UNITED STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
 
 (Mark
One)
 
 x    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
 
 For the quarterly period ended
September
30, 2009   or
 
  ̈    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
 
 For
the transition period from _____________ to _____________
 
 Commission file
number   0-21615
 
 PRESSURE
BIOSCIENCES, INC.
 (Exact
Name of Registrant as Specified in its Charter)
  Massachusetts
                
                04-2652826(State
      or Other Jurisdiction of
                
                (I.R.S.
      EmployerIncorporation
      or Organization)
                
                Identification
      No.)
 
 14
      Norfolk AvenueSouth
      Easton, Massachusetts
                  02375(Address
      of Principal Executive Offices)
                  (Zip
      Code)
 
 (508)
230-1828
 (Registrant’s
Telephone Number, Including Area Code)
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
  x
Yes        ̈ No
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
 
 Yes  ̈ No  ̈
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.  (Check one):
 Large
      accelerated filer  ̈
                Accelerated
      filer  ̈Non-accelerated
      filer  ̈
                Smaller
      reporting company x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2 of the Exchange Act).
   ̈
Yes      x No
 The
number of shares outstanding of the Issuer’s common stock as of October 31, 2009
was 2,195,283.
  
  TABLE OF CONTENTS
  PagePART
      I - FINANCIAL INFORMATIONItem
      1. Financial Statements (Unaudited)Consolidated
      Balance Sheets as of September 30, 2009 and December 31,
    2008
                                  1Consolidated
      Statements of Operations for the Three Months and Nine Months Ended
      September 30, 2009 and 2008
                                  2Consolidated
      Statements of Cash Flows for the Nine Months Ended September 30, 2009 and
      2008
                                  3Notes
      to Consolidated Financial Statements
                                  4Item
      2. Management's Discussion and Analysis of Financial Condition and Results
      of Operations
                                  15Item
      4T. Controls and Procedures
                                  26PART
      II - OTHER INFORMATIONItem
      4. Submission of Matters to a Vote of Security Holders
                                  27Item
      6. Exhibits
                                  27
  
  PART
I.   FINANCIAL INFORMATION
 Item 1. Financial Statements
  PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 (UNAUDITED)
 
 September 30,
                                
                                
                                December 31,2009
                                
                                
                                2008ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                                
                                $
                                1,374,947
                                
                                
                                $
                                868,208Restricted
      cash
                                
                                
                                20,011
                                
                                
                                
                                50,000Accounts
      receivable
                                
                                
                                216,622
                                
                                
                                
                                209,117Inventories
                                
                                
                                735,235
                                
                                
                                
                                571,831Deposits
                                
                                
                                13,872
                                
                                
                                
                                382,236Prepaid
      income taxes
                                
                                
                                3,176
                                
                                
                                
                                6,600Prepaid
      expenses and other current assets
                                
                                
                                59,497
                                
                                
                                
                                235,111Total
      current assets
                                
                                
                                2,423,360
                                
                                
                                
                                2,323,103PROPERTY
      AND EQUIPMENT, NET
                                
                                
                                231,489
                                
                                
                                
                                252,249OTHER
      ASSETSIntangible
      assets, net
                                
                                
                                243,184
                                
                                
                                
                                279,658TOTAL
      ASSETS
                                
                                $
                                2,898,033
                                
                                
                                $
                                2,855,010LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT
      LIABILITIESAccounts
      payable
                                
                                $
                                137,068
                                
                                
                                $
                                263,486Accrued
      employee compensation
                                
                                
                                118,675
                                
                                
                                
                                161,374Accrued
      professional fees and other
                                
                                
                                300,483
                                
                                
                                
                                278,982Deferred
      revenue
                                
                                
                                144,170
                                
                                
                                
                                16,705Total
      current liabilities
                                
                                
                                700,396
                                
                                
                                
                                720,547LONG
      TERM LIABILITIESDeferred
      revenue
                                
                                
                                2,759
                                
                                
                                
                                10,821TOTAL
      LIABILITIES
                                
                                
                                703,155
                                
                                
                                
                                731,368COMMITMENTS
      AND CONTINGENCIES (Note 4)STOCKHOLDERS'
      EQUITYPreferred
      stock, $.01 par value; 1,000,000 shares authorized; 156,980 shares issued
      and outstanding on September 30, 2009 and 0 shares on December 31,
      2008
                                
                                
                                1,570
                                
                                
                                
                                -Common
      stock, $.01 par value; 20,000,000 shares authorized; 2,195,283 shares
      issued and outstanding on September 30, 2009 and on December 31,
      2008
                                
                                
                                21,953
                                
                                
                                
                                21,953Warrants
      to acquire preferred stock and common stock
                                
                                
                                882,253
                                
                                
                                
                                -Additional
      paid-in capital
                                
                                
                                8,328,872
                                
                                
                                
                                6,803,530Accumulated
      deficit
                                
                                
                                (7,039,770
                                )
                                
                                
                                (4,701,841
                                )Total
      stockholders' equity
                                
                                
                                2,194,878
                                
                                
                                
                                2,123,642TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                
                                $
                                2,898,033
                                
                                
                                $
                                2,855,010
 
 The
accompanying notes are an integral part of these consolidated financial
statements
  1
  PRESSURE BIOSCIENCES, INC. AND
SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (UNAUDITED)
 
 For the Three Months Ended
                        
                        
                        For the Nine Months EndedSeptember 30,
                        
                        
                        September 30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008REVENUE:PCT
      Products, services, other
                        
                        $
                        204,584
                        
                        
                        $
                        222,825
                        
                        
                        $
                        585,928
                        
                        
                        $
                        421,996Grant
      revenue
                        
                        
                        112,843
                        
                        
                        
                        42,837
                        
                        
                        
                        308,642
                        
                        
                        
                        96,226Total
      revenue
                        
                        
                        317,427
                        
                        
                        
                        265,662
                        
                        
                        
                        894,570
                        
                        
                        
                        518,222COSTS
      AND EXPENSES:Cost
      of PCT products and services
                        
                        
                        74,093
                        
                        
                        
                        130,533
                        
                        
                        
                        305,156
                        
                        
                        
                        267,416Research
      and development
                        
                        
                        273,286
                        
                        
                        
                        376,552
                        
                        
                        
                        895,556
                        
                        
                        
                        1,329,155Selling
      and marketing
                        
                        
                        254,022
                        
                        
                        
                        399,380
                        
                        
                        
                        784,902
                        
                        
                        
                        1,384,147General
      and administrative
                        
                        
                        470,206
                        
                        
                        
                        466,883
                        
                        
                        
                        1,328,380
                        
                        
                        
                        1,603,803Total
      operating costs and expenses
                        
                        
                        1,071,607
                        
                        
                        
                        1,373,348
                        
                        
                        
                        3,313,994
                        
                        
                        
                        4,584,521Operating
      loss
                        
                        
                        (754,180
                        )
                        
                        
                        (1,107,686
                        )
                        
                        
                        (2,419,424
                        )
                        
                        
                        (4,066,299
                        )Interest
      income
                        
                        
                        731
                        
                        
                        
                        9,481
                        
                        
                        
                        4,418
                        
                        
                        
                        56,338Loss
      before income taxes
                        
                        
                        (753,449
                        )
                        
                        
                        (1,098,205
                        )
                        
                        
                        (2,415,006
                        )
                        
                        
                        (4,009,961
                        )Income
      tax benefit
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        623,262
                        
                        
                        
                        -Net
      loss
                        
                        
                        (753,449
                        )
                        
                        
                        (1,098,205
                        )
                        
                        
                        (1,791,744
                        )
                        
                        
                        (4,009,961
                        )Accrued
      preferred stock dividend
                        
                        
                        (22,504
                        )
                        
                        
                        -
                        
                        
                        
                        (56,384
                        )
                        
                        
                        -Net
      loss to common shareholders
                        
                        $
                        (775,953
                        )
                        
                        $
                        (1,098,205
                        )
                        
                        $
                        (1,848,128
                        )
                        
                        $
                        (4,009,961
                        )Loss
      per common share - basic and diluted
                        
                        $
                        (0.35
                        )
                        
                        $
                        (0.50
                        )
                        
                        $
                        (0.84
                        )
                        
                        $
                        (1.83
                        )Weighted
      average number of shares used to calculate loss per share - basic and
      diluted
                        
                        
                        2,195,283
                        
                        
                        
                        2,195,283
                        
                        
                        
                        2,195,283
                        
                        
                        
                        2,193,692
 
 The
accompanying notes are an integral part of these consolidated financial
statements
  2
  PRESSURE
BIOSCIENCES, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 
 For the Nine Months EndedSeptember 30,2009
                  
                  
                  2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss to common shareholders
                  
                  $
                  (1,848,128
                  )
                  
                  $
                  (4,009,961
                  )Adjustments
      to reconcile net loss to operating cash flows:Depreciation
      and amortization
                  
                  
                  153,585
                  
                  
                  
                  154,320Stock-based
      compensation expense
                  
                  
                  351,439
                  
                  
                  
                  451,279Bad
      debt expense
                  
                  
                  45,280
                  
                  
                  
                  -Changes
      in operating assets and liabilities:Restricted
      cash
                  
                  
                  29,989
                  
                  
                  
                  -Accounts
      receivable
                  
                  
                  (52,785
                  )
                  
                  
                  (55,966
                  )Inventories
                  
                  
                  (163,404
                  )
                  
                  
                  (434,241
                  )Deposits
                  
                  
                  368,364
                  
                  
                  
                  438,973Accounts
      payable
                  
                  
                  (126,418
                  )
                  
                  
                  169,221Accrued
      employee compensation
                  
                  
                  (42,699
                  )
                  
                  
                  (6,138
                  )Deferred
      revenue and other accrued expenses
                  
                  
                  140,904
                  
                  
                  
                  1,927Prepaid
      expenses and other current assets
                  
                  
                  179,038
                  
                  
                  
                  (58,959
                  )Net
      cash used in operating activities
                  
                  
                  (964,835
                  )
                  
                  
                  (3,349,545
                  )CASH
      FLOWS FROM INVESTING ACTIVITIES:Additions
      to property and equipment
                  
                  
                  (96,349
                  )
                  
                  
                  (131,957
                  )Net
      cash used in investing activities
                  
                  
                  (96,349
                  )
                  
                  
                  (131,957
                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      proceeds from the issuance of common stock
                  
                  
                  -
                  
                  
                  
                  9,750Net
      proceeds from the issuance of preferred stock
                  
                  
                  1,567,923
                  
                  
                  
                  -Net
      cash provided by financing activities
                  
                  
                  1,567,923
                  
                  
                  
                  9,750Change
      in cash and cash equivalents
                  
                  
                  506,739
                  
                  
                  
                  (3,471,752
                  )Cash
      and cash equivalents, beginning of period
                  
                  
                  868,208
                  
                  
                  
                  5,424,486Cash
      and cash equivalents, end of period
                  
                  $
                  1,374,947
                  
                  
                  $
                  1,952,734SUPPLEMENTAL
      INFORMATION:Income
      taxes paid
                  
                  $
                  -
                  
                  
                  $
                  2,790Income
      tax refund received
                  
                  
                  623,262
                  
                  
                  
                  49,798
 
 The
accompanying notes are an integral part of these consolidated financial
statements
  3
 
 PRESSURE
BIOSCIENCES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2009
 
 1)
              Business
      Overview and Management
Plans
 
 Pressure
BioSciences, Inc. (“PBI or the Company”) is a life sciences company focused on
the development and commercialization of a novel, enabling platform technology
called pressure cycling technology (“PCT”).  PCT uses cycles of
hydrostatic pressure between ambient and ultra-high levels (up to 35,000 psi and
greater) to control bio-molecular interactions.
 
 Our
pressure cycling technology uses instrumentation that is capable of cycling
pressure between ambient and ultra-high levels (up to 35,000 psi or greater), at
user-defined temperatures, to rapidly and repeatedly control the interactions of
bio-molecules. Our pressure-generating instrument is called the
Barocycler®.  Our PCT-related consumables product line includes PULSE
(Pressure Used to Lyse Samples for Extraction) Tubes, MicroTubes, and
application specific (“ProteoSolve”) kits.  Our Barocycler instrument,
together with our consumable processing tubes and kits make up the PCT Sample
Preparation System (“PCT SPS”).
 
 We have
experienced negative cash flows from operations with respect to our pressure
cycling technology business since its inception.  Cash, as of
September 30, 2009, was approximately $1.4 million.  During 2008, we
undertook a number of cost reduction measures including a comprehensive
restructuring program, to significantly reduce costs, centralize core
operations, and refocus business strategy in specific areas where our products
have found significant market acceptance.  The restructuring program
included: a reduction in personnel of eight full-time employees (40% of the
workforce), reduction in travel and meeting attendance for all personnel,
decreases in the base salary of most of our employees and all of our executive
officers, a shutdown of our R&D facility in Rockville, MD, a consolidation
of our R&D activities in Massachusetts, and delay of several research &
development and marketing programs.  These initiatives have
significantly decreased cash utilization, from just under $1 million per quarter
in the second half of 2008 to an expected average of approximately $650,000 per
quarter during 2009.  We currently believe these actions, combined
with proceeds from our $1.8 million equity financing completed in February 2009
and the $623,000 IRS refund received in August 2009, extends our cash resources
into the second quarter of 2010.
 
 2)
              Interim
      Financial Reporting
 
 The
accompanying unaudited consolidated financial statements of Pressure
BioSciences, Inc. have been prepared in accordance with accounting principles
generally accepted in the United States of America (“generally accepted
accounting principles” or “GAAP”) for interim financial
information.  Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all material adjustments
(consisting of only normal recurring adjustments) considered necessary for a
fair presentation have been included.  Operating results for the three
months and nine months ended September 30, 2009 are not necessarily indicative
of the results that may be expected for the year ending December 31,
2009.  For further information, refer to the audited consolidated
financial statements and footnotes thereto included in the Company’s Annual
Report on Form 10-K (the “Form 10-K”) for the fiscal year ended December 31,
2008 as filed with the Securities and Exchange Commission on March 31,
2009.
  3)
              Summary
      of Significant Accounting
Policies
 
 FASB
Codification
 
 We follow
accounting standards set by the Financial Accounting Standards Board,
(“FASB”).  The FASB sets GAAP that we follow to ensure we consistently
report our financial condition, results of operations, and cash
flows.  References to GAAP issued by the FASB in these footnotes are
to the FASB Accounting Standards Codification, sometimes referred to as the
Codification or ASC.  The FASB finalized the Codification effective
for periods ending on or after September 15, 2009.  Prior FASB
standards like FASB Statement No. 13, Accounting for Leases, are no longer being
issued by the FASB.  For further discussion of the Codification see
“FASB Codification Discussion” in Management’s Discussion and Analysis of
Financial Condition and Results of Operations (commonly referred to as MD&A)
elsewhere in this report.
 
 Principles
of Consolidation
 
 The
consolidated financial statements include the accounts of Pressure BioSciences,
Inc., and its wholly-owned subsidiary PBI BioSeq, Inc.
  4
 PRESSURE
BIOSCIENCES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2009
 Use
of Estimates
 
 To
prepare our consolidated financial statements in conformity with generally
accepted accounting principles, we are required to make significant estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. In addition, significant estimates are made in projecting
future cash flows to quantify impairment of assets, deferred tax assets and the
costs associated with fulfilling our warranty obligations for the instruments
that we sell, in our calculation of fair value of stock options awarded, and our
allocation of the proceeds from the equity financing between the preferred stock
and warrants sold.  We base our estimates on historical experience and
on various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results could differ from the estimates and assumptions
used.
 
 Revenue
Recognition
 
 We
recognize revenue in accordance with FASB ASC 605, Revenue
Recognition.  Revenue is recognized when realized or earned
when all the following criteria have been met: persuasive evidence of an
arrangement exists; delivery has occurred and risk of loss has passed to the
customer; the seller’s price to the buyer is fixed or determinable; and
collectability is reasonably assured.
 
 Our
current instruments, the Barocycler NEP3229 and NEP2320, require a basic level
of instrumentation expertise to set-up for initial operation. To support a
favorable first experience for our customers, we send a highly trained technical
representative to the customer site to install every Barocycler that we sell,
lease, or rent through our domestic sales force. The installation process
includes uncrating and setting up the instrument, followed by introductory user
training. Product revenue related to current Barocycler instrumentation is
recognized upon the completion of the installation and introductory training
process of the instrumentation at the customer location, for domestic
installations.  Product revenue related to sales of PCT
instrumentation to our foreign distributors is recognized upon shipment through
a common carrier. We provide for the expected costs of warranty upon the
recognition of revenue for the sales of our instrumentation. Our sales
arrangements do not provide our customers with a right of return. Product
revenue related to our consumable products such as PULSE Tubes, MicroTubes, and
application specific kits is recorded upon shipment through a common
carrier.  Shipping costs are included in sales and marketing
expense.  Any shipping costs billed to customers are recognized as
revenue.
 
 In
accordance with FASB ASC 840, Leases, we account for our
lease agreements under the operating method.  We record revenue over
the life of the lease term and we record depreciation expense on a straight-line
basis over the thirty-six month estimated useful life of the Barocycler
instrument.  The depreciation expense associated with assets under
lease agreement is included in the “Cost of PCT products and services” line item
in our consolidated statements of operations.  Many of our lease and
rental agreements allow the lessee to purchase the instrument at any point
during the term of the agreement with partial or full credit for payments
previously made.  We pay all maintenance costs associated with the
instrument during the term of the leases.
 
 Revenue
from government grants is recorded when expenses are incurred under the grant in
accordance with the terms of the grant award.
 
 Our
transactions sometimes involve multiple elements (i.e., products and
services).  Revenue under multiple element arrangements is recognized
in accordance with FASB ASC 605-25 Multiple-Element
Arrangements.  Under this method, if an element is determined
to be a separate unit of accounting, the revenue for the element is based on
fair value and determined by vendor specific objective evidence (“VSOE”), and
recognized at the time of delivery. If an arrangement includes undelivered
elements that are not essential to the functionality of the delivered elements,
we defer the fair value of the undelivered elements with the residual revenue
allocated to the delivered elements. Fair value is determined based upon the
price charged when the element is sold separately. If there is not sufficient
evidence of the fair value of the undelivered elements, no revenue is allocated
to the delivered elements and the total consideration received is deferred until
delivery of those elements for which objective and reliable evidence of the fair
value is not available. We provide certain customers with extended service
contracts and, to the extent VSOE is established, these service revenues are
recognized ratably over the life of the contract, which is generally one to four
years.
 
 Cash and Cash
Equivalents
 
 Our
policy is to invest available cash in short-term, investment-grade,
interest-bearing obligations, including money market funds, and bank and
corporate debt instruments.  Securities purchased with initial
maturities of three months or less are valued at cost plus accrued interest,
which approximates fair market value, and are classified as cash
equivalents.
 
 Research
and Development
 
 Research
and development costs, which are comprised of costs incurred in performing
research and development activities - including wages and associated employee
benefits, facilities, consumable products and overhead costs - are expensed as
incurred. Our research and development activities are performed at our facility
in Massachusetts in conjunction with our collaboration partner sites.  In
support of our research and development activities, we utilize our Barocycler
instruments that are capitalized as fixed assets and depreciated over their
expected useful life.
  5
 PRESSURE
BIOSCIENCES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2009
 Inventories
 
 Inventories
are valued at the lower of cost (average cost) or market (sales
price).  The cost of Barocyclers consists of the cost charged by the
contract manufacturer.  The cost of manufactured goods includes
material, freight-in, direct labor, and applicable overhead.  As of
September 30, 2009, the recorded cost of all categories was less than the recent
sales price.  The composition of inventory as of September 30, 2009
and December 31, 2008 is as follows:
 
 September 30,
                    
                    
                    December 31,2009
                    
                    
                    2008Raw
      materials
                    
                    $
                    114,634
                    
                    
                    $
                    83,451Finished
      goods
                    
                    
                    620,601
                    
                    
                    
                    488,380Total
                    
                    $
                    735,235
                    
                    
                    $
                    571,831
 
 Our
finished goods inventory as of September 30, 2009 included 52 Barocycler
instruments, of which 40 instruments were produced during 2009.  Our
finished goods inventory as of December 31, 2008 included 34 Barocycler
instruments.  We transferred one unit from inventory to our laboratory
facility for internal use and recovered four units from the field.
 
 Property
and Equipment
 
 Property
and equipment are stated at cost, less accumulated depreciation. For financial
reporting purposes, depreciation is recognized using the straight-line method,
allocating the cost of the assets over their estimated useful lives of three
years for certain laboratory equipment, from three to five years for management
information systems and office equipment, and three years for all PCT finished
units classified as fixed assets.  Property and equipment includes
total book value of $121,795 relating to barocycler instruments held under lease
or collaboration.
 
 Intangible
Assets
 
 We have
classified as intangible assets, costs associated with the fair value of
acquired intellectual property.  Intangible assets including patents are
amortized on a straight-line basis over sixteen years.  The Company’s
intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable.  When impairment is indicated, any excess of carrying
value over fair value is recorded as a loss.  An impairment analysis
of intangible assets was performed as of December 31, 2008.  No
triggering event for impairment has come to our attention to cause us to record
an impairment of intangible assets as of September 30, 2009.
 
 Long-Lived
Assets and Deferred Costs
 
 The
Company’s long-lived assets and other assets are reviewed for impairment in
accordance with the guidance of the FASB ASC 360-10-05, Property, Plant, and
Equipment, whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable.  Recoverability
of an asset to be held and used is measured by a comparison of the carrying
amount of an asset to the future undiscounted cash flows expected to be
generated by the asset.  If such asset is considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying
amount of the asset exceeds its fair value.  Through September 30,
2009, the Company had not experienced impairment losses on its long-lived
assets.
 
 Concentrations
 
 Credit
Risk
 
 Our
financial instruments that potentially subject us to concentrations of credit
risk consist primarily of cash, cash equivalents, and trade
receivables.  We have cash investment policies which, among other
things, limit investments to investment-grade securities.  We perform
ongoing credit evaluations of our customers, and the risk with respect to trade
receivables is further mitigated by the fact that many of our customers are
government institutions, large pharmaceutical and biotechnology companies, and
academic laboratories.
 
 The
following tables illustrate the level of concentration as a percentage of total
revenues during the three months and nine months ended September 30, 2009 and
2008:
  6
 PRESSURE
BIOSCIENCES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2009
 For the Three Months EndedSeptember 30,2009
                    
                    
                    2008Top
      Five Customers
                    
                    
                    69
                    %
                    
                    
                    79
                    %Federal
      Agencies
                    
                    
                    43
                    %
                    
                    
                    31
                    %
 
 
 For the Nine Months EndedSeptember 30,2009
                    
                    
                    2008Top
      Five Customers
                    
                    
                    51
                    %
                    
                    
                    62
                    %Federal
      Agencies
                    
                    
                    41
                    %
                    
                    
                    27
                    %
 
 
 The
following table illustrates the level of concentration as a percentage of net
accounts receivable balance as of September 30, 2009 and December 31,
2008:
 
 September 30,
                    
                    
                    December 31,2009
                    
                    
                    2008Top
      Five Customers
                    
                    
                    70
                    %
                    
                    
                    81
                    %Federal
      Agencies
                    
                    
                    16
                    %
                    
                    
                    1
                    %
  Product
Supply
 
 Source
Scientific, LLC has been our sole contract manufacturer for all of our PCT
instrumentation. We have initiated several engineering initiatives to position
us for greater independence from any one supplier, and we are continuing to
develop a network of manufacturers and sub-contractors to reduce our reliance on
any single supplier for PCT components.  Until we develop a network of
manufacturers and subcontractors, obtaining alternative sources of supply or
manufacturing services could involve significant delays and other costs and
challenges, and may not be available to us on reasonable terms, if at all. The
failure of a supplier or contract manufacturer to provide sufficient quantities,
acceptable quality and timely products at an acceptable price, or an
interruption of supplies from such a supplier could harm our business and
prospects.
 
 Computation
of Loss per Share
 
 Basic
loss per share is computed by dividing loss available to common shareholders by
the weighted average number of common shares outstanding.  Diluted
loss per share is computed by dividing loss available to common shareholders by
the weighted average number of common shares outstanding plus additional common
shares that would have been outstanding if dilutive potential common shares had
been issued.  For purposes of this calculation, convertible preferred
stock, common stock dividends, warrants to acquire preferred stock convertible
into common stock, and warrants and options to acquire common stock, are all
considered common stock equivalents in periods in which they have a dilutive
effect and are excluded from this calculation in periods in which these are
anti-dilutive.
 
 The
following table illustrates our computation of loss per share for the three
months and nine months ended September 30, 2009 and 2008:
 
 For the Three Months Ended
                  
                  
                  For the Nine Months EndedSeptember 30,
                  
                  
                  September 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Numerator:Net
      loss
                  
                  $
                  (753,449
                  )
                  
                  $
                  (1,098,205
                  )
                  
                  $
                  (1,791,744
                  )
                  
                  $
                  (4,009,961
                  )Accrued
      preferred stock dividend
                  
                  
                  (22,504
                  )
                  
                  
                  -
                  
                  
                  
                  (56,384
                  )
                  
                  
                  -Loss
      - basic and diluted
                  
                  $
                  (775,953
                  )
                  
                  $
                  (1,098,205
                  )
                  
                  $
                  (1,848,128
                  )
                  
                  $
                  (4,009,961
                  )Denominator:Weighted
      average shares outstanding - basic and diluted
                  
                  
                  2,195,283
                  
                  
                  
                  2,195,283
                  
                  
                  
                  2,195,283
                  
                  
                  
                  2,193,692Loss
      per common share - basic and diluted
                  
                  $
                  (0.35
                  )
                  
                  $
                  (0.50
                  )
                  
                  $
                  (0.84
                  )
                  
                  $
                  (1.83
                  )Shares
      excluded from calculations
                  
                  
                  207,271
                  
                  
                  
                  28,975
                  
                  
                  
                  117,025
                  
                  
                  
                  124,879
  7
 PRESSURE
BIOSCIENCES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2009
 Accounting
for Income Taxes
 
 Effective
January 1, 2007, we adopted the provisions of FASB ASC 740, Income Taxes.  FASB
ASC 740 prescribes the use of the liability method whereby deferred tax asset
and liability account balances are determined based on differences between the
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.  The Company provides a valuation allowance,
if necessary, to reduce deferred tax assets to their estimated realizable
value.
 
 FASB ASC
740-10 clarifies the accounting for income taxes, by prescribing a minimum
recognition threshold a tax position is required to meet before being recognized
in the financial statements.  It also provides guidance on
de-recognition, measurement and classification of amounts relating to uncertain
tax positions, accounting for and disclosure of interest and penalties,
accounting in interim periods, disclosures and transition relating to the
adoption of the new accounting standard.  FASB ASC 740-10 was
effective for fiscal years beginning after December 15, 2006.
 
 We
account for income taxes under the asset and liability method, which requires
recognition of deferred tax assets, subject to valuation allowances, and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns.  Deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting and income tax
purposes.  A valuation allowance is established if it is more likely than
not that all or a portion of the net deferred tax assets will not be
realized.  If substantial changes in the company’s ownership should
occur, as defined in Section 382 of the Internal Revenue Code, there could be
sufficient limitations on the amount of net loss carry forwards that could be
used to offset future taxable income.
 
 In the
first half of 2009, we recorded a benefit for income taxes of $623,262 due to
provisions in the American Recovery and Reinvestment Act of 2009 relating to net
operating loss carry-backs.  The cash has been received during the
second half of 2009.  There was no provision for an income tax benefit
during the same period in 2008.  Aside from the impact of the passage
of this congressional act, we do not expect any additional income tax benefits
relating to carry-backs to prior periods.  If we are successful in
commercializing PCT and in generating operating income, then we may be able to
utilize certain net operating losses we may have at the time against such future
operating profits.
  Accounting
for Stock-Based Compensation
 
 We
maintain equity compensation plans under which incentive stock options and
non-qualified stock options are granted to employees, independent members of our
Board of Directors and outside consultants.  We recognize equity
compensation expense over the requisite service period using the Black-Scholes
formula to estimate the fair value of the stock options on the date of
grant.
 
 Determining Fair Value of
Stock Option Grants
 
 Valuation
and Amortization Method - The fair value of each option award is estimated on
the date of grant using the Black-Scholes pricing model based on certain
assumptions.  The estimated fair value of employee stock options is
amortized to expense using the straight-line method over the vesting
period.
 
 Expected
Term - The Company uses the simplified calculation of expected life, described
in the FASB ASC 718, Compensation-Stock Compensation, as the Company does not
currently have sufficient historical exercise data on which to base an estimate
of expected term.  Using this method, the expected term is determined
using the average of the vesting period and the contractual life of the stock
options granted.
 
 Expected
Volatility - Expected volatility is based on the Company’s historical stock
volatility data over the expected term of the award.
 
 Risk-Free
Interest Rate - The Company bases the risk-free interest rate used in the
Black-Scholes valuation method on the implied yield currently available on U.S.
Treasury zero-coupon issues with an equivalent remaining term.
 
 Forfeitures
- As required by FASB ASC 718, Compensation-Stock
Compensation, the Company records stock-based compensation expense only
for those awards that are expected to vest.  The Company estimated a
forfeiture rate of 5% for awards granted based on historical experience and
future expectations of options vesting.
  8
 PRESSURE
BIOSCIENCES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2009
 Since
January 1, 2006, we have accounted for our stock option expense in accordance
with the provisions of FASB ASC 718, Compensation-Stock
Compensation.
  We
recognized stock-based compensation expense of $98,579 and $81,285 for the three
months ended September 30, 2009 and 2008, respectively.  The following
table summarizes the effect of this stock-based compensation expense within each
of the line items of our costs and expenses within our Consolidated Statements
of Operations:
 
 For the Three Months Ended,September 30,2009
                      
                      
                      2008Research
      and development
                      
                      $
                      18,652
                      
                      
                      $
                      34,262Selling
      and marketing
                      
                      
                      17,557
                      
                      
                      
                      11,823General
      and administrative
                      
                      
                      62,370
                      
                      
                      
                      35,200Total
      stock-based compensation expense
                      
                      $
                      98,579
                      
                      
                      $
                      81,285
 
 We
recognized stock-based compensation expense of $351,439 and $451,279 for the
nine months ended September 30, 2009 and 2008, respectively.  The
following table summarizes the effect of this stock-based compensation expense
within each of the line items of our costs and expenses within our Consolidated
Statements of Operations:
 
 For the Nine Months Ended,September 30,2009
                            
                            
                            2008Research
      and development
                            
                            $
                            118,509
                            
                            
                            $
                            131,132Selling
      and marketing
                            
                            
                            56,131
                            
                            
                            
                            87,055General
      and administrative
                            
                            
                            176,799
                            
                            
                            
                            233,092Total
      stock-based compensation expense
                            
                            $
                            351,439
                            
                            
                            $
                            451,279
  The
provisions of FASB ASC 718 require that we make an estimate of our forfeiture
rate and adjust the expense that we recognize to reflect the estimated number of
stock options that will go unexercised. Our historical forfeiture rate has been
approximately 5%, so we used this rate as our assumption in calculating future
stock-based compensation expense.
 
 Fair
Value of Financial Instruments
 
 Due to
their short maturities, the carrying amounts for cash and cash equivalents,
accounts receivable, accounts payable, and accrued expenses approximate their
fair value. Long-term liabilities are primarily related to liabilities
transferred under contractual arrangements with carrying values that approximate
fair value.
 
 Reclassifications
 
 Certain
prior year amounts have been reclassified to conform to our current year
presentation.
 
 Advertising
 
 Advertising
costs are expensed as incurred.  During the three months ended
September 30, 2009, we did not incur significant advertising expenses but in the
same period last year, we incurred $21,354 in advertising
expense.  During the nine months ended September 30, 2009, we did not
incur significant advertising expenses but in the same period last year, we
incurred $47,456 in advertising expense.
 
 Rent
Expense
 
 Rental
costs are expensed as incurred.  During the three months ended
September 30, 2009 and 2008, we incurred $19,416 and $39,896, respectively in
rent expense for the use of our corporate office and research and development
facilities.  During the nine months ended September 30, 2009 and 2008,
we incurred $63,405 and $111,614, respectively in rent expense for the use of
our corporate office and research and development facilities.
  9
 PRESSURE
BIOSCIENCES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2009
 4)
              Commitments
      and Contingencies
 
 Operating
Leases
 
 Our
corporate offices are currently located at 14 Norfolk Avenue, South Easton,
Massachusetts 02375.  In November 2007, we signed an 18 month lease
agreement commencing in February 2008 pursuant to which we lease approximately
5,500 square feet of office space, with an option for an additional 12
months.  We exercised the renewal option to extend the lease term
until July 14, 2010.  We pay approximately $6,500 per month for the
use of these facilities.
 
 Effective
January 1, 2009, we terminated our lease agreement with Scheer Partners and the
Maryland Economic Development Corporation, pursuant to which we leased
laboratory and office space in Rockville, MD.  We paid approximately
$3,300 per month for the use of these facilities through December 31, 2008 with
no further obligation.
 
 Effective
January 31, 2009, we terminated our sub-lease agreement with Proteome Systems,
pursuant to which we leased approximately 650 square feet of laboratory space
plus 100 square feet of office space from Proteome Systems in Woburn,
Massachusetts.  We paid approximately $3,200 per month for the use of
these facilities through January 31, 2009 with no further
obligation.
 
 In
connection with the reduction of staff levels and consolidation of operations in
Rockville, MD and Woburn, MA, the Company moved its research and development
activities to our facilities in South Easton, Massachusetts.
 
 Royalty
Commitments
 
 In 1996,
we acquired our initial equity interest in BioSeq, Inc., which at the time was
developing our original pressure cycling technology.  BioSeq, Inc. acquired
its pressure cycling technology from BioMolecular Assays, Inc. (“BMA”) under a
technology transfer and patent assignment agreement.  In 1998, we purchased
all of the remaining outstanding capital stock of BioSeq, Inc., and at such
time, the technology transfer and patent assignment agreement was amended to
require us to pay BMA a 5% royalty on our sales of products or services that
incorporate or utilize the original pressure cycling technology that BioSeq,
Inc. acquired from BMA.  We are also required to pay BMA 5% of the proceeds
from any sale, transfer or license of all or any portion of the original
pressure cycling technology.  These payment obligations terminate in
2016.  During the three months ended September 30, 2009 and 2008, we
incurred $8,336 and $10,236, respectively in royalty expense associated with our
obligation to BMA.  During the nine months ended September 30, 2009
and 2008, we incurred $23,339 and $18,687, respectively in royalty expense
associated with our obligation to BMA.
 
 In
connection with our acquisition of BioSeq, Inc., we licensed certain limited
rights to the original pressure cycling technology back to BMA.  This
license is non-exclusive and limits the use of the original pressure cycling
technology by BMA solely for molecular applications in scientific research and
development and in scientific plant research and development.  BMA is
required to pay us a royalty equal to 20% of any license or other fees and
royalties, but not including research support and similar payments, it receives
in connection with any sale, assignment, license or other transfer of any rights
granted to BMA under the license.  BMA must pay us these royalties
until the expiration of the patents held by BioSeq, Inc. in 1998, which we
anticipate will be in 2016.  We have not received any royalty payments
from BMA under this license.
 
 Battelle
Memorial Institute
 
 In
December 2008, we entered into an exclusive patent license agreement with the
Battelle Memorial Institute ("Battelle"). The licensed technology is described
in the patent application filed by Battelle on July 31, 2008 (US serial number
12/183,219). This application includes subject matter related to a method and a
system for improving the analysis of protein samples, including through an
automated system utilizing pressure and a pre-selected agent to obtain a
digested sample in a significantly shorter period of time than current methods,
while maintaining the integrity of the sample throughout the preparatory
process.  Pursuant to the terms of the agreement we paid Battelle a
non-refundable initial fee.  In addition to royalty payments on net
sales on “licensed products”, we are obligated to make minimum royalty payments
for each year that we retain the rights outlined in the patent license agreement
and we are required to have our first commercial sale of the licensed products
within one year following the issuance of the patent covered by the licensed
technology.
 
 Purchase
Commitments
 
 On
September 18, 2008, we submitted a purchase order to Source Scientific, LLC, the
manufacturer of the Company’s PCT Barocycler instrumentation, for 50 Barocycler
NEP2320 units.  Pursuant to the terms of the purchase order, we placed
a deposit with Source Scientific, LLC, of approximately $100,000, representing
approximately 25% of the expected total value of the order.  On
November 12, 2008, we placed an additional deposit of approximately $100,000
with Source Scientific, LLC to provide them with funds required to commence
manufacturing of the NEP2320 units ordered.  The purchase price for
the 50 Barocycler NEP2320 units is based upon a fixed bill of
materials.  We were billed for the unpaid purchase price of each unit
at the time each unit was completed and ready for sale.
  10
 PRESSURE
BIOSCIENCES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2009
 As of
December 31, 2008 we had approximately $163,000 on deposit with Source
Scientific, LLC for 40 remaining units pursuant to open purchase
orders.  In addition, in December 2008, we put the remaining $203,758
amount of the purchase order in an escrow account, which funds were to be
released to pay the remaining balance due when units were
completed.  The amount held in escrow is included as a component
within the line item Deposits on the balance sheet.  As of September
30, 2009, we had no funds on deposit with Source Scientific, LLC because the
remaining units pursuant to the purchase order were completed and received by
the Company during the first quarter of 2009.
 
 Indemnification
 
 In
connection with our sale of substantially all of the assets of Boston Biomedica,
Inc. (“BBI Core Businesses”) to SeraCare Life Sciences, Inc. in September 2004,
we were exposed to possible indemnification claims in amounts up to the purchase
price of approximately $29 million.  Our indemnification obligations
for breaches of some representations and warranties relating to compliance with
environmental laws extended until September 14, 2009.  Representations
and warranties relating to tax matters extend for the applicable statute of
limitations period (which varies depending on the nature of claim), and
representations and warranties relating to our due organization, subsidiaries,
authorization to enter into and perform the transactions contemplated by the
Asset Purchase Agreement and brokers fees, extend indefinitely.
 
 Severance and Change of Control
Agreements
 
 Each of
our executive officers is entitled to receive a severance payment if terminated
by the Company without cause.  The severance benefits would include a
payment in an amount equal to one year of each executive officer’s annualized
base salary compensation plus accrued paid time off.  Additionally,
each executive officer will be entitled to receive medical and dental insurance
coverage for one year following the date of termination.  The total
commitment related to these agreements in the aggregate is approximately $1.0
million.
 
 Each of our executive officers, other
than Mr. Richard T. Schumacher, our President and Chief Executive Officer, is
entitled to receive a change of control payment in an amount equal to one year
of such executive officer’s annualized base salary compensation, accrued paid
time off, and medical and dental coverage, in the event of a change of control
of the Company.  In the case of Mr. Schumacher, this payment would be
equal to two years of annualized base salary compensation, accrued paid time
off, and two years of medical and dental coverage.  The total
commitment related to these agreements in the aggregate is approximately $1.3
million.
 
 5)
              Stockholders’
      Equity
 
 Preferred
Stock
 
 In 1996,
our Board of Directors authorized the issuance of 1,000,000 shares of preferred
stock with a par value of $0.01. As of September 30, 2009, 608,696 shares of
preferred stock have been designated as Series A Convertible Preferred Stock,
par value $0.01 per share (“Series A Convertible Preferred Stock”), of which
156,980 shares are issued and outstanding, and 20,000 shares of preferred stock
have been designated as Series A Junior Participating Preferred Stock, none of
which are issued and outstanding.
 
 On
February 12, 2009, we completed a private placement, pursuant to which we sold
an aggregate of 156,980 units for a purchase price of $11.50 per unit (the
“Purchase Price”), resulting in gross proceeds to us of $1,805,270 (the “Private
Placement”).  Each unit consisted of  (i) one share of a
newly created series of preferred stock, designated “Series A Convertible
Preferred Stock,” par value $0.01 per share (the “Series A Convertible
Preferred Stock”) convertible into 10 shares of our common stock, (ii) a
warrant to purchase one share of Series A Convertible Preferred Stock at an
exercise price equal to $12.50 per share, with a term expiring 15 months after
the date of closing (“15 Month Preferred Stock
Warrant”); and (iii) a warrant to purchase 10 shares of common stock at
an exercise price equal to $2.00 per share, with a term expiring 30 months after
the date of closing (the “30 Month Common Stock
Warrants”).  We did not pay any placement fees associated with
this transaction but the expenses related to the offering totaled approximately
$233,000.
 
 The
proceeds from the sale of each unit was allocated between the Series A
Convertible Preferred Stock, the 15 Month Preferred Stock Warrant and the 30
Month Common Stock Warrant based on the relative estimated fair value of each
security.  The estimated fair value of the warrants was determined
using the Black-Scholes formula, resulting in an allocation of the gross
proceeds of $882,253 to the total warrants issued.  The allocation of
the gross proceeds to the Series A Convertible Preferred Stock was
$923,017.  In accordance with the provisions of FASB ASC 470-20, Debt with Conversion and Other
Options, an additional adjustment between Additional Paid in Capital and
Accumulated Deficit of $489,803 was recorded to reflect an implicit non-cash
dividend related to the allocation of proceeds between the stock and warrants
issued.The $489,803
represents the value of the adjustment to additional paid in capital related to
the beneficial conversion feature of the preferred stock.  The value
adjustment was calculated by subtracting the fair market value of the underlying
common stock on February 12, 2009 as convertible from the Series A Preferred
Stock from the fair market value of the preferred stock as determined when the
company performed a fair market value allocation of the proceeds to the
preferred stock and warrants.  Accordingly, this amount is not
factored in the earnings per share calculation.
  11
 PRESSURE
BIOSCIENCES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2009
 Series A Convertible
Preferred Stock
 
 Each
share of Series A Convertible Preferred Stock will receive a cumulative dividend
at the rate of 5% per annum of the Purchase Price, payable semi-annually on June
30 and December 31, commencing on June 30, 2009 (with the first payment being
pro-rated based on the number of days occurring between the date of issuance and
June 30, 2009).  Dividends may be paid in cash or in shares of common
stock at our option, subject to certain conditions.  The shares of
Series A Convertible Preferred Stock also are entitled to a liquidation
preference, such that in the event of any voluntary or involuntary liquidation,
dissolution or winding up of our company, the holders of Series A Convertible
Preferred Stock will be paid out of the assets of the Company available for
distribution to the our stockholders before any payment shall be paid to the
holders of common stock, an amount per share equal to the Purchase Price, plus
accrued and unpaid dividends.  The Board approved the method of
payment in the form of common stock for the June 30, 2009 dividend.
 
 Each
share of Series A Convertible Preferred Stock is convertible into 10 shares of
common stock at any time at the option of the holder, subject to adjustment for
stock splits, stock dividends, recapitalizations and similar transactions (the
“Conversion
Ratio”). Unless waived under certain circumstances by the holder of
Series A Convertible Preferred Stock, such holder’s shares of Series A
Convertible Preferred Stock may not be converted if upon such conversion the
holder’s beneficial ownership would exceed certain thresholds.  Each
share of Series A Convertible Preferred Stock will automatically be converted
into shares of common stock at the Conversion Ratio then in
effect:  (i) if, after 12 months from the closing of the Private
Placement, the common stock trades on the Nasdaq Capital Market (or other
primary trading market or exchange on which the common stock is then traded) at
a price equal to $4.00 for 20 out of 30 consecutive trading days with average
daily trading volume of at least 10,000 shares or (ii) upon a registered public
offering by the Company at a per share price equal to $2.30 with aggregate gross
proceeds to the Company of not less than $10 million.
 
 The
holders of Series A Convertible Preferred Stock are not entitled to vote on any
matters presented to the stockholders of the Company for their action or
consideration at any meeting of stockholders of the Company (or by written
consent of stockholders in lieu of meeting), except that the holders of Series A
Convertible Preferred Stock may vote separately as a class on any matters that
would amend, alter or repeal any provision of our Restated Articles of
Organization, as amended, in a manner that adversely affects the powers,
preferences or rights of the Series A Convertible Preferred Stock and such
holders may also vote on any matters required by law.
 
 At any
time after February 11, 2014, upon 30 days written notice, we have the right to
redeem the outstanding shares of Series A Convertible Preferred Stock at a price
equal to the Purchase Price, plus all accrued and unpaid dividends
thereon.  The redemption price may be paid in two annual
installments.
 
 Warrants
  The
warrants have the following exercise prices and terms:  (i) the 15
Month Preferred Stock Warrants have an exercise price equal to $12.50 per share,
with a term expiring on May 12, 2010; and (ii) the 30 Month Common Stock
Warrants have an exercise price equal to $2.00 per share, with a term expiring
on August 12, 2011.Unless waived under
certain circumstances by the holder of the warrant, such holder’s warrants may
not be exercised if upon such exercise the holder’s beneficial ownership would
exceed certain thresholds.
 
 Each of
the 15 Month Preferred Stock Warrants and the 30 Month Common Stock Warrants
permit the holder to conduct a “cashless exercise” at any time the holder of the
warrant is an “affiliate” (as defined in the Securities Purchase Agreement) of
the Company.
 
 The
warrant exercise price and/or number of shares issuable upon exercise of the
applicable warrant will be subject to adjustment for stock dividends, stock
splits or similar capital reorganizations, as set forth in the
warrants.
 
 Subject
to the terms and conditions of the applicable warrants, the Company has the
right to call for cancellation of the 15 Month Preferred Stock Warrants if the
volume weighted average price of our common stock on the Nasdaq Capital Market
(or other primary trading market or exchange on which our common stock is then
traded) equals or exceeds $1.75 for either (i) 10 consecutive trading days or
(ii) 15 out of 25 consecutive trading days.  Subject to the terms and
conditions of the 30 Month Common Stock Warrant, the Company has the right to
call for cancellation the 30 Month Common Stock Warrant if the volume weighted
average price for our common stock on the Nasdaq Capital Market (or other
primary trading market or exchange on which our common stock is then traded)
equals or exceeds $2.80 for either (i) 10 consecutive trading days or (ii) 15
out of 25 consecutive trading days.
  12
 PRESSURE
BIOSCIENCES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2009
 The
warrants granted in connection with the preferred stock units were valued based
on a Black-Scholes pricing model at the date of the grant.  The
preferred and common warrants were granted with an exercise price of $1.25 and
$2.00 per share of common stock, respectively.  Both grants to
purchase 1,569,800 underlying shares of common stock vested
immediately.  The total value of the warrants was calculated to be
$1.4 million and a non cash charge of $1.8 million was recorded to Stockholders’
Equity in the first quarter of 2009.  The assumptions for the
Black-Scholes pricing model are represented in the table below.
 
 Assumptions
                    
                    Preferred
                    
                    
                    CommonExpected
      life (in months)
                    
                    
                    15.0
                    
                    
                    
                    30.0Expected
      volatility
                    
                    
                    142.0
                    %
                    
                    
                    109.0
                    %Risk-free
      interest rate
                    
                    
                    0.875
                    %
                    
                    
                    1.375
                    %Exercise
      price
                    
                    $
                    1.25
                    
                    
                    $
                    2.00Stock
      price
                    
                    $
                    0.90
                    
                    
                    $
                    0.90Fair
      value per warrant
                    
                    $
                    0.45
                    
                    
                    $
                    0.41
 
 Common Stock
 
 Shareholders Rights
Plan
 
 On March
3, 2003, our Board of Directors adopted a shareholder rights plan (the “Rights
Plan”) and declared a distribution of one Right for each outstanding share of
our common stock to shareholders of record at the close of business on March 21,
2003 (the “Rights”).  Initially, the Rights will trade automatically
with the common stock and separate Right Certificates will not be issued. 
The Rights Plan is designed to deter coercive or unfair takeover tactics and to
ensure that all of our shareholders receive fair and equal treatment in the
event of an unsolicited attempt to acquire the Company.  The Rights
will expire on February 27, 2013 unless earlier redeemed or exchanged. 
Each Right entitles the registered holder, subject to the terms of a Rights
Agreement, to purchase from the Company one one-thousandth of a share of the
Company’s Series A Junior Participating Preferred Stock at a purchase price of
$45.00 per one one-thousandth of a share, subject to adjustment. In general, the
Rights will not be exercisable until a subsequent distribution date which will
only occur if a person or group acquires beneficial ownership of 15% or more of
our common stock or announces a tender or exchange offer that would result in
such person or group owning 15% or more of the common stock. With respect to any
person or group who currently beneficially owns 15% or more of our common stock,
the Rights will not become exercisable unless and until such person or group
acquires beneficial ownership of additional shares of common stock.
 
 Subject
to certain limited exceptions, if a person or group acquires beneficial
ownership of 15% or more of our outstanding common stock or if a current 15%
beneficial owner acquires additional shares of common stock, each holder of a
Right (other than the 15% holder whose Rights become void once such holder
reaches the 15% threshold) will thereafter have a right to purchase, upon
payment of the purchase price of the Right, that number of shares of our common
stock which at the time of such transaction will have a market value equal to
two times the purchase price of the Right.  In the event that, at any time
after a person or group acquires 15% or more of our common stock, we are
acquired in a merger or other business combination transaction or 50% or more of
our consolidated assets or earning power are sold, each holder of a Right will
thereafter have the right to purchase, upon payment of the purchase price of the
Right, that number of shares of common stock of the acquiring company which at
the time of such transaction will have a market value of two times the purchase
price of the Right.
 
 Our Board
of Directors may exchange the Rights (other than Rights owned by such person or
group which have become void), in whole or in part, at an exchange ratio of one
share of common stock per Right (subject to adjustment).  At any time prior
to the time any person or group acquires 15% or more of our common stock, the
Board of Directors may redeem the Rights in whole, but not in part, at a price
of $0.001 per Right.
 
 Stock Options and
Warrants
 
 On June
16, 2005, our stockholders approved our 2005 Equity Incentive Plan (the “Plan”)
pursuant to which an aggregate of 1,000,000 shares of our common stock were
reserved for issuance upon exercise of stock options or other equity awards made
under the Plan.  On September 25, 2008, our stockholders approved an
amendment to the 2005 Equity Incentive Plan pursuant to which the number of
shares reserved for issuance upon exercise of stock options or other equity
awards made under the plan was increased from 1,000,000 shares to 1,500,000
shares.  Under the Plan, we may award stock options, shares of common
stock, and other equity interests in the Company to employees, officers,
directors, consultants, and advisors, and to any other persons the Board of
Directors deems appropriate.
  13
 PRESSURE
BIOSCIENCES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2009
 As of
September 30, 2009, options to acquire 1,325,500 shares were outstanding under
the Plan.  As of September 30, 2009, there were 174,500 shares
available for future grant under the 2005 Equity Incentive Plan.  We
also have 239,000 stock options outstanding under our 1999 Non-Qualified Stock
Option Plan.  As of September 30, 2009, while there were 4,800 shares
available for future grant under the 1999 Non-Qualified Plan, no more options
may be granted under the 1999 Non-Qualified Stock Option Plan.
  The
following tables summarize information concerning stock options and warrants
outstanding and exercisable:
 
 Stock Options
                                
                                
                                WarrantsWeighted
                                
                                
                                
                                
                                
                                WeightedAverage price
                                
                                
                                
                                
                                
                                Average price
                                
                                
                                TotalShares
                                
                                
                                per share
                                
                                
                                Shares
                                
                                
                                per share
                                
                                
                                Shares
                                
                                
                                ExercisableBalance
      outstanding, 12/31/2007
                                
                                
                                1,120,500
                                
                                
                                $
                                3.45
                                
                                
                                
                                -
                                
                                
                                
                                
                                
                                
                                1,120,500
                                
                                
                                
                                691,166Granted
                                
                                
                                231,500
                                
                                
                                
                                2.94
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                231,500Exercised
                                
                                
                                (3,000
                                )
                                
                                
                                3.25
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (3,000
                                )Expired
                                
                                
                                (1,500
                                )
                                
                                
                                3.25
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (1,500
                                )Forfeited
                                
                                
                                (125,001
                                )
                                
                                
                                4.01
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (125,001
                                )Balance
      outstanding, 12/31/2008
                                
                                
                                1,222,499
                                
                                
                                $
                                3.30
                                
                                
                                
                                -
                                
                                
                                
                                
                                
                                
                                
                                1,222,499
                                
                                
                                
                                932,334Granted
                                
                                
                                485,000
                                
                                
                                
                                0.82
                                
                                
                                
                                3,139,600
                                
                                
                                $
                                1.63
                                
                                
                                
                                3,624,600Exercised
                                
                                
                                -
                                
                                
                                
                                
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Expired
                                
                                
                                (5,000
                                )
                                
                                
                                4.25
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (5,000
                                )Forfeited
                                
                                
                                (137,999
                                )
                                
                                
                                3.40
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (137,999
                                )Balance
      outstanding, 9/30/2009
                                
                                
                                1,564,500
                                
                                
                                $
                                2.52
                                
                                
                                
                                3,139,600
                                
                                
                                $
                                1.63
                                
                                
                                
                                4,704,100
                                
                                
                                
                                4,268,612
 
 Options Outstanding
                                              
                                              
                                              Options ExercisableWeighted Average
                                              
                                              
                                              
                                              
                                              
                                              Weighted AverageRange of Exercise Prices
                                              
                                              
                                              Number of
                                                Options
                                              
                                              
                                              Remaining
                                                Contractual
                                                Life
                                              
                                              
                                              Exercise
                                                Price
                                              
                                              
                                              Number of
                                                Options
                                              
                                              
                                              Remaining
                                                Contractual
                                                Life
                                              
                                              
                                              Exercise
                                                Price$0.77
                                              -
                                              $2.70
                                              
                                              
                                              
                                              704,000
                                              
                                              
                                              
                                              7.2
                                              
                                              
                                              $
                                              1.25
                                              
                                              
                                              
                                              374,846
                                              
                                              
                                              
                                              5.7
                                              
                                              
                                              $
                                              1.632.71
                                              -
                                              3.08
                                              
                                              
                                              
                                              319,500
                                              
                                              
                                              
                                              5.4
                                              
                                              
                                              
                                              2.93
                                              
                                              
                                              
                                              283,166
                                              
                                              
                                              
                                              5.0
                                              
                                              
                                              
                                              2.953.09
                                              -
                                              3.95
                                              
                                              
                                              
                                              302,000
                                              
                                              
                                              
                                              6.7
                                              
                                              
                                              
                                              3.67
                                              
                                              
                                              
                                              276,000
                                              
                                              
                                              
                                              6.6
                                              
                                              
                                              
                                              3.693.96
                                              -
                                              5.93
                                              
                                              
                                              
                                              239,000
                                              
                                              
                                              
                                              7.4
                                              
                                              
                                              
                                              4.24
                                              
                                              
                                              
                                              195,000
                                              
                                              
                                              
                                              7.2
                                              
                                              
                                              
                                              4.19$0.77
                                              -
                                              $5.93
                                              
                                              
                                              
                                              1,564,500
                                              
                                              
                                              
                                              6.8
                                              
                                              
                                              $
                                              2.52
                                              
                                              
                                              
                                              1,129,012
                                              
                                              
                                              
                                              6.0
                                              
                                              
                                              $
                                              2.91
 
 During
the three months ended September 30, 2009 and 2008, the total fair value of
stock options awarded was $26,125 and $147,757, respectively.  During
the nine months ended September 30, 2009 and 2008, the total fair value of stock
options awarded was $284,745 and $375,865, respectively.
 
 As of
September 30, 2009, the total estimated fair value of unvested stock options to
be amortized over their remaining vesting period was $302,714.  The
non-cash, stock based compensation expense associated with the vesting of these
options is expected to be $77,566 in 2009, $184,584 in 2010 and $40,564 in
2011.
 
 6)
              Subsequent
      Events
 
 We
performed a review of events subsequent to the balance sheet date through
November 16, 2009, the date the financial statements were issued and concluded
that there were no material subsequent events requiring disclosure.
  14
 ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 
 SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
 This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934.  In some cases, forward-looking statements
are identified by terms such as “may”, “will”, “should”, “could”, “would”,
“expects”, “plans”, “anticipates”, “believes”, “estimates”, “projects”,
“predicts”, “potential”, and similar expressions intended to identify
forward-looking statements. Such statements include, without limitation,
statements regarding:
 
 -
                  our
      ability to raise additional equity or debt financing on acceptable terms,
      if at all;-
                  our
      belief that we have sufficient liquidity to finance operations into the
      second quarter of 2010;-
                  our
      need to take additional cost reduction measures, cease operations or sell
      our operating assets, if we are unable to obtain sufficient additional
      financing in the future;-
                  the
      amount of cash necessary to operate our business;-
                  the
      anticipated uses of grant revenue and increased grant revenue in future
      periods;-
                  our
      plans and expectations with respect to our pressure cycling technology
      (PCT) operations;-
                  expected
      increase in number of PCT units installed and the increase in revenues
      from such installations;-
                  the
      benefits and advantages of our PCT sample preparation
    system;-
                  our
      ability to utilize net operating losses in the future;-
                  general
      economic conditions; and-
                  the
      anticipated future financial performance and business operations of our
      company.
 
 These
forward-looking statements are only predictions and involve known and unknown
risks, uncertainties, and other factors that may cause our actual results,
levels of activity, performance, or achievements to be materially different from
any future results, levels of activity, performance, or achievements expressed
or implied by such forward-looking statements. Also, these forward-looking
statements represent our estimates and assumptions only as of the date of this
Report.  Except as otherwise required by law, we expressly disclaim any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statement contained in this Report to reflect any change in our
expectations or any change in events, conditions, or circumstances on which any
of our forward-looking statements are based or to conform to actual
results.
 
 RISK
FACTORS
  Factors
that could cause or contribute to differences in our future financial and
operating results include those discussed in the risk factors set forth in Item
1 of our Annual Report on Form 10-K for the year ended December 31, 2008, as
well as those discussed elsewhere in this Report, including the
following:
  If
we fail to obtain substantial additional capital, we may not be able to continue
our business.
  Based on
our current projections, we believe our current cash resources, which include
the funds we received from the private placement completed in February 2009, are
sufficient to fund our normal operations into the second quarter of
2010.
  We will
need additional capital sooner than we currently expect if we experience
unforeseen costs or expenses, unanticipated liabilities or delays in
implementing our business plan, developing our products and achieving commercial
sales. We also believe that we will need substantial capital to accelerate the
growth and development of our pressure cycling technology products and services
in the sample preparation area, as well as for applications in other areas of
life sciences.
  Our
actual results and performance, including our ability to raise additional
capital, may be adversely affected by current economic conditions.
 
 Our
actual results and performance could be adversely affected by the current
economic conditions in the global economy, which pose a risk to the overall
demand for our products from our customers who may elect to defer or cancel
purchases of our products in response to tighter credit markets, negative
financial news, and general uncertainty in the economy.  In addition,
our ability to obtain additional financing, on acceptable terms, if at all, may
be adversely affected by the crisis in the credit markets and the uncertainty in
the current economic climate.
  15
 
 We
qualify all of our forward-looking statements by these cautionary statements.
You should read this section in combination with the section entitled
Management’s Discussion and Analysis of Financial Condition and Results of
Operations for the year ended December 31, 2008 included in our Annual
Report on Form 10-K for the year ended December 31, 2008.
 
 The
holders of our common stock could suffer substantial dilution as the result of
the private placement we completed in February 2009.
 
 In
connection with the private placement we completed in February 2009, we issued
Series A Convertible Preferred Stock, together with warrants to purchase shares
of Series A Convertible Preferred Stock and common stock. Each share of Series A
Convertible Preferred Stock is convertible into 10 shares of common stock. If
all of the shares of Series A Convertible Preferred Stock, together with the
warrants to purchase Series A Convertible Preferred Stock and common stock, were
converted into or exercised for shares of our common stock, an additional
4,709,400 shares of common stock would be issued and outstanding.
  The
additional issuance of common stock would cause immediate and substantial
dilution to our existing stockholders, and could cause a significant reduction
in the market price of our common stock.
  Our
shares of Series A Convertible Preferred Stock are entitled to certain rights,
privileges and preferences over our common stock, including the right to receive
dividends and a preference upon a liquidation of the company, which could reduce
amounts available for distribution to our common stockholders.
  We have
never declared or paid any cash dividends on our common stock and do not plan to
pay any cash dividends on our common stock in the foreseeable future. The
holders of our shares of Series A Convertible Preferred Stock, however, are
entitled to receive a cumulative dividend at the rate of 5% per annum of the
purchase price paid for the Series A Convertible Preferred Stock, payable
semi-annually on June 30 and December 31, commencing on June 30, 2009. Dividends
may be paid in cash or in shares of common stock at our option, subject to
certain conditions. If we elect to pay the dividends in cash, we will have less
cash available for operations, and less cash available to the holders of common
stock upon a liquidation of the company. If we elect to pay the dividends in
common stock, our common stockholders will suffer additional dilution.
  The
Series A Convertible Preferred Stock are also entitled to receive preferential
treatment in the event of liquidation, dissolution or winding up of our company,
which could leave significantly less assets, if any, available for distribution
to our common stockholders upon a liquidation, dissolution or winding up of our
company.
  There is
no guarantee that we will continue to meet the standards for continued listing
on the NASDAQ Capital Market. The value of your investment in our company may
substantially decrease if we were delisted from NASDAQ.
 
 As of the
date of the filing of this Quarterly Report on Form 10-Q, we are in compliance
with the continued listing standards of the NASDAQ Capital
Market.  However, we cannot guarantee that we will continue to meet
the standards for listing in the future. Upon delisting from the NASDAQ Capital
Market, our common stock would be traded on the over-the-counter bulletin board
(“OTC”). OTC transactions involve risks in addition to those associated with
transactions in securities traded on the NASDAQ Capital Market. Many OTC stocks
trade less frequently and in smaller volumes than NASDAQ listed stocks.
Accordingly, delisting from the NASDAQ Capital Market could adversely affect the
trading price of our common stock, significantly limit the liquidity of our
common stock and impair our ability to raise additional
funds.
  16
  
 OVERVIEW
 
 We are a
life sciences company focused on the development and commercialization of a
novel, enabling, platform technology called pressure cycling technology (“PCT”).
PCT uses cycles of hydrostatic pressure between ambient and ultra-high levels
(up to 35,000 psi and greater) to control bio-molecular
interactions.
 
 Our
pressure cycling technology uses instrumentation that is capable of cycling
pressure between ambient and ultra-high levels (up to 35,000 psi or greater) at
controlled temperatures to rapidly and repeatedly control the interactions of
bio-molecules.  Our pressure-generating instrument is called the
Barocycler®.  Our PCT-related consumables product line includes PULSE
(Pressure Used to Lyse Samples for Extraction) Tubes as well as application
specific (“ProteoSolve”) kits.  Our Barocycler instrument, together
with our consumable products and reagents, make up the PCT Sample Preparation
System (“PCT SPS”).  In the second quarter of 2009, we introduced for
sale our PCT MicroTube Adapter Kit for use with our Barocycler
instruments.  The PCT MicroTube Adapter Kit, in combination with the
PCT SPS, can reliably and reproducibly control the enzymatic digestion of
proteins while reducing the time of digestion from hours to minutes with the
same or better quality as other currently available techniques.  The
PCT MicroTube Adapter Kit comes complete with an ergonomically designed,
space-saving work station containing PCT MicroTubes and PCT MicroCaps, as well
as tools and hardware, to enable the user to process from one to forty-eight
samples simultaneously in the PCT SPS.
 
 We have
experienced negative cash flows from operations with respect to our pressure
cycling technology business since its inception.  Cash, as of
September 30, 2009, was approximately $1.4 million.  During 2008, we
undertook a number of cost reduction measures including a comprehensive
restructuring program, to significantly reduce costs, centralize core
operations, and refocus business strategy in specific areas where our products
have found significant market acceptance.  The restructuring program
included: a reduction in personnel of eight full-time employees (40% of the
workforce), reduction in travel and meeting attendance for all personnel,
decreases in the base salary of most of our employees and all of our executive
officers, a shutdown of our R&D facility in Rockville, MD, a consolidation
of our R&D activities in Massachusetts, and delay of several research &
development and marketing programs.  These initiatives have
significantly decreased cash utilization, from just under $1 million per quarter
in the second half of 2008 to an expected average of approximately $650,000 per
quarter during 2009.  We currently believe these actions, combined
with proceeds from our $1.8 million equity financing completed in February 2009
and the $623,000 IRS refund received in August 2009, extends our cash resources
into the second quarter of 2010.
 
 We hold
13 United States and 6 foreign patents covering multiple applications of PCT in
the life sciences field. Our pressure cycling technology employs a unique
approach that we believe has the potential for broad use in a number of
established and emerging life sciences areas, including;
 
 -
              sample
      preparation for genomic, proteomic, and small molecule
      studies;
 -
              pathogen
      inactivation;
 -
              protein
      purification;
 -
              control
      of chemical (particularly enzymatic) reactions;
  and
 -
              Immunodiagnostics
      (clinical laboratory testing).
 
 Since we
began operations as Pressure BioSciences in February 2005, we have installed 116
Barocycler instruments, including 42 instruments in the nine months ending
September 30, 2009, 41 instruments in 2008, 20 instruments in 2007, 8
instruments in 2006, and 5 instruments in 2005.  Our customers include
researchers at academic laboratories and government agencies, as well as
biotechnology, pharmaceutical and other life sciences companies in the United
States, and six foreign distribution partners.
 
 FASB CODIFICATION
DISCUSSION
 
 We are
primarily engaged in selling pressure-cycling instruments.  We follow
accounting standards set by the FASB.  The FASB sets generally
accepted accounting principles that we follow to ensure we consistently report
our financial condition, results of operations, and cash flows.  Over
the years, the FASB and other designated GAAP-setting bodies, have issued
standards in the form of FASB Statements, Interpretations, FASB Staff Positions,
EITF consensuses, AICPA Statements of Position, etc.  One standard
that applies significantly to our business is SEC Staff Accounting Bulletin No.
104, Revenue Recognition (“SAB 104”).
 
 The FASB
recognized the complexity of its standard-setting process and embarked on a
revised process in 2004 that culminated in the release on July 1, 2009, of the
FASB Accounting Standards Codification, sometimes referred to as the
Codification or ASC.  To the Company, this means instead of following
the revenue recognition rules in SAB 104, we will follow the guidance in Topic
605, Revenue Recognition.  The Codification does not change how the
Company accounts for its transactions or the nature of related disclosures
made.  However, when referring to guidance issued by the FASB, the
Company refers to topics in the ASC rather than SAB 104, etc.  The
above change was made effective by the FASB for periods ending on or after
September 15, 2009.  We have updated references to GAAP in this
Quarterly Report on Form 10-Q to reflect the guidance in the
Codification.
  17
  RESULTS OF
OPERATIONS
  Three
Months Ended September 30, 2009 and 2008
  Revenue
  We
recognized revenue of $317,427 for the three months ended September 30, 2009, as
compared to $265,662 for the same period in the prior year.
 
 PCT Products, Services,
Other. Revenue from the sale of PCT products and services was $204,584
for the three months ended September 30, 2009 as compared to $222,825 for the
same period in the prior year.  During the third quarter of 2009, we
completed the installation of twenty Barocycler instruments, as compared to
seventeen in the same period of 2008.  Nineteen of the twenty
instruments were domestic installations and one was an international sale,
compared to nine domestic installations and eight international sales for the
same quarter in 2008.  The decrease in revenue observed in the third
quarter of 2009 was due in part to more Barocycler units leased than sold during
the period offset by sales of the PCT MicroTube Adapter Kit, which was released
for sale in the second quarter of 2009.
 
 We expect
the number of units installed will continue to increase in future periods as we
continue to commercialize our technology, although we may continue to experience
some delays in customer purchases due to current economic conditions in the
global economy.  Furthermore, we may realize some difficulties in
signing up new distribution partners if we are unable to secure additional
funding through equity or debt financings.  We also expect that some
portion of future installations will continue to be for the smaller, lower
priced, Barocycler NEP2320 model and some will be placed under lease or
short-term rental agreements.  Therefore, we expect that the average
revenue per installation will continue to fluctuate from period to period as we
continue to drive our installed base and commercialize PCT.  As we
expand the installed base of Barocycler instruments in the field, we expect to
realize increasing revenues from the sale of consumable products and extended
service contracts.  In the short-term, these recurring revenue streams
may continue to fluctuate from period to period.
 
 Grant Revenue. During the
three months ended September 30, 2009 and 2008, we recorded $112,843 and $42,837
of grant revenue, respectively.  Grant revenue recorded during the
third quarter of 2009 was related to the $850,000 SBIR Phase II grant that we
were awarded in June 2008 and to an SBIR Phase I grant of approximately $110,000
awarded in January 2009.  We expect grant revenues to increase over
the next several quarters as the amount of time and expense incurred in
connection with these grants continues to increase.  The level of
grant revenue that we recognize in any given quarter is dependent upon the level
of resources we devote to grant related work in the period.
 
 Cost
of PCT Products and Services
  The cost
of PCT products and services was $74,093 for the three months ended September
30, 2009 compared to $130,533 for the comparable period in 2008.  The
decrease in the cost of PCT products and services as a percentage of PCT revenue
was due primarily to the sale of Barocycler units that were demonstration models
that had been previously expensed resulting in a lower cost of PCT products in
the current quarter.  The Company also recovered four units with a
total book value of $31,835 from the field that were previously expensed to
Costs of PCT products.  Costs of PCT products and services as a
percentage of PCT revenue decreased to 36% for the three months ended September
30, 2009, as compared to 59% for the three months ended September 30,
2008.
 
 The
relationship between the cost of PCT products and services and PCT revenue will
depend greatly on the mix of instruments we sell, the quantity of such
instruments, and the mix of consumable products that we sell in a given
period.
 
 Research
and Development
  Research
and development expenditures were $273,286 in the third quarter of 2009 as
compared to $376,552 in the same period in 2008, a decline of
27%.  This decline in R&D expenses was primarily due to the
significant restructuring and cost-reduction programs that we initiated in the
third and fourth quarters of 2008, including the termination of seven R&D
employees.  The headcount in R&D during the third quarter of 2009
was three, compared to ten during the same period in 2008.  The
decline in expenses was also due to a significant decrease in the number of
R&D projects we funded during the third quarter of 2009.
 
 Research
and development expense recognized in the third quarters of 2009 and 2008
included $18,652 and $34,262 of non-cash, stock-based compensation expense,
respectively.  We expect that the level of stock-based compensation
expense in the near future will be consistent with the amount recorded during
the third quarter of 2009.
 
 18
 
 Selling
and Marketing
  Selling
and marketing expenses decreased to $254,022 for the three months ended
September 30, 2009 from $399,380 for the comparable period in 2008, a decline of
$145,358 or 36%.  This decline in selling and marketing expense was
primarily due to the significant restructuring and cost-reduction programs that
we initiated in the third and fourth quarters of 2008, including the termination
of four sales directors and one marketing assistant.  The headcount in
selling and marketing during the third quarter of 2009 was five, compared to ten
during the same period in 2008.  A significant decrease in
advertising, exhibit booth rental, and travel cost expense also contributed to
the reduction in overall selling and marketing expense incurred during the third
quarter of 2009.
 
 During
the third quarter of 2009 and 2008, selling and marketing expense included
$17,557 and $11,823 of non-cash, stock-based compensation expense,
respectively.  We expect the level of stock-based
compensation expense in the near future will be consistent with the amount
recorded during the third quarter of 2009.
 
 General
and Administrative
  General
and administrative costs totaled $470,206 for the three months ended September
30, 2009 as compared to $466,883 for the comparable period in 2008.
 
 During
the third quarters of 2009 and 2008, general and administrative expense included
$62,370 and $35,200 of non-cash, stock-based compensation expense,
respectively.  The third quarter of 2009 includes a one-time charge of
$15,675 of non-cash stock-based compensation expense in connection with the
grant of non-qualified, fully-vested stock options to purchase 15,000 shares of
our common stock to our new independent director in September
2009.  We expect the level of stock-based compensation expense in the
near future will be less than the amount recorded during the third quarter of
2009.
 
 Operating
Loss
 
 Our
operating loss was $754,180 for the three months ended September 30, 2009 as
compared to $1,107,686 for the comparable period in 2008, a decrease of $353,506
or 32%.  During the second half of 2008, we initiated a number of cost
reduction measures, including a comprehensive restructuring program to
significantly reduce costs, centralize core operations, and refocus our business
strategy in specific areas where our products had found significant market
acceptance.  The restructuring program included: a reduction in
personnel of twelve full-time employees, reduction in travel and meeting
attendance for all personnel, continued reduction in investor relations
activities, reduced Board of Directors fees, decreases in the base salary of
most of our employees and all of our executive officers, a shutdown of our
R&D facility in Rockville, MD, a consolidation of our R&D activities in
Massachusetts, and delay or cancellation of several research and development and
marketing programs.
 
 These
initiatives have significantly decreased our rate of cash utilization, from just
under $1 million per quarter in the second half of 2008 to an average of
approximately $650,000 per quarter for the first three quarters of
2009.
 
 Interest
Income
  Interest
income totaled $731 for the three months ended September 30, 2009 as compared to
interest income of $9,481 in the prior year period.  The decrease is
due to lower average cash balances and lower yields on these balances during the
third quarter of 2009, as compared to the third quarter of 2008.
  Income
Taxes
  During
the third quarters of 2009 and 2008, we did not record a benefit for income
taxes.
 
 Net
Loss
 
 During
the third quarter of 2009, we recorded a net loss to common shareholders of
$775,953 or $(0.35) per share, as compared to $1,098,205 or $(0.50) per share in
the third quarter of 2008.  Our net loss in the third quarter of 2009
was lower than the corresponding net loss of the third quarter of 2008 as the
result of increased grant revenue and lower operating costs, as described
above.
  19
 
 Nine
Months Ended September 30, 2009 and 2008
  Revenue
  We
recognized revenue of $894,570 for the nine months ended September 30, 2009, as
compared to $518,222 for the same period in the prior year.
 
 PCT Products, Services,
Other. Revenue from the sale of PCT products and services was $585,928
for the nine months ended September 30, 2009 as compared to $421,996 for the
same period in the prior year.  During the nine months of 2009, we
completed the installation of 42 Barocycler instruments, as compared to 31 in
the same period of 2008.  Thirty-five of the forty-two instruments
were domestic installations and seven were international sales, compared to
eighteen domestic installations and thirteen international sales for the same
period in 2008.  The increase in revenue for the nine months of 2009
was due primarily to an increase in the number of Barocycler units sold during
the period with support from the PCT MicroTube Adapter Kit product
launch.
 
 Grant Revenue. During the
nine months ended September 30, 2009 and 2008, we recorded $308,642 and $96,226
of grant revenue, respectively.  Grant revenue recorded during the
nine months of 2009 was related to the $850,000 SBIR Phase II grant that we were
awarded in June 2008 and to an SBIR Phase I grant of approximately $110,000
awarded in January 2009.  We expect grant revenues to increase over
the next several quarters as the amount of time and expense incurred in
connection with these grants continues to increase.  The level of
grant revenue that we recognize in any given quarter is dependent upon the level
of resources we devote to grant related work in the period.
 
 Cost
of PCT Products and Services
  The cost
of PCT products and services was $305,156 for the nine months ended September
30, 2009 compared to $267,416 for the comparable period in 2008.  This
increase in cost of PCT products and services was due primarily to the increase
in the number of units installed under sale, lease, or rental arrangements
during the period and, to a lesser extent, costs associated with our June 2009
launch of our PCT MicroTube Adapter Kits.  Costs of PCT products and
services as a percentage of PCT revenue decreased to 52% for the nine months
ended September 30, 2009, as compared to 63% for the nine months ended September
30, 2008.  The decrease in the cost of PCT products and services as a
percentage of PCT revenue was due primarily to the sale of Barocycler units that
were demonstration models that had been previously expensed resulting in a lower
cost of PCT products in the current quarter.  The Company also
recovered four units from the field that were previously expensed to Costs of
PCT products.
 
 The
relationship between the cost of PCT products and services and PCT revenue will
depend greatly on the mix of instruments we sell, the quantity of such
instruments, and the mix of consumable products that we sell in a given
period.
 
 Research
and Development
  Research and development expenditures
were $895,556 in the nine months ended September 30, 2009 as compared to
$1,329,155 in the same period in 2008, a decline of $433,599 or
33%.  This decline in R&D expenses was primarily due to the
significant restructuring and cost-reduction programs that we initiated in the
third and fourth quarters of 2008, including the termination of seven R&D
employees.  The headcount in R&D during the nine months ended
September 30, 2009 was three, compared to ten during the same period in
2008. The decline in
expenses was also due to a significant decrease in the number of R&D
projects we funded during the nine months ended September 30,
2009.
 
 Research
and development expense recognized in the nine months ended September 30, 2009
and 2008 included $118,509 and $131,132 of non-cash, stock-based compensation
expense, respectively.  We expect that the level of stock-based
compensation expense in the near future will be consistent with the amount
recorded during the nine months ended September 30, 2009.
 
 Selling
and Marketing
  Selling
and marketing expenses decreased to $784,902 for the nine months ended September
30, 2009 from $1,384,147 for the comparable period in 2008, a decline of
$599,245 or 43%.  This decline in selling and marketing expense was
primarily due to the significant restructuring and cost-reduction programs that
we initiated in the third and fourth quarters of 2008, including the termination
of four sales directors and one marketing assistant.  The headcount in
selling and marketing during the nine months ended September 30, 2009 was five,
compared to ten during the same period in 2008.  A significant
decrease in advertising, exhibit booth rental, and travel cost expense also
contributed to the reduction in overall selling and marketing expense
incurred.
  20
 
 During
the nine months ended September 30, 2009 and 2008, selling and marketing expense
included $56,131 and $87,055 of non-cash, stock-based compensation expense,
respectively.  We expect the level of stock-based compensation expense
in the near future will be consistent with the amount recorded during the nine
months ended September 30, 2009.
 
 General
and Administrative
  General
and administrative costs totaled $1,328,380 for the nine months ended September
30, 2009 as compared to $1,603,803 for the comparable period in 2008, a decrease
of $275,423 or 17%.  The decline in expenses was due to compensation
savings from the resignation of our Chief Financial Officer in November 2008 and
reduced Board member fees.
 
 During
the nine months ended September 30, 2009 and 2008, general and administrative
expense included $176,799 and $233,092 of non-cash, stock-based compensation
expense, respectively.  The nine months ended September 30, 2009
includes a grant of stock options to purchase 485,000 shares of our common stock
to each employee and our four independent directors, resulting in a charge of
$112,943 for the nine months ended September 30, 2009.  The third
quarter of 2009 includes a one-time charge of $15,675 of non-cash stock-based
compensation expense in connection with the grant of non-qualified, fully-vested
stock options to purchase 15,000 shares of our common stock to our new
independent director in September 2009.  The same period in 2008
includes a one-time charge of $100,556 of non-cash stock-based compensation
expense in connection with the grant of non-qualified, fully-vested stock
options to purchase 10,000 shares of our common stock to each of our four
independent directors in April 2008.  We expect the level of
stock-based compensation expense in the near future will be consistent with the
amount recorded during the nine months ended September 30, 2009.
 
 Operating
Loss
 
 Our
operating loss was $2,419,424 for the nine months ended September 30, 2009 as
compared to $4,066,299 for the comparable period in 2008, a decrease of
$1,646,875 or 41%.  During the second half of 2008, we initiated a
number of cost reduction measures, including a comprehensive restructuring
program to significantly reduce costs, centralize core operations, and refocus
our business strategy in specific areas where our products had found significant
market acceptance.  The restructuring program included: a reduction in
personnel of twelve full-time employees, reduction in travel and meeting
attendance for all personnel, reduced Board of Directors fees, decreases in the
base salary of most of our employees and all of our executive officers, a
shutdown of our R&D facility in Rockville, MD, a consolidation of our
R&D activities in Massachusetts, and delay or cancellation of several
research and development and marketing programs.
 
 These
initiatives have significantly decreased our rate of cash utilization, from just
under $1 million per quarter in the second half of 2008 to an average of
approximately $650,000 per quarter for the first three quarters of
2009.
 
 Interest
Income
  Interest
income totaled $4,418 for the nine months ended September 30, 2009 as compared
to interest income of $56,338 in the prior year period.  The decrease
is due to lower average cash balances and lower yields on these balances during
the nine months ended September 30, 2009, as compared to the same period in
2008.
  Income
Taxes
  In the
nine months ended September 30, 2009, we recorded a benefit for income taxes of
$623,262 due to provisions in the American Recovery and Reinvestment Act of 2009
relating to net operating loss carry-backs.  The cash was received in
August 2009.  There was no provision for an income tax benefit during
the same period in 2008.  Aside from the impact of the passage of this
law, we do not expect any additional income tax benefits relating to carry-backs
to prior periods.  If we are successful in commercializing PCT and in
generating operating income, then we may be able to utilize certain net
operating losses we may have at the time against such future operating
profits.
 
 Net
Loss
 
 During
the nine months ended September 30, 2009, we recorded a net loss to common
shareholders of $1,848,128 or $(0.84) per share, as compared to $4,009,961 or
$(1.83) per share in the same period of 2008.  Our net loss in the
nine months ended September 30, 2009 was lower than the corresponding net loss
in the same period in 2008 as the result of increased revenue, the income tax
benefit, and lower operating costs, as described above.
  21
 
 LIQUIDITY AND FINANCIAL
CONDITION
 
 As of
September 30, 2009, our working capital position was $1,722,964, the primary
components of which were cash and cash equivalents, accounts receivable,
inventory, prepaid expenses, and deposits, partially offset by accounts payable,
accrued employee compensation, and other accrued expenses and deferred
revenue.  As of December 31, 2008, our working capital position was
$1,602,556, the primary components of which were cash and cash equivalents,
accounts receivable, inventory, prepaid expenses, and deposits.
 
 During
the second half of 2008, we took a number of cost reduction measures, including
a comprehensive restructuring program to significantly reduce costs, centralize
core operations, and refocus our business strategy in specific areas where our
products had found significant market acceptance. The restructuring program
included: a reduction in personnel of twelve full-time employees, reduction in
travel and meeting attendance for all personnel, decreases in the base salary of
most of our employees and all of our executive officers, a shutdown of our
R&D facility in Rockville, MD, a consolidation of our R&D activities in
Massachusetts, and the delay or cancellation of several research and development
and marketing programs.  We believe that these initiatives have
significantly decreased our rate of cash utilization, from just under $1 million
per quarter during the second half of 2008 to an expected average of
approximately $650,000 per quarter for the first three quarters of
2009.
 
 On
December 19, 2008, we received $200,000 from one of our distributors in the
escrow account for the private placement.  Prior to February 12, 2009,
the distributor requested that the $200,000 be used as payment for anticipated
future purchases of our PCT instrument and consumable products, and not for an
investment in the private placement.  This amount was recorded as
deferred revenue in the first half of 2009.  As of September 30, 2009,
$132,808 remained in deferred revenue for future product purchases.
 
 We
believe that because of the cost restructuring measures undertaken, together
with the $1,805,270 we received in connection with our February 2009 private
placement of units (consisting of Series A Convertible Preferred Stock and
warrants to purchase Series A Convertible Preferred Stock and Common Stock), we
have sufficient cash resources to fund normal operations into the second quarter
of 2010.  We believe we will need substantial additional capital to
fund our operations beyond the second quarter of 2010.   If we
are able to obtain additional capital or otherwise increase our revenues, we may
increase spending in specific research and development applications and
engineering projects and may hire additional sales personnel or invest in
targeted marketing programs.  In the event that we are unable to
obtain financing on acceptable terms, or at all, we may be required to limit or
cease our operations, pursue a plan to sell our operating assets, or otherwise
modify our business strategy, which could materially harm our future business
prospects.
 
 Net cash
used in operations for the nine months ended September 30, 2009 was $964,835 as
compared to $3,349,545 for the nine months ended September 30,
2008.  The decrease in cash used in operations in 2009 as compared to
2008 is principally the result of the increased revenues and lower operating
expenses in 2009.
 
 Net cash
used in investing activities for the nine months ended September 30, 2009 was
$96,349 as compared to cash used of $131,957 for the same period in the prior
year.  During the nine months of 2009, we installed 13 Barocycler
instruments under collaboration or lease agreements while selling six
demonstration units.  Cash used in investing activities during the
nine months of 2008 was for the purchase of furniture and fixtures associated
with our move to new corporate offices, and for Barocycler instruments that we
purchased and installed under collaboration or lease agreements.
 
 Net cash
provided by financing activities for the nine months ended September 30, 2009
was $1,567,923.  On February 12, 2009, we completed a private
placement, pursuant to which we sold an aggregate of 156,980 units for a
purchase price of $11.50 per unit (the “Purchase Price”),
resulting in gross proceeds to us of $1,805,270 (the “Private
Placement”).  Each unit consists of  (i) one share of
a newly created series of preferred stock, designated “Series A Convertible
Preferred Stock,” par value $0.01 per share (the “Series A Convertible
Preferred Stock”) convertible into 10 shares of our common stock, (ii) a
warrant to purchase, at the purchaser’s election to be made within 7 days of the
closing, either 10 shares of our common stock, at an exercise price equal to
$1.25 per share, with a term expiring 15 months after the date of closing
(“15 Month Common
Stock Warrant”), or one share of Series A Convertible Preferred Stock at
an exercise price equal to $12.50 per share, with a term expiring 15 months
after the date of closing (“15 Month Preferred Stock
Warrant”) (all of the purchasers elected the 15 Month Preferred Stock
Warrants); and (iii) a warrant to purchase 10 shares of common stock at an
exercise price equal to $2.00 per share, with a term expiring 30 months after
the date of closing (the “30 Month Common Stock
Warrants”).  The expenses related to the offering totaled
approximately $233,000.
 
 Net cash
provided by financing activities for the nine months ended September 30, 2008
was due to an exercise of employee stock options to purchase 3,000 shares of our
common stock.
  22
 
 COMMITMENTS AND
CONTINGENCIES
  Operating
Leases
 
 Our
corporate offices are currently located at 14 Norfolk Avenue, South Easton,
Massachusetts 02375.  In November 2007, we signed an 18 month lease
agreement commencing in February 2008 pursuant to which we leased approximately
5,500 square feet of office space, with an option for an additional 12
months.  We exercised the renewal option to extend the lease term
until July 14, 2010.  We pay approximately $6,500 per month for the
use of these facilities.
 
 In
connection with the reduction of staff levels and consolidation of operations in
Rockville, MD and Woburn, MA, the Company moved its research and development
activities within Massachusetts.
 
 Royalty
Commitments
 
 In 1996,
we acquired our initial equity interest in BioSeq, Inc., which at the time was
developing our original pressure cycling technology.  BioSeq, Inc. acquired
its pressure cycling technology from BioMolecular Assays, Inc. (“BMA”) under a
technology transfer and patent assignment agreement.  In 1998, we purchased
all of the remaining outstanding capital stock of BioSeq, Inc., and at such
time, the technology transfer and patent assignment agreement was amended to
require us to pay BMA a 5% royalty on sales of products or services that
incorporate or utilize the original pressure cycling technology that BioSeq,
Inc. acquired from BMA.  We are also required to pay BMA 5% of the proceeds
from any sale, transfer, or license of all or any portion of the original
pressure cycling technology.  These payment obligations terminate in
2016.  During the three months ended September 30, 2009 and 2008, we
incurred $8,336 and $10,236, respectively in royalty expense associated with our
obligation to BMA.  During the nine months ended September 30, 2009
and 2008, we incurred $23,339 and $18,687, respectively in royalty expense
associated with our obligation to BMA.
 
 In
connection with our acquisition of BioSeq, Inc., we licensed certain limited
rights to the original pressure cycling technology back to BMA.   This
license is non-exclusive and limits the use of the original pressure cycling
technology by BMA solely for molecular applications in scientific research and
development and in scientific plant research and development.  BMA is
required to pay us a royalty equal to 20% of any license or other fees and
royalties, but not including research support and similar payments, it receives
in connection with any sale, assignment, license or other transfer of any rights
granted to BMA under the license.  BMA must pay us these royalties
until the expiration of the patents held by BioSeq, Inc. in 1998, which we
anticipate will be in 2016.  We have not received any royalty payments from
BMA under this license.
 
 Battelle
Memorial Institute
 
 In
December 2008, we entered into an exclusive patent license agreement with the
Battelle Memorial Institute ("Battelle"). The licensed technology is described
in the patent application filed by Battelle on July 31, 2008 (US serial number
12/183,219). This application includes subject matter related to a method and a
system for improving the analysis of protein samples, including through an
automated system utilizing pressure and a pre-selected agent to obtain a
digested sample in a significantly shorter period of time than current methods,
while maintaining the integrity of the sample throughout the preparatory
process.  Pursuant to the terms of the agreement, we paid Battelle a
non-refundable initial fee.  In addition to royalty payments on net
sales on “licensed products”, we are obligated to make minimum royalty payments
for each year that we retain the rights outlined in the patent license
agreement. and we are required to have our first commercial sale of the licensed
products within one year following the issuance of the patent covered by the
licensed technology.
 
 Severance
and Change of Control Agreements
 
 Each of
our executive officers is entitled to receive a severance payment if terminated
by the Company without cause. The severance benefits would include a payment in
an amount equal to one year of each executive officer’s annualized base salary
compensation plus accrued paid time off. Additionally, each executive officer
will be entitled to receive medical and dental insurance coverage for one year
following the date of termination. The total commitment related to these
agreements in the aggregate is approximately $1.0 million.
  Each of
our executive officers, other than Mr. Richard T. Schumacher, our President and
Chief Executive Officer, is entitled to receive a change of control payment in
an amount equal to one year of such executive officer’s annualized base salary
compensation, accrued paid time off, and medical and dental coverage, in the
event of a change of control of the Company.  In the case of Mr.
Schumacher, this payment would be equal to two years of annualized base salary
compensation, accrued paid time off, and two years of medical and dental
coverage. The total commitment related to these agreements in the aggregate is
approximately $1.3 million.The severance payment is
meant to induce the executive to become an employee of the Company and to remain
in the employ of the Company, in general, and particularly in the occurrence of
a change in control.
  23
  RECENT ACCOUNTING
STANDARDS
 
 In June
2009, the FASB issued FASB ASC 105, Generally Accepted Accounting
Principles, which establishes the FASB Accounting Standards Codification
as the sole source of authoritative generally accepted accounting
principles.  Pursuant to the provisions of FASB ASC 105, the Company
has updated references to GAAP in its financial statements issued for the period
ended September 30, 2009.  The adoption of FASB ASC 105 did not impact
the Company’s financial position or results of operations.
 
 On
January 1, 2008, the Company adopted FASB ASC 820, Fair Value Measurements and
Disclosures.  FASB ASC 820 defines fair value, establishes a
framework for measuring the fair value of assets and liabilities, and expands
disclosure requirements regarding the fair value measurement.  FASB
ASC 820 does not expand the use of fair value measurements.  This
statement, as issued, is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those
fiscal years.  There was no significant effect on our financial
statements.  We do not believe that the adoption of FASB ASC 820 to
non-financial assets and liabilities will significantly affect our financial
statements.
 
 In
December 2007, the FASB issued FASB ASC 805, Business Combinationsand
FASB ASC 810, Consolidations.
 
 FASB ASC
805 significantly changes the accounting for business combinations. Under FASB
ASC 805, an acquiring entity will be required to recognize all the assets
acquired and liabilities assumed in a transaction at the acquisition-date at
fair value with limited exceptions.  FASB ASC 805 further changes the
accounting treatment for certain specific items, including:
  -
              Acquisition
      costs will be generally expensed as
incurred;
  -
              Non-controlling
      interests (formerly known as “minority interests” – see FASB ASC
      810 discussion below) will be valued at fair value at the acquisition
      date;
  -
              Acquired
      contingent liabilities will be recorded at fair value at the acquisition
      date and subsequently measured at either the higher of such amount or the
      amount determined under existing guidance for non-acquired
      contingencies;
  -
              In-process
      research and development will be recorded at fair value as an
      indefinite-lived intangible asset at the acquisition
  date;
  -
              Restructuring
      costs associated with a business combination will be generally expensed
      subsequent to the acquisition date;
and
  -
              Changes
      in deferred tax asset valuation allowances and income tax uncertainties
      after the acquisition date generally will affect income tax
      expense.
  
 In April
2008, the FASB issued FASB ASC 350-30, Intangibles Other Than
Goodwill which requires that an entity consider its own historical
experience in renewing similar arrangements, or a consideration of market
participant assumptions in the absence of historical experience.  FASB
ASC 350-30 also requires entities to disclose information that enables users of
financial statements to assess the extent to which the expected future cash
flows associated with the asset are affected by the entity’s intent and/or
ability to renew or extend the arrangement. We have adopted FASB ASC
350-30.  The adoption of this statement does not have any impact to
our financial statements.
 
 FASB ASC
810establishes new
accounting and reporting standards for the non-controlling interest in a
subsidiary and for the deconsolidation of a subsidiary. Specifically, this
statement requires the recognition of non-controlling interests (minority
interests) as equity in the consolidated financial statements and separate from
the parent’s equity. The amount of net income attributable to non-controlling
interests will be included in consolidated net income on the face of the income
statement.  FASB ASC 810clarifies that changes in
a parent’s ownership interest in a subsidiary that does not result in
deconsolidation are treated as equity transactions if the parent retains its
controlling financial interest. In addition, this statement requires that a
parent recognize a gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss will be measured using the fair value of the
non-controlling equity investment on the deconsolidation date. FASB ASC 810also includes expanded
disclosure requirements regarding the interests of the parent and its
non-controlling interest.
 
 We have
adopted FASB ASC 810and the statement does not
have a material affect on our consolidated results of operations and financial
condition.
  24
 
 In March
2008, the FASB issued FASB ASC 815, Derivatives and Hedging,
which requires additional disclosures about the objectives of derivative
instruments and hedging activities, the method of accounting for such
instruments under FASB ASC 815 and its related interpretations, and a tabular
disclosure of the effects of such instruments and related hedged items on our
financial position, financial performance, and cash flows. We adopted FASB ASC
815 and our adoption of FASB ASC 815 did not have a material impact on our
financial statements.
 
 On June
30, 2009, the Company adopted FASB ASC 855, Subsequent Events, which
requires disclosure of the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial
statements.  The adoption of FASB ASC 855 did not have a material
impact on our financial statements.
  25
  ITEM
4T. CONTROLS AND PROCEDURES
  We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Securities Exchange Act of 1934
filings are recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management, including our President and Chief Executive
Officer (Principal Executive Officer) and Chief Financial Officer (Principal
Financial Officer), as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, as ours are designed to do, and management was
necessarily required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
  As of
September 30, 2009, we carried out an evaluation, under the supervision and with
the participation of our management, including our Principal Executive Officer
and Principal Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934.  Based upon that evaluation, our Principal Executive Officer and
Principal Financial Officer concluded that our disclosure controls and
procedures are effective at the reasonable assurance level.
 
 There
have been no changes in our internal controls over financial reporting that
occurred during the period covered by this Report that have materially affected,
or are reasonably likely to materially affect, our internal controls over
financial reporting.
  26
  PART II. OTHER INFORMATION
 
 ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
 
 On July
9, 2009, we held a Special Meeting in Lieu of Annual Meeting of Stockholders
(the “Meeting”).  At the Meeting, the stockholders elected two Class I
directors to hold office until the 2012 Annual Meeting of Stockholders and until
their successors are duly elected and qualified.  The remaining
members of the Board of Directors whose terms continued after the meeting are J.
Donald Payne, P. Thomas Vogel, and Richard T. Schumacher.  At the
meeting, a total of 1,692,155 shares or 77% of the Common Stock issued and
outstanding as of the record date, were represented in person or by
proxy.  The voting results with respect to the election of the
directors were as follows:
 
 Name of Nominee
                    
                    For
                    
                    
                    Withheld
                    
                    
                    AbstainCalvin
      A. Saravis
                    
                    
                    1,650,849
                    
                    
                    
                    41,306
                    
                    
                    
                    0R.
      Wayne Fritzsche
                    
                    
                    1,517,450
                    
                    
                    
                    174,705
                    
                    
                    
                    0
 
 ITEM 6. EXHIBITS
  Exhibits
                
                
                
                Reference31.1
                
                Principal
      Executive Officer Certification Pursuant to Item 601(b)(31) of Regulation
      S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002
                
                Filed
      herewith31.2
                
                Principal
      Financial Officer Certification Pursuant to Item 601(b)(31) of Regulation
      S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002
                
                Filed
      herewith32.1
                
                Principal
      Executive Officer Certification Pursuant to Item 601(b)(32) of Regulation
      S-K, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002
                
                Filed
      herewith32.2
                
                Principal
      Financial Officer Certification Pursuant to Item 601(b)(32) of Regulation
      S-K, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002
                
                Filed
      herewith
  27
  SIGNATURES
  Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
  PRESSURE
      BIOSCIENCES, INC.Date:
      November 16, 2009
                By:
                /s/Richard T.
      SchumacherRichard
      T. Schumacher
                  President
      & Chief Executive Officer
                  (Principal
      Executive Officer, Principal Financial Officer and Principal Accounting
      Officer)
  28