingprinciple. It also applies to changes required by an accounting pronouncementin the unusual 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.

 

**CRITICAL ACCOUNTING 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 or Plan of Operation”. There have been no material changes to these policies since December 31,2004, except as follows:

 

*Investmentin Marketable Securities*

 

The Company’s investment in marketable securitiesreflects its holdings of common stock of Panacos Pharmaceuticals Inc. (formerlyV.I. Technologies (“Vitex”)), a publicly traded company listed on the NasdaqNational Market.  The Company held sharesin Panacos Pharmaceuticals (Panacos), a private company prior to its 

 

26

----

 

merger with Vitex in March 2005, and this investment was reflected on acost basis as presented on the December 31, 2004 financial statements.  As a result of Vitex’s merger with PanacosPharmaceuticals in March 2005, and the Company’s subsequent receipt of sharesof Vitex common stock in exchange for all of its 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 September 30, 2005, the fair value ofthe Company’s remaining shares of Panacos common stock was approximately $6.7million based on the closing price of $9.74 per share of Panacos common stockas reported on the Nasdaq National Market on September 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 that weentered into a lease agreement dated May 5, 2005 (the “Lease”) with SaulHoldings Limited Partnership, pursuant to which have agreed to leaseapproximately 2,784 square feet of office space located at 209 Perry Parkway,Gaithersburg, Maryland 20877 for a term of twelve months.

 

The following is a summary of our future contractualobligations as of September 30, 2005:  

| ** **                                           | ** ** | **Payments Due by Period** | ** **  |
|------------------------------------------------------|------------|----------------------------|-------------|
| **Contractual Obligations**                          | ** ** | **Total**                  | ** **  | **Less than  1 year** | ** ** | **More than  1 year** | ** ** |
|                                                 |       |                       |        |   |   |   |   |
| Lease for Maryland  operating office (1)             |       | $                          | 42,144      |   | $ | 42,144 |   | 0 |   |
| Obligations relating to  Discontinued Operations (2) |       | 88,888                     |        | 54,888 |   | 34,000 |   |
|                                                 |       |                       |        |   |   | 0 |   |
| **Total Contractual Obligations**                    | ** ** | **$**                      | **131,032** | ** ** | **$** | **97,032** | ** ** | **$** | **34,000** | ** ** |
|                                                      |            |                            |             |  |  |  |  |  |  |  |

----

(1)  On May 5, 2005 we entered into a lease withSaul Holdings Limited Partnership for approximately 2,784 square feet of officespace located at 209 Perry Parkway, Gaithersburg, Maryland 20877 for a term oftwelve months.  We will pay base annual rent in the amount of $55,680, or$4,640 per month during the initial term of the Lease, plus $1,245 per monthfor 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 $89,500 as of September 30, 2005.  See also Note 3b of Notes to Condensed Consolidated Financial Statementsincluded in Part I, Item 1 of this Form 10-QSB.

 

**FORWARD-LOOKINGSTATEMENTS**

 

This Quarterly Report on Form 10-QSB containsforward-looking statements which involve risks and uncertainties, includingstatements regarding the Company’s plans, objectives, expectations andintentions.  In some cases,forward-looking statements are identified by terms such as “may”, “will”, “should”,“could”, “would”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “projects”,“predicts”, “potential”, and similar expressions intended to identify forward-lookingstatements. Such statements include, without limitation, statements maderegarding the expected recovery and value of the loan receivable from ourPresident and Chief Executive Officer; our belief that we have sufficientliquidity to finance operations through 2006; the amount of cash necessary to operate our business; our ability toraise additional capital when and if needed; our plans and expectations with respect to sales of our pressure cyclingtechnology products and services; our plans and expectations with respect tothe use of our available cash; and the anticipated future financial performanceof our company and products.  Theseforward-looking statements are only predictions and involve known and unknownrisks, uncertainties, and other 

 

27

----

 

factors that may cause our actual results, levels ofactivity, performance, or achievements to be materially different from anyfuture results, levels of activity, performance, or achievements expressed orimplied by such forward-looking statements. Also, these forward-lookingstatements represent our best estimates and assumptions only as of the date ofthis report.  Except as otherwiserequired by law, we expressly disclaim any obligation or undertaking to releasepublicly any updates or revisions to any forward-looking statement contained inthe report to reflect any change in our expectations or any change in events,conditions, or circumstances on which any of our forward-looking statements arebased.

 

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

 

•                  Wemay require additional capital to further develop our pressure cyclingtechnology products and services and cannot assure that additional capital willbe available on acceptable terms or at all.

 

•                  Ourbusiness may be harmed if we encounter problems, delays, expenses andcomplications that typically affect early-stage companies.

 

•                  Ourbusiness is dependent on the success of our pressure cycling technologyproducts and services, which has a limited operating history and has generatedsubstantial losses and only a limited amount of revenues to date.

 

•                  Ourpressure cycling technology business has a history of operating losses.

 

•                  Ourpressure cycling technology products and services are new and have limitedmarket awareness or acceptance.

 

•                  Thesales cycle of our pressure cycling technology products has been lengthy and asa result, we have incurred and may continue to incur significant expenses andwe may not generate any significant revenue related to those products.

 

•                  Ifwe are unable to protect our patents and other proprietary technology relatingto our pressure cycling technology products, our business will be harmed.

 

•                  Ifwe infringe on the intellectual property rights of others, our business will beharmed.

 

•                  Wemay be unable to adequately respond to rapid changes in technology.

 

•                  The market price of Panacos common stock could declineand we may be unable to sell Panacos shares at such times or prices as we maydesire.

 

•                  The shares of Panacos common stock currently held inescrow may not be released to us in September 2006.

 

•                  Wemay not be able to compete successfully.

 

•                  Wecurrently have very few employees and our future success is dependent on thecontinued services of Richard T. Schumacher, our President and Chief ExecutiveOfficer.

 

•                  Werely on third parties for our manufacturing, engineering and other relatedservices.

 

•                  Inconnection with the sale of our BBI Diagnostics and BBI Biotech business units,we continue to be exposed to contingent liabilities up to an amount equal tothe purchase price for the BBI Diagnostics and BBI Biotech business units,which could prevent us from pursuing our remaining business operations in theevent an indemnification claim is brought against us.

 

•                  Wemay not be able to fully collect the $900,000 in aggregate principal amount ofpromissory notes, which we received in connection with the sale of 70% of theownership interests in Source Scientific, LLC.

 

28

----

 

•                  Wemay not be able to fully collect the principal and interest due on a $1,000,000loan receivable from our President and Chief Executive Officer, which couldharm our business and financial condition.

 

•                  Themarket price for our common stock may fluctuate due to low trading volume, andit may be difficult for you to sell your stock at the prices and times youdesire.

 

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

 

•                  Provisionsin our charter 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.

 

**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 desired controlobjectives, as ours are designed to do, and management necessarily was requiredto apply its judgment in evaluating the cost-benefit relationship of possiblecontrols and procedures.

 

As of September 30, 2005, we carried out an evaluation, under the supervisionand with the participation of our management, including our President and ChiefExecutive Officer (Principal Executive Officer) and Chief Financial Officer(Principal Financial Officer) of the effectiveness of the design and operationof our disclosure controls and procedures, as defined in Rules 13a-15(e)and 15d-15(e) under the Securities Exchange Act of 1934. Based upon thatevaluation, our President and Chief Executive Officer (Principal ExecutiveOfficer) and Chief Financial Officer (Principal Financial Officer) concludedthat our disclosure controls and procedures are effective in enabling us torecord, process, summarize and report information required to be included inour 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.

 

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

 

None

 

29

----

 

**ITEM 3.     DEFAULT UPON SENIOR SECURITIES**

 

None.

 

##### **ITEM 4.     SUBMISSION OF MATTERSTO A VOTE OF SECURITY HOLDERS**

 

None.

 

**ITEM 5.     OTHERINFORMATION**

 

None.

 

**ITEM 6.     EXHIBITS**

 

**Exhibits**

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

 

30

----

 

**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|                    | PRESSURE BIOSCIENCES, INC. |
|-------------------------|----------------------------|
|                    |                       | (Registrant) |
|                    |                       |   |
| Date: November 14, 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) |

 

31

----