**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

 

**Washington,D.C. 20549**

 

## **Form 10-QSB**

## ** **

**(Mark One)**

 

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

 

**For thequarterly period ended March 31, 2005 or**

 

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

 

**For thetransition period from                   to                   **

 

**Commissionfile number   0-21615**

 

**PRESSURE BIOSCIENCES INC.**

(Exact Name of Small BusinessIssuer as Specified in its Charter)

 

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

 

Issuer’s telephone number, including areacode**(508) 580-1818**

 

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

 

ý Yes     o No

 

The number of shares outstanding of the Issuer’scommon stock as of April 30, 2005 was 2,424,189.

 

Transitional Small Business Disclosure Format (checkone):

 

o Yes     ý No

 

 

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TABLE OF CONTENTS

 
| ** **                                                                     | **Page**                                                                                                                                            |
|--------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
| PART I                                                                    |                                                                                                                                                |
|                                                                           |                                                                                                                                                |
| Item 1.  Financial Statements                                             |                                                                                                                                                |
|                                                                           | Condensed Consolidated Balance Sheets as of March 31, 2005 (unaudited) and December 31, 2004                                              | 3 |
|                                                                           |                                                                                                                                                |   |
|                                                                           | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2005 and 2004 (Unaudited) | 4-5 |
|                                                                           |                                                                                                                                                |   |
|                                                                           | Condensed Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2005 and 2004 (Unaudited)                                 | 6 |
|                                                                           |                                                                                                                                                |   |
|                                                                           | Notes to Condensed Consolidated Financial Statements as of March 31, 2005 (Unaudited)                                                          | 7-15 |
|                                                                           |                                                                                                                                                |   |
| Item  2.  Management’s Discussion and  Analysis or Plan of Operation | 16                                                                                                                                                  |
|                                                                           |                                                                                                                                                |   |
| Item 3.  Controls and Procedures                                          | 23                                                                                                                                                  |
|                                                                           |                                                                                                                                                |   |
| PART II                                                                   |                                                                                                                                                |   |
|                                                                           |                                                                                                                                                |   |
| Item 1.  Legal Proceedings                                                | 24                                                                                                                                                  |
|                                                                           |                                                                                                                                                |   |
| Item  2.  Unregistered Sales of Equity  Securities and Use of Proceeds    | 24                                                                                                                                                  |
|                                                                           |                                                                                                                                                |   |
| Item 3.  Default Upon Senior Securities                                   | 24                                                                                                                                                  |
|                                                                           |                                                                                                                                                |   |
| Item  4.  Submission of Matters to a Vote of  Security Holders            | 24                                                                                                                                                  |
|                                                                           |                                                                                                                                                |   |
| Item 5.  Other Information                                                | 24                                                                                                                                                  |
|                                                                           |                                                                                                                                                |   |
| Item  6.  Exhibits                                                        | 25                                                                                                                                                  |
|                                                                                |                                                                                                                                                     |  |  |

 

2

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**Part I.Financial Information**

 

**Item 1.Financial Statements**

 

**PRESSUREBIOSCIENCES, INC., AND SUBSIDIARIES(FORMERLY BOSTON BIOMEDICA, INC. AND SUBSIDIARIES)CONDENSED CONSOLIDATEDBALANCE SHEETS**

 
| ** **                                                                                                                 | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                 | ** ** | **(unaudited)**          | ** ** | ** **                  | ** ** |
| ASSETS                                                                                                                     |       |                     |       |                        |       |
|                                                                                                                       |       |                     |       |                        |       |
| CURRENT ASSETS:                                                                                                            |       |                     |       |                        |       |
| Cash and cash equivalents                                                                                                  |       | $                        | 4,761,473  |                        | $          | 21,201,790 |   |
| Restricted cash                                                                                                            |       | 101,083                  |       | 29,816                      |       |
| Accounts receivable, less allowances of  $138,147 and $205,000                                                             |       | 71,945                   |       | 213,532                     |       |
| Inventories (net)                                                                                                          |       | 308,239                  |       | 157,817                     |       |
| Investments in marketable securities                                                                                       |       | 2,275                    |       | 3,553                       |       |
| Deferred costs                                                                                                             |       | —                   |       | 131,078                     |       |
| Prepaid expenses and other current assets                                                                                  |       | 3,414                    |       | 29,950                      |       |
| Total current assets                                                                                                       |       | 5,248,429                |       | 21,767,536                  |       |
|                                                                                                                       |       |                     |       |                        |       |
| Property and equipment, net                                                                                                |       | 42,517                   |       | 19,793                      |       |
|                                                                                                                       |       |                     |       |                        |       |
| OTHER ASSETS:                                                                                                              |       |                     |       |                        |       |
| Intangible assets, net                                                                                                     |       | 462,030                  |       | 474,188                     |       |
| Assets transferred under contractual  arrangements                                                                         |       | 1,404,691                |       | 1,319,997                   |       |
| Escrow deposit related to sale of assets to  SeraCare                                                                      |       | 1,103,834                |       | 1,096,756                   |       |
| Income tax receivable                                                                                                      |       | 197,335                  |       | —                      |       |
| Investments in marketable securities                                                                                       |       | 3,059,018                |       | 9,178                       |       |
| Total other assets                                                                                                         |       | 6,226,908                |       | 2,900,119                   |       |
|                                                                                                                       |       |                     |       |                        |       |
| TOTAL ASSETS                                                                                                               |       | $                        | 11,517,854 |                        | $          | 24,687,448 |   |
|                                                                                                                       |       |                     |       |                        |       |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                                                 |       |                     |       |                        |       |
|                                                                                                                       |       |                     |       |                        |       |
| CURRENT LIABILITIES:                                                                                                       |       |                     |       |                        |       |
| Accounts payable                                                                                                           |       | $                        | 126,986    |                        | $          | 41,272 |   |
| Accrued employee compensation                                                                                              |       | 41,851                   |       | 86,525                      |       |
| Accrued legal / audit                                                                                                      |       | 121,994                  |       | 91,960                      |       |
| Accrued SeraCare deposits                                                                                                  |       | 153,269                  |       | 46,259                      |       |
| Other accrued expenses                                                                                                     |       | 102,660                  |       | 213,078                     |       |
| Income taxes payable                                                                                                       |       | 175,011                  |       | 175,011                     |       |
| Liabilities from discontinued operations                                                                                   |       | 81,747                   |       | 108,049                     |       |
| Total current liabilities                                                                                                  |       | 803,518                  |       | 762,154                     |       |
|                                                                                                                       |       |                     |       |                        |       |
| LONG TERM LIABILITIES                                                                                                      |       |                     |       |                        |       |
| Liabilities from discontinued operations                                                                                   |       | 34,000                   |       | 34,000                      |       |
| Deferred tax liability                                                                                                     |       | 951,233                  |       | —                      |       |
| Liabilities transferred under contractual  arrangements                                                                    |       | 943,218                  |       | 499,148                     |       |
| Total Long Term Liabilities                                                                                                |       | 1,928,451                |       | 533,148                     |       |
|                                                                                                                       |       |                     |       |                        |       |
| Total Liabilities                                                                                                          |       | 2,731,970                |       | 1,295,302                   |       |
|                                                                                                                       |       |                     |       |                        |       |
| COMMITMENTS AND CONTINGENCIES                                                                                              |       |                     |       |                        |       |
|                                                                                                                       |       |                     |       |                        |       |
| STOCKHOLDERS’ EQUITY:                                                                                                 |       |                     |       |                        |       |
| Common stock, $.01 par value; 20,000,000  shares authorized, 2,424,189 and 6,872,915 issued and outstanding,  respectively |       | 24,241                   |       | 68,729                      |       |
| Additional paid-in capital                                                                                                 |       | 6,027,020                |       | 22,286,395                  |       |
| Loan receivable and accrued interest from  Director / CEO                                                                  |       | (1,152,206               | )          | (1,134,262                  | )          |
| Accumulated other comprehensive income                                                                                     |       | 2,098,608                |       | —                      |       |
| Retained Earnings                                                                                                          |       | 1,788,221                |       | 2,171,284                   |       |
|                                                                                                                       |       |                     |       |                        |       |
| Total stockholders’ equity                                                                                            |       | 8,785,884                |       | 23,392,146                  |       |
|                                                                                                                       |       |                     |       |                        |       |
| TOTAL LIABILITIES & STOCKHOLDERS’  EQUITY                                                                    |       | $                        | 11,517,854 |                        | $          | 24,687,448 |   |

 

The accompanying notes are anintegral part of these condensed consolidated financial statements

 

3

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**PRESSUREBIOSCIENCES, INC., AND SUBSIDIARIES(FORMERLY BOSTON BIOMEDICA, INC. AND SUBSIDIARIES)CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS(UNAUDITED)**

** **
| ** **                                                                                                           | ** ** | **For the three months ended  March 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                                                           | ** ** | **2005**                                       | ** ** | **2004** | ** ** |
| REVENUE:                                                                                                             |       |                                           |       |   |   |
| Grant Revenues                                                                                                       |       | $                                              | —     |   | $ | 123,162 |   |
| PCT Products, services, other                                                                                        |       | 2,630                                          |       | 5,016 |   |
| Total revenue                                                                                                        |       | 2,630                                          |       | 128,178 |   |
|                                                                                                                 |       |                                           |       |   |   |
| COSTS AND EXPENSES:                                                                                                  |       |                                           |       |   |   |
| Cost of grant services                                                                                               |       | —                                         |       | 3,321 |   |
| Cost of PCT products & services                                                                             |       | 6,521                                          |       | 14,419 |   |
| Research and development                                                                                             |       | 103,028                                        |       | 254,797 |   |
| Selling and marketing                                                                                                |       | 15,260                                         |       | 57,991 |   |
| General and administrative                                                                                           |       | 308,888                                        |       | 368,623 |   |
| Total operating costs and expenses                                                                                   |       | 433,697                                        |       | 699,151 |   |
|                                                                                                                 |       |                                           |       |   |   |
| Operating loss from continuing operations                                                                            |       | (431,067                                       | )          | (570,973 | ) |
|                                                                                                                 |       |                                           |       |   |   |
| Other operating credits and (charges) net,                                                                           |       | (235,352                                       | )          | (87,566 | ) |
|                                                                                                                 |       |                                           |       |   |   |
| Net interest income / (expense)                                                                                      |       | 78,932                                         |       | (5,825 | ) |
|                                                                                                                 |       |                                           |       |   |   |
| Loss from continuing operations before  income taxes                                                                 |       | (587,487                                       | )          | (664,364 | ) |
|                                                                                                                 |       |                                           |       |   |   |
| Income tax benefit                                                                                                   |       | 199,746                                        |       | 164,755 |   |
|                                                                                                                 |       |                                           |       |   |   |
| Loss from continuing operations                                                                                      |       | (387,741                                       | )          | (499,609 | ) |
|                                                                                                                 |       |                                           |       |   |   |
| Discontinued operations:                                                                                             |       |                                           |       |   |   |
| Income from discontinued operations (net of  income tax benefit of $2,411 in 2005 and provision of $165,854 in 2004) |       | 4,679                                          |       | 343,875 |   |
|                                                                                                                 |       |                                           |       |   |   |
| Net loss                                                                                                             |       | $                                              | (383,062   | ) | $ | (155,734 | ) |
|                                                                                                                 |       |                                           |       |   |   |
| Loss per share from continuing operations basic &  diluted                                                  |       | $                                              | (0.08      | ) | $ | (0.07 | ) |
| Income per share from discontinued operations,  basic & diluted                                             |       | $                                              | —     |   | $ | 0.05 |   |
|                                                                                                                 |       |                                           |       |   |   |
| Net loss per share, basic &  diluted                                                                        |       | $                                              | (0.08      | ) | $ | (0.02 | ) |
|                                                                                                                 |       |                                           |       |   |   |
| Weighted average number of shares used to  calculate per share (loss) / income                                       |       | 4,649,052                                      |       | 6,810,660 |   |

 

The accompanying notes are anintegral part of these condensed consolidated financial statements

 

4

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**PRESSURE BIOSCIENCES, INC., AND SUBSIDIARIES(FORMERLY BOSTON BIOMEDICA, INC. AND SUBSIDIARIES)CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)(UNAUDITED**)

 
| ** **                                                       | ** ** | **For the three months ended  March 31,** | ** ** |
|------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                       | ** ** | **2005**                                       | ** ** | **2004** | ** ** |
| Other Comprehensive Income:                                      |       |                                           |       |   |   |
|                                                             |       |                                           |       |   |   |
| Net loss                                                         |       | $                                              | (383,062   | ) | $ | (155,734 | ) |
|                                                             |       |                                           |       |   |   |
| Unrealized gain on marketable securities  during the period      |       | 3,049,841                                      |       | — |   |
|                                                             |       |                                           |       |   |   |
| Less: Income tax related to items of other  comprehensive income |       | (951,233                                       | )          | — |   |
|                                                             |       |                                           |       |   |   |
| Total other comprehensive income net of  taxes                   |       | 2,098,608                                      |       | — |   |
|                                                             |       |                                           |       |   |   |
| Comprehensive income / (loss)                                    |       | $                                              | 1,715,546  |   | $ | (155,734 | ) |

 

The accompanying notes are anintegral part of these condensed consolidated financial statements

 

5

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**PR****ESSURE BIOSCIENCES, INC., AND SUBSIDIARIES(FORMERLY BOSTON BIOMEDICA INC. AND SUBSIDIARIES)CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS(UNAUDITED)**

 
| ** **                                                                                                            | ** ** | **For the three months ended  March 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                                                            | ** ** | **2005**                                       | ** ** | **2004** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                 |       |                                           |       |   |   |
| Net loss                                                                                                              |       | $                                              | (383,062   | ) | $ | (155,734 | ) |
| Less income from discontinued operations                                                                              |       | 4,679                                          |       | 343,875 |   |
| Loss from continuing operations                                                                                       |       | (387,741                                       | )          | (499,609 | ) |
|                                                                                                                  |       |                                           |       |   |   |
| Adjustments to reconcile loss from  continuing operations to net cash (used in) / provided by operating  activities : |       |                                           |       |   |   |
| Depreciation and amortization                                                                                         |       | 13,720                                         |       | 64,644 |   |
| Deferred tax liability                                                                                                |       | —                                         |       | (690 | ) |
| Interest accrued from loan outstanding from  Director / CEO                                                           |       | (17,944                                        | )          | — |   |
|                                                                                                                  |       |                                           |       |   |   |
| Changes in operating assets and  liabilities:                                                                         |       |                                           |       |   |   |
| Accounts receivable                                                                                                   |       | 141,588                                        |       | (2,241 | ) |
| Inventories                                                                                                           |       | (150,422                                       | )          | 25,024 |   |
| Marketable securities                                                                                                 |       | 1,278                                          |       | 244 |   |
| Prepaid expenses and other current assets                                                                             |       | 157,613                                        |       | 345 |   |
| Assets and liabilities transferred under  contractual obligations, (net)                                              |       | 359,377                                        |       | (52,364 | ) |
| Income tax receivable                                                                                                 |       | (197,335                                       | )          | — |   |
| Accounts payable                                                                                                      |       | 85,713                                         |       | 42,992 |   |
| Accrued employee compensation                                                                                         |       | (12,117                                        | )          | (78,663 | ) |
| Other accrued expenses                                                                                                |       | (5,930                                         | )          | 103,201 |   |
| Deposits and deferred costs                                                                                           |       | (7,077                                         | )          | (168,147 | ) |
| Net cash used in operating activities                                                                                 |       | (19,278                                        | )          | (565,262 | ) |
|                                                                                                                  |       |                                           |       |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                 |       |                                           |       |   |   |
| Payments for additions to property and  equipment                                                                     |       | (24,286                                        | )          | — |   |
| Proceeds from sale of property and  equipment                                                                         |       | —                                         |       | — |   |
| Net cash used in investing activities                                                                                 |       | (24,286                                        | )          | — |   |
|                                                                                                                  |       |                                           |       |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                 |       |                                           |       |   |   |
| Proceeds from issuance of common stock                                                                                |       | —                                         |       | 9,657 |   |
| Use of funds in repurchase of common stock                                                                            |       | (16,303,862                                    | )          | — |   |
| Pledge of restricted cash as security for  loan from bank to Director / CEO                                           |       | —                                         |       | 1,000,000 |   |
| Conversion of pledge of restricted cash as  security for loan from Director / CEO                                     |       | —                                         |       | (1,000,000 | ) |
| Restricted cash payable to Seracare                                                                                   |       | (71,268                                        | )          | — |   |
| Borrowings from line of credit                                                                                        |       | —                                         |       | 518,951 |   |
| Repayments of line of credit                                                                                          |       | —                                         |       | (69,991 | ) |
| Net cash (used in) provided by financing  activities                                                                  |       | (16,375,130                                    | )          | 458,617 |   |
|                                                                                                                  |       |                                           |       |   |   |
| (DECREASE) / INCREASE IN CASH AND CASH  EQUIVALENTS:                                                                  |       | (16,418,694                                    | )          | (106,645 | ) |
| Change in cash and cash equivalents  provided by discontinued operations                                              |       | (21,623                                        | )          | 424,320 |   |
| Cash and cash equivalents, beginning of period                                                                        |       | 21,201,790                                     |       | 967,185 |   |
| Cash and cash equivalents, end of period                                                                              |       | $                                              | 4,761,473  |   | $ | 1,284,860 |   |

 

The accompanying notes are anintegral part of these unaudited condensed consolidated financial statements

 

6

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**1)****             Basis of Presentation and Summary ofSignificant Accounting Policies**

 

*Overview*

 

Theaccompanying unaudited condensed consolidated financial statements include theaccounts of Pressure BioSciences Inc. (formerly Boston Biomedica Inc.and referred to herein as the “Company”, “Pressure BioSciences” or “PBI”), andits wholly-owned subsidiaries, PBI Biotech Research Laboratories, Inc.(formerly known as BBI Biotech Research Laboratories, Inc. and referred toherein as “PBI Biotech” or “BBI Biotech”), PBI Source Scientific, Inc.(formerly known as BBI Source Scientific, Inc. and referred to herein as “PBISource” or “BBI Source”), and PBI BioSeq, Inc. (formerly known as BBIBioSeq, Inc. and referred to herein as “PBI BioSeq” or “BBI BioSeq”).

 

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

 

EffectiveSeptember 14, 2004, pursuant to an Asset Purchase Agreement dated April 16,2004, as amended (the “Asset Purchase Agreement”) between the Company, PBIBiotech Research Laboratories, Inc. and SeraCare Life Sciences, Inc.(“SeraCare”), the Company completed the sale of substantially all of the assetsand selected liabilities of its PBI Diagnostics and PBI Biotech divisions toSeraCare (the “Asset Sale”).  Inconnection with the Asset Sale, the Company changed its legal name from BostonBiomedica, Inc. to Pressure BioSciences, Inc. effective September 14,2004.  The accompanying unauditedcondensed consolidated financial statements have been reclassified to reportthe results of operations for the BBI Diagnostics and BBI Biotech divisions(also referred to as “business units”) as discontinued operations.

 

In June 2004, PBISource Scientific, Inc. transferred certain of its assets and liabilitiesto a newly formed limited liability company known as Source Scientific, LLC. Atthe time of the transfer, PBI Source Scientific, Inc. owned 100% of theownership interests of Source Scientific, LLC. PBI Source Scientific, Inc.subsequently sold 70% of its ownership interests of Source Scientific, LLC to Mr. RichardHenson and Mr. Bruce A. Sargeant pursuant to a purchase agreement (the “SourceScientific Agreement”). As a result of the sale of 70% of PBI Source Scientific’sownership interests, Mr. Henson and Mr. Sargeant each own 35% and PBISource Scientific owns the remaining 30% of Source Scientific, LLC.  Under the Source Scientific Agreement, theCompany received notes receivable in the aggregate amount of $900,000 (the “Notes”)payable at the end of three years bearing 8% interest. Despite the Company’sintent to exit the laboratory instrumentation business, the Company may beviewed as having a continuing involvement in the business of Source Scientific,LLC due to the fact that the Company has the right to designate one orpotentially three members of the Board of Managers of Source Scientific, LLC.Because of this factor, even though the transaction is treated as a divestiturefor legal purposes, the Company has not recognized the transaction as adivestiture for accounting purposes in accordance with Securities and ExchangeCommission (“SEC”) Staff Accounting Bulletin (“SAB”) Topic 5E, *Accounting for Divestiture of a Subsidiary or OtherBusiness Operation*. In accordance with SAB Topic 5E, the Company hasrecorded the assets and liabilities associated with the Source Scientific, LLCoperation on the Company’s unaudited condensed consolidated balance sheet as ofMarch 31, 2005 under the captions “Assets transferred under contractualarrangements” and “Liabilities transferred under contractual arrangements” andhas recorded a charge to income under the caption “Other operating credits andcharges, net” in the Company’s unaudited condensed consolidated statement ofoperations for the three months ended March 31, 2005 and 2004 equal to theamount of the loss attributable to the business of Source Scientific for therespective periods presented. In accordance with SAB Topic 5E, the Company willcontinue this accounting

 

7

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treatment until circumstances have changed oruntil the net assets of the Source Scientific, LLC business have been writtendown to zero (or a net liability is recognized in accordance with U.S.Generally Accepted Accounting Principles (“GAAP”)).

 

As a result of the above transactions, the unauditedcondensed consolidated financial statements included herein, and theaccompanying notes to such condensed consolidated financial statements, reportthe results of the Company’s remaining operations, which consist of allpressure cycling technology (PCT) related activities, including the PCT related activities of PBI Source,PBI BioSeq, and the portion of corporate activities directly associated withthe Company’s remaining corporate functions including costs associated withbeing a public company.  As describedabove, operating results of PBI Source, excluding any PCT relatedactivities, together with Source Scientific, LLC are reported as “Otheroperating credits and charges, net” hereunder. The operating results of theCompany’s PBI Diagnostics and PBI Biotech divisions, together with the resultsof the discontinued operations of the Company’s clinical laboratory testingservices segment (sold in February 2001) are reported as “DiscontinuedOperations” hereunder.   Certain amountsincluded in the prior period’s financial statements have been reclassified toconform to the current period’s presentation. All significant intercompany accounts and transactions have beeneliminated in consolidation.

 

*Use ofEstimates*

 

To prepare the unaudited condensedconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States, management is required to make significantestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe unaudited condensed consolidated financial statements and the reportedamounts of revenues and expenses during the reporting period. In addition,significant estimates were made in estimating future cash flows to quantifyimpairment of assets, in estimates regarding the collectibility of accountsreceivable, realizability of loans (plus accrued interest) made to adirector/Chief Executive Officer including sufficiency of collateral, deferredtax assets, the net realizable value of the Company’s inventory, as well as anestimate for remaining liabilities associated with discontinued operations. ** **On an on-goingbasis, the Company evaluates its estimates. The Company bases its estimates on historical experience and on variousother assumptions that are believed to be reasonable under the circumstances,the results of which form the basis for making judgments about the carryingvalues of assets and liabilities that are not readily apparent from othersources. Actual results could differ from the estimates and assumptions used bymanagement.

 

*Cash & Cash Equivalents*

 

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

 

TheCompany’s restricted cash consisted of payments from customers of its formerbusiness units who inadvertently remit payments to the Company in error. The cashis deposited in the Company’s lockbox system and analyzed, and isolated to beremitted to SeraCare in a timely fashion. The balances reflected are thoseaffected by timing of funds transferred to SeraCare. At the time the cash isclassified as restricted, a corresponding liability is established to have noeffect on net assets of the Company.

 

Asof March 31, 2005, the Company had approximately $4,700,000 in cash andcash equivalents invested in U. S. Treasuries having an original maturity ofless than three months.  The Company’spolicy is to hold these securities to maturity. The remaining cash is invested in a money market fund.  The Company has limited insurance protectionassociated with the Securities Investor Protection Corporation.  The Company periodically reviews itsinvestments for any impairment.

 

*Investment in MarketableSecurities*

 

TheCompany’s investment in long term marketable securities currently reflects itsholdings of V.I. Technologies common stock. Previously, the Company held shares in Panacos Pharmaceuticals, aprivate company, and its holdings were reflected on a cost basis as presentedon the December 31, 2004 balance sheet. As a result of V.I. Technologies acquisition of Panacos Pharmaceuticalsshares, and the Company’s subsequent receipt of V.I. Technologies shares, aNASDAQ publicly traded company, the Company’s investment is now accounted forunder

 

8

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SFAS 115 “Accounting for Certain Investmentsin Debt and Equity Securities”, as available for sale. At March 31, 2005the fair value of the Company’s shares of V.I. technologies was approximately$3.06 million based on the closing price on March 31, 2005.

 

*Stock-BasedCompensation*

 

The Company has elected to follow Accounting PrinciplesBoard Opinion No. 25, “Accounting for Stock Issued to Employees” (APB25) and related interpretations in accounting for its employee stockoptions. Under APB 25, the intrinsic value method is used to account forstock options granted to employees. The Company has adopted the disclosure-onlyprovisions of Statement of Financial Accounting Standards No. 123, “Accountingfor Stock-Based Compensation” (SFAS 123).

 

Asthe Company accounts for its plans under the recognition and measurementprinciples of APB 25, “Accounting for Stock Issued to Employees,” and relatedinterpretations, no compensation cost has been recognized; under SFAS 123 forthe Company’s employee stock option plans because the exercise price of employee stock options equals the market priceof the underlying stock on the date of grant, no compensation expense isrecorded.  SFAS 123 was amended by SFAS 148 “Accountingfor Stock-Based Compensation- Transition and Disclosure”, which requirescompanies to disclose in interim financial statements the pro forma effect onnet income (loss) per common share of the estimated fair market value of stockoptions or warrants issued to employees. Had compensation cost forawards under those plans been determined based on the grant date fair values,consistent with the method required under SFAS 123, the Company’s net lossand net loss per share would have been impacted by the pro forma amountsindicated below:

 
| ** **                                                                                   | ** ** | **For the Three Months Ended March 31,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2005**                                      | ** ** | **2004** | ** ** |
| Net loss - as reported                                                                       |       | $                                             | (383,062   | ) | $ | (155,734 | ) |
| Add back: Stock-based compensation in net  loss, as reported                                 |       | —                                        |       | — |   |
| Deduct: Stock-based employee compensation expense  determined under fair value based methods |       | (11,771                                       | )          | (144,008 | ) |
| Net loss - pro forma                                                                         |       | $                                             | (394,833   | ) | $ | (299,742 | ) |
| Basic and Diluted net loss per share - as  reported                                          |       | $                                             | (0.08      | ) | $ | (0.02 | ) |
| Basic and Diluted net loss per share - pro  forma                                            |       | $                                             | (0.08      | ) | $ | (0.04 | ) |

 

**(2) Recent Accounting Standards **

 

InDecember 2004, the FASB issued FASB Statement No. 123 (revised 2004),“Share-Based Payment” (“FAS 123(R)”). FAS 123(R) replaces FASB Statement No. 123,“Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25,“Accounting for Stock Issued to Employees”. FAS 123(R) requires that thecompensation cost relating to share-based payment transactions be recognized infinancial statements. That cost will be measured based on the fair value of theequity or liability instruments issued. The provisions of this Statement areeffective for the first interim or annual reporting period that begins after December 31,2005. The Company is currently evaluating the method of adoption and the impactof FAS 123(R) on its financial position and results of operations.  In connection with completion of the Company’stender offer completed in February 2005, 754,275 outstanding stock optionswere exercised and the shares issued upon exercise were purchased by theCompany in the tender offer.  As aresult, 317,067 stock options remain outstanding and 4,800 stock options areavailable for future issuance as of March 31, 2005.  The Company is currently in process ofseeking shareholder approval for a new Employee Incentive Plan.  The Company plans to continue to evaluate theform of any stock based incentive compensation it may offer in the future andits impact on the Company.

 

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

 

(a) BBIDiagnostics and BBI Biotech Segments

 

OnSeptember 14, 2004, the Company completed the sale of substantially all ofthe assets and selected liabilities of its BBI Diagnostics and BBI Biotechdivisions, previously classified as assets and liabilities held for sale as of June 30,2004, to SeraCare pursuant to the Asset Purchase Agreement, for a purchaseprice of $30 million in cash of which $27.5 million was paid at theclosing and the remaining $2.5 million was deposited in escrow pursuant toan escrow agreement expiring in March 2006. The amounts associated withthe sale of these assets and selected liabilities to SeraCare are reported asdiscontinued operations in the accompanying financial statements, in accordancewith paragraphs 30 and 42 of Statement of Financial Accounting Standards No. 144“Accounting for the Impairment or Disposal of Long-Lived Assets”.

 

(b) ClinicalLaboratory Testing Services Segment

 

InFebruary 2001, the Company sold the business and certain assets andliabilities of its clinical laboratory business, BBI Clinical Laboratories, Inc.(“BBICL”), a wholly-owned subsidiary of the Company, to a third party for anadjusted purchase price of $8,958,000. The Company retained certain other assets and liabilities of BBICL,primarily property, plant and equipment, together with the facility leasesubsequent to the closing date.  TheCompany wrote down all of the retained assets not otherwise redistributed toother business units to their estimated net realizable value.  The Company’s estimate of remaining short andlong term accrued liabilities to exit the clinical laboratory testing businessis approximately $89,500 as of March 31, 2005.  The major component of this accrual is forpotential audit adjustments associated with the sale of assets and the longterm record retention of medical and related records.

 

**(4)****                                 Assets andLiabilities Transferred Under Contractual Arrangements**

 

In June 2004, PBISource Scientific, Inc. transferred certain of its assets and liabilitiesto a newly formed limited liability company known as Source Scientific, LLC. Atthe time of the transfer, PBI Source Scientific, Inc. owned 100% of theownership interests of Source Scientific, LLC. PBI Source Scientific, Inc.subsequently sold 70% of its ownership interests of Source Scientific, LLC to Mr. RichardHenson and Mr. Bruce A. Sargeant pursuant to a purchase agreement (the “SourceScientific Agreement.  As a result of thesale of 70% of PBI Source Scientific’s ownership interests, Mr. Henson andMr. Sargeant each own 35% and PBI Source Scientific owns the remaining 30%of Source Scientific, LLC.  Under theSource Scientific Agreement, the Company received notes receivable in theaggregate amount of $900,000 (the “Notes”) payable at the end of three yearsbearing 8% interest. To date, interest of approximately $60,000 has not beenreceived and has not been accrued. The Source Scientific Agreement provides fordiscounts on the Notes in the event of an early payoff. As part of the SourceScientific Agreement, Source Scientific, LLC agreed to provide engineering,manufacturing, and other related services for PBI’s PCT products until September 30,2005.  The Source Scientific Agreementalso offers Mr. Henson and Mr. Sargeant the opportunity to purchasethe Company’s 30% ownership interest in Source Scientific, LLC until May 31,2007 at an escalating premium (10-50%) over the Company’s initial ownershipvalue, provided that they have first paid off the Notes in their entirety.  Although the Company expects the promissorynotes to be paid in full by Mr. Henson and Mr. Sargeant, therepayment of the promissory notes may be viewed as being dependent on thefuture successful operations of the business of Source Scientific, LLC.  In addition, despite the Company’s intent toexit the laboratory instrumentation business, the Company may be viewed ashaving a continuing involvement in the business of Source Scientific, LLC dueto the fact that the Company has the right to designate one or potentiallythree members of the Board of Managers. Because of this factor, even though thetransaction is treated as a divestiture for legal purposes, the Company has notrecognized the transaction as a divestiture for accounting purposes inaccordance with SEC SAB Topic 5E, *Accountingfor Divestiture of a Subsidiary or Other Business Operation*.  In accordance with SAB Topic 5E, the Companyhas recorded the assets and liabilities associated with the Source Scientific,LLC operation on the Company’s unaudited condensed consolidated balance sheetas of March 31, 2005 under the captions “Assets transferred undercontractual arrangements” and “Liabilities

 

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transferred under contractual arrangements” and hasrecorded a charge to income under the caption “Other operating credits andcharges, net “ in the Company’s unaudited condensed consolidated statement ofoperations for the three months ended March 31, 2005 and March 31,2004 equal to the amount of the loss attributable to the business of SourceScientific for the respective periods presented.  In accordance with SAB Topic 5E, the Companywill continue this accounting treatment until circumstances have changed oruntil the net assets of the Source Scientific, LLC business have been writtendown to zero (or a net liability is recognized in accordance with GAAP).

 

Asof March 31, 2005 assets and liabilities transferred under contractualarrangement consist of the following:

 
| Cash                                                                  |   | $        | 75,770    |   |
|-----------------------------------------------------------------------|--------|----------|-----------|--------|
| Accounts receivable, net                                              |   | 422,714  |      |
| Inventory                                                             |   | 468,867  |      |
| Prepaid assets                                                        |   | 33,890   |      |
| Fixed assets, net                                                     |   | 90,650   |      |
| Goodwill                                                              |   | 227,084  |      |
| All other assets                                                      |   | 85,716   |      |
| Total assets transferred under contractual  arrangement               |   | $        | 1,404,691 |   |
|                                                                  |   |     |      |
| Accounts payable                                                      |   | (450,737 | )         |
| Accrued expenses and compensation                                     |   | (266,840 | )         |
| Deferred revenue                                                      |   | (167,781 | )         |
| Equity contributions                                                  |   | (57,860  | )         |
| Total  liabilities transferred under contractual arrangement          |   | $        | (943,218  | )      |
|                                                                  |   |     |      |
| Net assets and liabilities transferred under  contractual obligations |   | $        | 461,473   |   |

 

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

 

Basic income (loss) pershare is computed by dividing income (loss) available to common shareholders bythe weighted average number of common shares outstanding. Diluted income (loss)per share is computed by dividing income (loss) available to commonshareholders by the weighted average number of common shares outstanding plusadditional common shares that would have been outstanding if potential dilutivecommon shares had been issued. For purposes of this calculation, stock optionsare considered common stock equivalents in periods in which they have adilutive effect. Options and warrants that are antidilutive are excluded fromthe calculation.  Potentially dilutivesecurities having a net effect of 112,519 and 14,599 common shares for thethree months ended March 31, 2005 and 2004, respectively, and were notincluded in the computation of diluted income (loss) per share for theseperiods because to do so would have been antidilutive.  Accordingly, a reconciliation between basicand diluted income (loss) per share has not been presented.

 

**(6)  Related Party Transaction**

 

In January 2002, the Company pledged a$1,000,000 interest bearing deposit at a financial institution to secure itslimited guaranty of loans in the aggregate amount of $2,418,000 from thefinancial institution to an entity controlled by Richard T. Schumacher, aDirector and the Company’s current President and Chief Executive Officer. In January 2003,the $1,000,000 held in the interest bearing deposit account pledged to thefinancial institution to secure the Company’s limited guaranty was used by thefinancial institution to satisfy its limited guaranty obligation to thefinancial institution. The Company now maintains a $1.0 million loanreceivable together with associated accrued interest of $152,206 (whichrepresents interest accrued from January 1, 2003 at an average interestrate of 6.5% per annum) from Mr. Schumacher. The Company previouslymaintained a junior security interest in collateral pledged by Mr. Schumacherto the financial institution. The collateral includes all of Mr. Schumacher’sshares of PBI common stock. Following the payment in full by Mr. Schumacherof his loan to the financial institution in February 2005, the Companybecame the holder of a first priority security interest in 499,657 of Mr. Schumacher’sshares of common stock of Pressure BioSciences to secure the repayment of theCompany’s $1,000,000 loan receivable

 

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together with associatedaccrued interest of $152,206 from Mr. Schumacher. The collateral andpersonal assets of Mr. Schumacher may not be sufficient to permit theCompany to fully recover the principal, interest and other costs associatedwith this loan receivable. If the value of the collateral decreases, theCompany may have to write down or write off the loan receivable or associatedaccrued interest. Therefore, the Company cannot be certain that it will collectthe full amount of the loan receivable or associated accrued interest.

 

As of March 31, 2005,we evaluated the recoverability of a $1,000,000 loan receivable together withassociated accrued interest of $152,206 (which represents interest accrued fromJanuary 1, 2003 at an average interest rate of 6.5% per annum) from Mr. RichardT. Schumacher, a Director and our current President and Chief ExecutiveOfficer, which is reflected on our balance sheet in stockholders’ equity as aloan receivable and accrued interest as of March 31, 2005. Our reviewincluded an evaluation of the collateral associated with the loan, whichconsists of common stock of Pressure BioSciences. In February 2005, Mr. Schumacherrepaid in full a loan outstanding between an entity controlled by him and afinancial institution with proceeds from the sale of 130,000 shares of ourcommon stock in connection with the our tender offer completed on February 11,2005. As a result, we currently maintain a first priority security interest inthis collateral previously held by the financial institution, which consists of499,657 shares of common stock of Pressure BioSciences.

 

As of March 31, 2005,we performed a test for impairment of our loan receivable together withassociated accrued interest by analyzing the value of the collateral. This testincluded, among other things, a review of the current trading price of ourcommon stock after taking into account factors that may affect our ability tosell such stock in the event we were to foreclose on the collateral to repaythe loan receivable and any accrued and unpaid interest. After performing ourimpairment test, we determined that the loan receivable together withassociated accrued interest was not impaired. The ultimate value that we mayrecover is dependent on numerous factors including our stock price, marketconditions relative to the value of and ability to sell the collateral, and thefinancial status of our President and Chief Executive Officer. Based on ourassessment as of March 31, 2005, we estimate that the value of thecollateral approximates the amount of our recorded loan receivable and accruedinterest.  If actual market conditionsare less favorable, our stock price declines or other factors arise that aresignificantly different than those experienced as of March 31, 2005, animpairment of the loan receivable together with associated accrued interest islikely to be required.  We plan tocontinue to monitor and test the collateral for impairment due in large part tothe relatively low trading volume of our common stock and recent volatility inour stock price, ranging from a low of $2.28 per share to a high of $3.65 pershare since March 31, 2005.

 

**(7)  SegmentReporting and Related Information**

 

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

 

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

 

**(8) Debt**

 

                                                On February 5, 2004, the Company enteredinto a three year, $2,500,000 revolving line of credit agreement with a privatelender. On September 14, 2004, the Company used an aggregate of $2,005,148of the proceeds from the Asset Sale to SeraCare previous discussed to repay alloutstanding indebtedness under the revolving line of credit. Upon payment ofthe outstanding indebtedness together with an early termination fee paid, therevolving line of credit agreement was terminated. The Company does not currentlyhave a line of credit from which it can borrow.

 

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**(9)****                                 Inventories**

 

Inventories arerepresented by primarily component parts used in the manufacture of PCTproducts, and was comprised as follows: 

 
| ** **      | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------|------------|--------------------------|------------|-----------------------------|------------|
| Raw materials   |       | $                        | 185,476    |                        | $          | 122,253 |   |
|            |       |                     |       |                        |       |   |   |
| Work-in-process |       | 122,763                  |       | 31,764                      |       |
|            |       |                     |       |                        |       |
| Finished goods  |       | 0                        |       | 3,800                       |       |
|            |       | $                        | 308,239    |                        | $          | 157,817 |   |

 

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

 

*Leases*

 

On May 5, 2005, theCompany entered into a lease agreement with Saul Holdings Limited Partnership,pursuant to which have agreed to lease approximately 2,784 square feet ofoffice space located at 209 Perry Parkway, Gaithersburg, Maryland 20877 for aterm of twelve months.  We will pay base annual rent in the amount of$55,680, or $4,640 per month during the initial term of the lease.

 

*Royalty Commitments*

 

The Company acquired in 1998all the remaining common stock outstanding of BioSeq Inc., a developmentstage company involved with PCT. In accordance with the provisions of atechnology transfer agreement assumed in the transaction, the Company isobligated to pay a 5% royalty on net sales until March 2016 of futuresales by the Company utilizing PCT. The Company announced the availability ofits PCT products for commercial sale in the latter part of year 2002. TheCompany’s minimum royalty payment requirements ceased in the fourth quarter of2003 in accordance with contractual provisions. Current royalty payments haveaveraged approximately $200 per quarter during 2004 and in the first fiscalquarter of 2005.

 

*Purchase Commitments*

 

In June 2004, SourceScientific, LLC agreed to provide engineering, manufacturing, and other relatedservices for the Company’s pressure cycling technology products until September 30,2005. Reimbursement to Source Scientific, LLC by the Company is expected to beat the rate of $25,000 per month; however, payment by the Company to SourceScientific, LLC is contingent upon actual services being rendered to theCompany by Source Scientific, LLC.

 

*Indemnifications*

 

In conjunction with the saleof the former BBI Diagnostics and BBI Biotech business units, the Company hasagreed to indemnify the other parties with respect to certain liabilitiesrelated to the operation of the business. The scope and duration of suchindemnity obligations vary from transaction to transaction. Where appropriate,an obligation for such indemnifications is recorded as a liability. Generally,a maximum obligation cannot be reasonably estimated. Other than obligationsrecorded as liabilities at the time of divestiture, historically the Companyhas not made significant payments for these indemnifications. The Companybelieves the estimated fair value of these agreements is minimal.

 

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

 

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In November 2004, in accordance with the termsof the Asset Purchase Agreement, SeraCare delivered the closing balance sheet,which reflected a deficiency of approximately $3.1 million when comparedto the target net asset value of $8.5 million. The Company objected tocertain calculations in the closing balance sheet, including, withoutlimitation, SeraCare’s calculation of accounts receivable and inventory. In December 2004,the Company settled its dispute with SeraCare concerning the collectibility ofaccounts receivable sold to SeraCare in connection with the Asset PurchaseAgreement. The Company agreed that, solely for purposes of settling its disputewith SeraCare, $412,192 of accounts receivable would be deemed past due,therefore resulting in an adjustment to the purchase price requiring theCompany to pay SeraCare that amount. The Company also agreed that the $412,192 deficiencywould be released from the $2.5 million held in escrow; thereby leavingapproximately $2.1 million remaining in escrow. In February 2005, theCompany further agreed with SeraCare to settle the parties remainingdifferences relating to the closing balance sheet, including the calculation ofinventory, by releasing to SeraCare an additional $1,000,000 from the escrowaccount. Additionally, the parties released all claims they may have hadagainst the other with respect to the closing balance sheet and certain otherrepresentations and warranties contained in the Asset Purchase Agreementrelating to the closing balance sheet items. Following the release of theescrow funds, approximately $1.1 million remains in escrow until March 2006to secure the Company’s continuing indemnification obligations for breaches ofrepresentations and warranties, covenants or other agreements that remain inaccordance with the terms of the Asset Purchase Agreement. The combined effectof these two settlements relating to the closing balance sheet resulted in a$1,412,192 reduction in the purchase price and a corresponding reduction in thegain on sale.

 

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

 

**(11)  Investments in Marketable Securities**

 

OnMarch 11, 2005, V.I. Technologies, Inc. (“Vitex”) announced that ithad closed its merger with Panacos Pharmaceuticals, Inc. (“Panacos”),pursuant to the Agreement and Plan of Merger dated as of June 2, 2004, asamended on November 5, 2004, November 28, 2004, December 8,2004, and February 14, 2005 (the “Merger Agreement”). The merger wasapproved by the stockholders of both Vitex and Panacos at their respectivemeetings on March 10, 2005. Panacos stockholders received an aggregate ofapproximately 227,500,000 shares of Vitex common stock, or slightly over 80% ofthe outstanding shares of Vitex Common Stock, after giving effect to themerger, and before giving effect to Vitex’s 1:10 reverse stock split, which wasannounced on March 14, 2005. The shares of Vitex common stock issued tothe Panacos stockholders were registered with the Securities and ExchangeCommission on a Registration Statement on Form S-4. Panacos stockholdersreceived 6.75275 shares of Vitex common stock for each share of Panacos commonor preferred stock held by them at the effective time of the merger. As aresult of the merger and the subsequent reverse stock split, the Company owns1,012,920 shares of Vitex common stock in place of its Panacos capital stock.Fifteen percent of Vitex stock owned by former owners of Panacos stock,including fifteen percent of the Vitex common stock owned by the Company, willbe held in escrow per the Merger Agreement. On March 31, 2005, the closingprice of Vitex common stock was $3.02 per share as quoted on the NasdaqNational Market Exchange.

 

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**(12)   Fixed Assets **

 

Fixed assets are comprised primarily of PCT related demonstrationequipment, of which one PCT BarocyclerTM unit has been placed with athird party pursuant to a short term rental agreement.  Depreciation on PCT demonstration units isallocated over the expected useful life of approximately two years.  Upon the Company’s sale of assets to SeraCarein September 2004 and establishment of new corporate offices,approximately $25,000 has been capitalized related to office furniture andcomputer and related communication equipment. Property and equipment at March 31,2005 consisted of the following: 

 
| ** **                             | ** ** | **As of March 31,  2005** | ** ** |
|----------------------------------------|------------|--------------------------------|------------|
| Laboratory and manufacturing equipment |       | $                              | 130,493    |   |
| Office equipment                       |       | 48,037                         |       |
| PCT demonstration equipment            |       | 210,536                        |       |
|                                   |       | 389,066                        |       |
|                                   |       |                           |       |
| Less accumulated depreciation          |       | 346,549                        |       |
|                                   |       |                           |       |
| Net book value                         |       | $                              | 42,517     |   |

 

Depreciationexpense for the three months ended March 31, 2005 was $1,562.

 

**(13)   Intangible Assets **

 

The Company has classified as intangible assets those costs associatedwith the fair value of certain assets of the PCT business previously acquiredby the Company. The remaining net book value of intangible assets as of March 31,2005 is comprised of $462,030 of acquired PCT patents which is being amortizedto expense on a straight line basis at the rate of $12,158 per quarter over theremaining useful life. The Company’s policy is to expense all patent relatedlegal costs as incurred. Intangible assets consist of acquired PCT patents.Intangible assets at March 31, 2005 consisted of the following: 

 
| ** **                    | ** ** | **As of March 31,  2005** | ** ** |
|-------------------------------|------------|--------------------------------|------------|
| ** **                    | ** ** | ** **                     | ** ** |
| PCT Patents                   |       | $                              | 778,156    |   |
| Less accumulated amortization |       | (316,126                       | )          |
|                          |       |                           |       |
| Net book value                |       | 462,030                        |       |
|                               |            |                                |            |  |

 

**(14)   Stockholders’ Equity**

 

Pursuant to the completionof the Company’s tender offer on February 11, 2005, 5,203,001 shares werepurchased from shareholders at $3.50 per share which included 754,275 sharesissued upon exercise of stock options. The Company utilized approximately $16.3 million of available cash, netof proceeds from the exercise of the stock options, to complete thetransaction.  The purchase of the shareswere accounted for under the treasury method and costs in excess of par valuefor the common shares are charged to additional paid in capital.

 

**(15)   SubsequentEvents**

 

EffectiveApril 11, 2005, Steven E. Hebert was elected to serve as the Company’sVice President – Finance, Chief Financial Officer and Assistant Treasurer.  Prior thereto, Mr. Hebert served as apart-time financial consultant to the Company since October 2004.

 

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On May 5, 2005, PBIentered into a lease agreement (the “Lease”) with Saul Holdings LimitedPartnership, pursuant to which the Company will lease approximately 2,784square feet of office space located at 209 Perry Parkway, Gaithersburg,Maryland 20877 for a term of twelve months.  The Company will pay baseannual rent in the amount of $55,680.00, or $4,640.00 per month during theinitial term of the Lease.

 

**ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS.**

 

***Overview***

 

Followingthe closing of the sale of the assets and selected liabilities of BBI Diagnosticsand BBI Biotech to SeraCare Life Sciences on September 14, 2004, thetransfer of certain assets and liabilities of PBI Source Scientific, Inc.to Source Scientific, LLC and subsequent sale of 70% of our ownership interestsof Source Scientific, LLC in June 2004, our operations now consistprimarily of our pressure cycling technology (PCT) business. The results ofoperations discussed herein focus on the PCT business activities and thecorporate functions associated with being a public company. Operating resultsof PBI Source Scientific, Inc., excluding any PCT related activities,together with Source Scientific, LLC, are reported as “Other operating creditsand charges” hereunder. The operating results of our BBI Diagnostics and BBIBiotech divisions prior to their sale on September 14, 2004, together withthe results of the discontinued operations of our clinical laboratory testingservices segment (sold in February, 2001), are reported as “DiscontinuedOperations” hereunder. Certain amounts included in the prior period’s financialstatements have been reclassified to conform to the current period’spresentation.

 

Ourpressure cycling technology uses an instrument that is capable of cyclingpressure between low and high levels at controlled temperatures to rapidly andrepeatedly control the interactions of biomolecules. PCT utilizes ourBarocyclerTM instrument and disposable PULSETM Tubes to release nucleic acids andproteins from plant/animal cells and tissues, as well as other organisms thatare not easily disrupted by standard chemical and physical methods. We believethat our patented and proprietary pressure cycling technology employs a uniqueapproach that has the potential for broad applications in a number ofestablished and emerging fields, including genomics, proteomics, drug discoveryand development, protein purification, pathogen inactivation,immunodiagnostics, food safety, and DNA sequencing.

 

Todate, we have primarily applied PCT to the area of sample preparation forgenomics and proteomics. We have also developed scientific collaborations withseveral leading laboratories and academic institutions in the United States,which we expect will remain ongoing into 2005 and beyond. We further expectthat the data generated by our collaborators will be publicly released inscientific publications and presentations, and that this could have animportant impact on future sales of our PCT products. We have investigated theuse of PCT for the inactivation of pathogens in human blood plasma, therapeutics,and diagnostic reagents and believe we have demonstrated the technicalfeasibility of applying PCT to immunodiagnostics, protein purification,pathogen inactivation, food safety, and DNA sequencing. We have obtainedthirteen US and four foreign patents containing multiple claims covering theforegoing areas.

 

Asof March 31, 2005 we have invested approximately $12.3 million in thedevelopment of our pressure cycling technology since 1997, with the fundscoming from both internal and public sources. To date, we have received sevenSmall Business Innovative Research (“SBIR”) grants from the National Institutesof Health (“NIH”) aggregating approximately $2,000,000 (including two SBIRPhase II grants each in excess of $750,000) to develop PCT in the areas ofmicrobial inactivation, sample processing, and Mycobacterium samplepreparation. Most recently, in May 2004 we were awarded a $150,000 SBIRPhase I grant to study the use of PCT in applications to combat bio-terrorism.We have recently submitted proposals for three additional SBIR research grantsand intend to continue to submit proposals to obtain grants in the future.

 

InSeptember 2002, we released for sale our first commercial PCT instrument,the BarocyclerTM NEP 2017. In 2002, we also released for sale PULSETM Tubes,which are single-use, disposable processing and storage tubes that work inconjunction with the BarocyclerTM NEP 2017. Sales of these products have beenextremely limited. To date we have leased one and sold two pressure cyclingtechnology systems (“PCT Sample Preparation System”) and a limited number ofPULSETM Tubes. We believe that sales of our pressure cycling technology productshave been

 

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adversely affected primarily as a result ofthe following factors: (1) the initial design and selling price of theBarocyclerTM, (2) the limited amount of research data availabledemonstrating its capabilities and potential, (3) the absence of a strongsales and marketing management team, (4) the absence of a strongpromotional campaign after the commercial release of the BarocyclerTM NEP 2017, (5) theinability to execute our sales plan as a result of financial constraints, (6) currentUS economic conditions and uncertainties which negatively affected capitalspending on laboratory instruments, (7) the financial condition of ourcompany during 2003 and 2004, and (8) the focus of our resources on otherprojects, including the sale of our BBI Diagnostics, BBI Biotech, and selectedassets and liabilities of our laboratory instrumentation business units, aprocess that began in October 2002 and was completed in September 2004.

 

Toaddress some of these factors associated with the disappointing sales of theBarocyclerTM NEP 2017, we have developed a less expensive and smaller, bench topversion of the BarocyclerTM, the NEP 3229, which we expect will facilitate aneasier and quicker purchase decision by potential customers. We have alsogenerated additional research data to support our sales efforts. We believethat the new bench top BarocyclerTM will fill an immediate and growing need inthe genomics and proteomics sample preparation market for a smaller, more affordableinstrument that still provides the quality, reproducibility, and safety of theNEP 2017 PCT Sample Preparation System.

 

**Recent Business Developments**

 

On February 11, 2005,we completed an issuer tender offer and purchased from stockholders 5,203,001shares of our common stock for an aggregate purchase price of$16.3 million, which included 754,275 shares issued upon exercise of stockoptions and certain transaction expenses. As a result of the completion of thetender offer, immediately following payment for the tendered shares, we had2,424,189 shares of common stock outstanding. As a result of the number ofshares that were tendered and accepted for purchase in the tender offer, we didnot comply with the continued listing requirements of the Nasdaq NationalMarket because we did not meet the $10 million stockholders’ equityrequirement pursuant to Rule 4450(a)(3) of the Nasdaq MarketplaceRules. After reviewing the listing requirements of the Nasdaq SmallCap Market,we applied to voluntarily move from the Nasdaq National Market to the NasdaqSmallCap Market. On March 24, 2005, the staff of the Nasdaq ListingQualifications Department notified us that it approved our application totransfer the listing of our common stock from the Nasdaq National Market to theNasdaq SmallCap Market. Our common stock commenced trading on the NasdaqSmallCap Market under its current trading symbol “PBIO” on March 30, 2005.

 

On February 11, 2005, Mr. Schumachertendered 130,000 shares of PBI common stock pursuant to our tender offer. Allproceeds were sent to Commerce Bank and Trust Company (the “Bank”) to which Mr. Schumacherowed approximately $475,000, a loan which was secured by all of Mr. Schumacher’scommon stock holdings in the Company. On February 17, 2005, Mr. Schumacherreceived notification and confirmation from the Bank that as of February 15,2005, Mr. Schumacher had now satisfied his financial obligation to theBank, and that the Bank was releasing all rights and claims to Mr. Schumacher’sPBI common stock being held as collateral. Subsequent to this release, we nowhold a first priority security interest in collateral, against the $1,000,000loan receivable together associated accrued interest of $152,206 that Mr. Schumacherhas with the Company.

 

On March 3, 2005, ourBoard of Directors voted to reimburse Mr. Richard T. Schumacher, ourPresident and Chief Executive Officer, for $94,984.67 in certain legal billsthat he incurred relative to his termination as Chairman and Chief ExecutiveOfficer of PBI on February 13, 2003. Mr. Schumacher subsequentlywithdrew his request for reimbursement of said legal bills under ourindemnification agreement with him.  Thishas been included in the operating expenses for the quarter.

 

**RESULTS OF OPERATIONS**

 

**THREE MONTHS ENDED MARCH 31, 2005 AND 2004**

 

*Revenue*

 

We had total revenue of$2,630 for the three months ended March 31, 2005, as compared to $128,178for the three months ended March 31, 2004, a decline of $125,548.

 

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Grant Revenues:Grant revenue has consisted predominately of the award of SBIR funding activitythrough the National Institutes of Health. There were no grant revenues for thethree months ended March 31, 2005 compared to $123,162 for thecorresponding period in 2004. The decrease in PCT grants and services revenuewas primarily related to the completion of work in early and mid-2004 on twoPhase-II SBIR Grants resulting in a lower level of research conducted underSBIR research grants.  We expect tocontinue to submit new SBIR research grant proposals to fund future research.

 

PCT products & services:  Product revenue totaled $2,630 for the three months ended March 31,2005, compared to $5,016 for the corresponding period of 2004. Product revenuein 2004 included lease payments from one customer and sales of PULSETM Tubes.There were no BarocyclerTM sales in the quarters ended March 2005 or March 2004.We believe that sales of our pressure cycling technology products have beenadversely affected due to a number of factors, including, among others, theinitial selling price of the BarocyclerTM, the limited amount of research dataavailable demonstrating its capabilities and potential, the absence of a strongsales and marketing team, our inability to execute our sales plan as a resultof financial constraints and other factors affecting capital spending onlaboratory instruments.  To increasemarket awareness of our products, we plan to place units in selected strategiccustomer sites for a trial period, which will provide potential customers withthe opportunity to develop and collect independent and objective data andstatistical information. We believe that we will be able to generate sales ofour products from these customers after the customer experiences the performance,reliability, and safety of the technology provided by the product. After thetrial period, it is our expectation that a number of customers will eitherpurchase or lease our PCT products.

 

*Cost of Grant Services*

 

We did not perform anyservices or incur any costs under grant projects during the first quarter of2005.  In the first three months of 2004,we incurred $3,321 of costs for services relating to grant projects.  These grant projects were completed in mid-2004.

 

*Cost of PCT Products and Services*

 

The cost of PCT products andservices was $6,521 in the three months ended March 31, 2005 compared to$14,419 for the comparable period of 2004. The decrease in 2005 was primarilythe result of a reduced sales volume.

 

*Research and Development*

 

PCT related research anddevelopment expenditures decreased to $103,028 in the three months ended March 31,2005 from $254,797 for the comparable period of 2004, a decrease of $149,646.This decrease was primarily due to the lower level of research and developmentexpenditures SBIR grants as described above, reduced headcount and otherspending in response to reduction in revenues, and more efficient expenditureson the development of the new bench top BarocyclerTM through our outsourcingpartner, Source Scientific, LLC. As described elsewhere, in connection with theSource Scientific Agreement, Source Scientific, LLC has agreed to provideengineering, manufacturing, and other related services for our pressure cyclingtechnology products until September 30, 2005, at the rate of approximately$25,000 per month. Payment, however, is contingent upon actual services beingrendered to us by Source Scientific LLC.

 

*Selling and Marketing*

 

PCT related selling andmarketing expenses decreased to $15,260 for the three months ended March 31,2005 from $57,991 for the comparable period of 2004, a decrease of $42,731. Thedecrease was due to reduced headcount, attending fewer trade shows, and lessmarketing materials.

 

*General and Administrative*

 

General and administrative coststotaled $308,888 in the three months ended March 31, 2005, as compared to$368,623 for the comparable period of 2004, a decrease of $57,735. The decreasein this area was related to the decreased corporate costs associated withreduced headcount. Included in the quarter is a reimbursement of $94,985 toMr. Schumacher for certain legal bills incurred relative to histermination as Chairman and Chief Executive Officer of PBI on February 13,2003.

 

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*Operating Loss from Continuing Operations*

 

The operating loss of thePCT business was $431,067 in the three months ended March 31, 2005 ascompared to an operating loss of $570,973 for the comparable period in 2004.The reduction in operating margin due to lower revenues was partially offset bylower research and development expenses lower selling and marketing, and lower generaland administrative expenses for the three months ended March 31, 2005compared to three months ended March 31, 2004.

 

*Other Operating Credits and (Charges) net*

 

The non-PCT relatedactivities of PBI Source Scientific, Inc., together with SourceScientific, LLC, had an operating loss of $235,352 in the three months ended March 31,2005, as compared to an operating loss of $87,566 in the three months ended March 31,2004. The increased loss was the result of lower revenues caused by a delay inorders and reduced margins generated by Source Scientific LLC.

 

*Net Interest (Expense)/Income*

 

Net interest income totaled$78,932 for the three months ended March 31, 2005 as compared to netinterest expense of $5,825 for the three months ended March 31, 2004.Increased net interest income was in part the result of interest earned oninvestments from proceeds associated with the sale of our BBI Core Businessesto SeraCare. In addition, we recognized the benefit of accrued interest relatedfrom the Director / CEO’s loan receivable.

 

*Income Taxes*

 

In the first fiscal quarterof 2005 we recorded a benefit from continuing operations of $199,746. In theyear ended 2004, as a result of the sale of certain assets and liabilities toSeraCare, and the resulting gain on the sale, the Company estimated and paidtaxes of $3.2 million.  Additionally, wemaintained a full valuation allowance for our deferred tax assets largelycomprised of temporary differences in accordance with Statement of FinancialAccounting Standards No. 109 and in consideration of three consecutiveyears of losses from continuing operations. We have, however, elected to recorda tax benefit at this time as we anticipate utilizing carrying back lossesanticipated in 2005 to recover taxes recorded and paid in 2004.

 

*Discontinued Operations*

 

Net income from discontinued operations was $4,679 netof taxes for the three months ended March 31, 2005 compared to $343,875 innet income for the three months ended March 31, 2004 net of taxes.  The decrease in net income from discontinuedoperations is a result of operating margin generated from revenues realized andincluded in the March 2004 quarter, where those businesses are no longeran element of the total Company’s operations.

 

*Net Income (Loss)*

 

Overall, for the quarterended March 31, 2005 we had a net loss of $383,062 compared to a net lossof for the quarter ended March 31, 2004 of $155,734.

 

***LIQUIDITY AND FINANCIAL CONDITION***

 

Our working capitalposition, as of March 31, 2005 was $4,444,911.  We believe the current amount of our workingcapital is adequate to meet our business plan through March 2006.

 

Net cash used by continuingoperations for the three months ended March 31, 2005 was $19,278 ascompared to net cash used by operations of $565,262 for the three months ended March 31,2004. The cash used in operations for the first quarter of fiscal 2005 wasprimarily a result of increased inventories offset with a favorable impact ofaccounts receivable. In the same period for the prior year, use of cash fundedlosses from continuing operations.

 

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Net cash used by investingactivities for the quarter ended March 31, 2005 was $24,286 to purchase capitalequipment in areas of computer and related communications equipment and officefurniture associated with new corporate headquarters office.

 

Netcash used by financing activities for the quarter ended March 31, 2005 was$16,375,130 as compared to cash provided from financing activities of $458,617for same period of fiscal 2004. In February 2005, we utilizedapproximately $16.3 million to complete our issuer tender offer in which wepurchased from stockholders 5,203,001 shares of our common stock, whichincluded 754,275 shares issued upon exercise of stock options.

 

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

 

On March 11, 2005, V.I.Technologies, Inc. (“Vitex”) announced that it had closed its merger withPanacos Pharmaceuticals, Inc. (“Panacos”), pursuant to the Agreement andPlan of Merger dated as of June 2, 2004, as amended on November 5,2004, November 28, 2004, December 8, 2004, and February 14, 2005(the “Merger Agreement”). The merger was approved by the stockholders of bothVitex and Panacos at their respective meetings on March 10, 2005. Panacosstockholders received an aggregate of approximately 227,500,000 shares of Vitexcommon stock, or slightly over 80% of the outstanding shares of Vitex CommonStock, after giving effect to the merger, and before giving effect to Vitex’s1:10 reverse stock split, which was announced on March 14, 2005. Theshares of Vitex common stock issued to the Panacos stockholders were registeredwith the Securities and Exchange Commission on a Registration Statement on Form S-4.Panacos stockholders received 6.75275 shares of Vitex common stock for eachshare of Panacos common or preferred stock held by them at the effective timeof the merger. As a result of the merger and the subsequent reverse stocksplit, we own 1,012,920 shares of Vitex common stock in place of our Panacoscapital stock. Fifteen percent of Vitex stock owned by former owners of Panacosstock, including fifteen percent of the Vitex common stock owned by us, will beheld in escrow per the Merger Agreement. On March 31, 2005, the closingprice of Vitex common stock was $3.02 per share as quoted on the NasdaqNational Market.

 

*Related Party Transaction*

 

As of March 31, 2005, weevaluated the recoverability of a $1,000,000 loan receivable together withassociated accrued interest of $152,206 (which represents interest accrued fromJanuary 1, 2003 at an average interest rate of 6.5% per annum) from Mr. RichardT. Schumacher, a Director and our current President and Chief ExecutiveOfficer, which is reflected on our balance sheet in stockholders’ equity as aloan receivable and accrued interest as of March 31, 2005. Our reviewincluded an evaluation of the collateral associated with the loan, whichconsists of common stock of Pressure BioSciences. In February 2005, Mr. Schumacherrepaid in full a loan outstanding between an entity controlled by him and afinancial institution with proceeds from the sale of 130,000 shares of our commonstock in connection with the our tender offer completed on February 11,2005. As a result, we currently maintain a first priority security interest inthis collateral previously held by the financial institution, which consists of499,657 shares of common stock of Pressure BioSciences.

 

As of March 31, 2005, we performed a test forimpairment of our loan receivable together with associated accrued interest byanalyzing the value of the collateral. This test included, among other things,a review of the current trading price of our common stock after taking intoaccount factors that may affect our ability to sell such stock in the event wewere to foreclose on the collateral to repay the loan receivable and anyaccrued and unpaid interest. After performing our impairment test, wedetermined that the loan receivable together with associated accrued interestwas not impaired. The ultimate value that we may recover is dependent onnumerous factors including our stock price, market conditions relative to the valueof and ability to sell the collateral, and the financial status of ourPresident and Chief Executive Officer. Based on our assessment as of March 31,2005, we estimate that the value of the collateral approximates the amount ofour recorded loan receivable and accrued interest.  If actual market conditions are lessfavorable, our stock price declines or other factors arise that aresignificantly different than those experienced as of March 31, 2005, animpairment of the loan receivable together with associated accrued interest islikely to be required.  We plan tocontinue to monitor and test the collateral for impairment due in large part tothe relatively low trading volume of our common stock and recent volatility inour stock price, ranging from a low of $2.28 per share to a high of $3.65 pershare since March 31, 2005.

 

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**CRITICAL ACCOUNTING POLICIES**

 

The criticalaccounting policies we utilize in the preparation of the accompanying financialstatements are set forth in Part II, Item 6 of our Annual Report on Form 10-KSBfor the year ended December 31, 2004, under the heading “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”. There have been no material changes to these policies since December 31,2004, except as follows.

 

*Investment in MarketableSecurities*

 

The Company’s investment inlong term marketable securities currently reflects its holdings of V.I.Technologies common stock.  Previously,the Company held shares in Panacos Pharmaceuticals, a private company, and itsholdings were reflected on a cost basis as presented on the December 31,2004 balance sheet.  As a result of V.I.Technologies acquisition of Panacos Pharmaceuticals shares, and the Company’ssubsequent receipt of V.I. Technologies shares, a NASDAQ publicly tradedcompany, the Company’s investment is now accounted for under FinancialAccounting Standard 115 (Accounting for Certain Investments in Debt and EquitySecurities), as available for sale. At March 31, 2005 the fair value ofthe Company’s shares of V.I. technologies was approximately $3.06 million basedon the closing price on March 31, 2005.

 

**CONTRACTUAL OBLIGATIONS**

 

There have been no materialchanges to our contractual obligations and commitments from those described inour Annual Report on Form 10-KSB, except that, subsequent to March 31,2005, we entered into a lease agreement dated May 5, 2005 (the “Lease”)with Saul Holdings Limited Partnership, pursuant to which have agreed to lease approximately2,784 square feet of office space located at 209 Perry Parkway, Gaithersburg,Maryland 20877 for a term of twelve months.

 

Thefollowing is a summary of our future contractual obligations as of May 5,2005:

 
| ** **                                           | ** ** | **Payments Due by Period** | ** **  |
|------------------------------------------------------|------------|----------------------------|-------------|
| **Contractual Obligations**                          | ** ** | **Total**                  | ** **  | **Less than  1 year** | ** ** | **More than  1 year** | ** ** |
|                                                 |       |                       |        |   |   |   |   |
| Lease for Maryland operating office (1)              |       | $                          | 55,680      |   | $ | 51,040 |   | $ | 4,640 |   |
| Obligations relating to Discontinued  Operations (2) |       | 89,500                     |        | 55,500 |   | 34,000 |   |
| PCT related purchase commitments (3)                 |       | 150,000                    |        | 150,000 |   | 0 |   |
| **Total Contractual Obligations**                    | ** ** | **$**                      | **295,180** | ** ** | **$** | **256,540** | ** ** | **$** | **38,640** |   |

 

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(1) May 5, 2005 lease with Saul Holdings Limited Partnership, agreed to leaseapproximately 2,784 square feet of office space located at 209 Perry Parkway,Gaithersburg, Maryland 20877 for a term of twelve months.  We will paybase annual rent in the amount of $55,680, or $4,640 per month during theinitial term of the Lease

 

(2) In December 2000, we exited the clinical laboratory testing services segmentand in February 2001, we sold the assets of our wholly owned subsidiary,BBI Clinical Laboratories, Inc. to Specialty Laboratories, Inc. ofSanta Monica, CA.  Our estimate of remaining short and long term accruedliabilities to exit the clinical laboratory testing business is $89,500 as of March 31,2005.   See also Note 3b of Notes to Condensed Consolidated FinancialStatements included in Part I, Item 1 of this Form 10-QSB.

 

(3) In connection with the sale of assets and selected liabilities of our PBISource Scientific business unit to Source Scientific, LLC, Source Scientific,LLC has agreed to provide engineering, manufacturing, and other relatedservices for our pressure cycling technology products until September 30,2005, at the rate of approximately $25,000 per month.**  **Payment, however, is contingent upon actualservices being rendered to us by Source Scientific LLC. The table above assumesa $25,000 per month payment.

 

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**FORWARD-LOOKING STATEMENTS**

 

This Quarterly Report on Form 10-QSBcontains forward-looking statements which involve risks and uncertainties,including statements regarding the Company’s plans, objectives, expectationsand intentions.  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 identifyforward-looking statements. Such statements include, without limitation,statements made regarding the expected recovery and value of the loanreceivable from our President and Chief Executive Officer; our belief that wehave sufficient liquidity to finance operations through March 2006; theamount of cash necessary to operate our business; our ability to raiseadditional capital when and if needed; our plans and expectations with respect to sales of our pressure cyclingtechnology operations and the use of our available cash; and the anticipated futurefinancial performance of our company and products.  These forward-looking statements areonly predictions and involve known and unknown risks, uncertainties, and otherfactors that may cause our actual results, levels of activity, performance, orachievements to be materially different from any future results, levels ofactivity, performance, or achievements expressed or implied by suchforward-looking statements. Also, these forward-looking statements representour best estimates and assumptions only as of the date of this report.  Except as otherwise required by law, weexpressly disclaim any obligation or undertaking to release publicly anyupdates or revisions to any forward-looking statement contained in the reportto reflect any change in our expectations or any change in events, conditions,or circumstances on which any of our forward-looking statements are based.

 

Factors, risks and uncertainties which might cause actual results todiffer materially from those projected in the forward-looking statementscontained herein include the following:

 

•                  We may require additional capital to further develop our pressurecycling technology products and services and cannot assure that additionalcapital will be available on acceptable terms or at all.

 

•                  Our business may be harmed if we encounter problems, delays, expensesand complications that typically affect early-stage companies.

 

•                  Our business is dependent on the success of our pressure cyclingtechnology products and services, which has a limited operating history and hasgenerated substantial losses and only a limited amount of revenues to date.

 

•                  Our pressure cycling technology business has a history of operatinglosses.

 

•                  Our pressure cycling technology products and services are new and havelimited market awareness or acceptance.

 

•                  The sales cycle of our pressure cycling technology products has beenlengthy and as a result, we have incurred and may continue to incur significantexpenses and we may not generate any significant revenue related to thoseproducts.

 

•                  If we are unable to protect our patents and other proprietarytechnology relating to our pressure cycling technology products, our businesswill be harmed.

 

•                  If we infringe on the intellectual property rights of others, ourbusiness will be harmed.

 

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

 

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•                  We may not be able to compete successfully.

 

•                  We currently have very few employees and our future success is dependenton the continued services of Richard T. Schumacher, our President and ChiefExecutive Officer.

 

•                  We rely on third parties for our manufacturing, engineering and otherrelated services.

 

•                  In connection with the sale of our BBI Core Businesses, we continue tobe exposed to contingent liabilities up to an amount equal to the purchaseprice for the BBI Core Businesses, which could prevent us from pursuing ourremaining business operations in the event an indemnification claim is broughtagainst us.

 

•                  We may not be able to fully collect the $900,000 in aggregate principalamount of promissory notes, which we received in connection with the sale of70% of the ownership interests in Source Scientific, LLC.

 

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

 

•                  The market price for our common stock may fluctuate due to low tradingvolume, and it may be difficult for you to sell your stock at the prices andtimes you desire.

 

•                  Mr. Richard T. Schumacher controls a significant percentage ofvoting power and may exercise his voting power in a manner adverse to otherstockholders’ interests.

 

•                  Provisions in our charter and by-laws and our stockholders rights planmay discourage or frustrate stockholders’ attempts to remove or replace ourcurrent management.

 

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

 

**ITEM3.  CONTROLS AND PROCEDURES**

 

We maintain disclosure controls and procedures thatare designed to ensure that information required to be disclosed in ourSecurities Exchange Act reports is recorded, processed, summarized and reportedwithin the time periods specified in the SEC’s rules and forms, and thatsuch information is accumulated and communicated to our management, includingour President and Chief Executive Officer (Principal Executive Officer) andChief Financial Officer (Principal Financial Officer), as appropriate, to allowtimely decisions regarding required disclosure. In designing and evaluating thedisclosure controls and procedures, management recognized that any controls andprocedures, no matter how well designed and operated, can provide only reasonableassurance of achieving the desired control objectives, as ours are designed todo, and management necessarily was required to apply its judgment in evaluatingthe cost-benefit relationship of possible controls and procedures.

 

##### **As of March 31,2005, we carried out an evaluation, under the supervision and with theparticipation of our management, including our President and Chief ExecutiveOfficer (Principal Executive Officer) and Chief Financial Officer (PrincipalFinancial Officer) of the effectiveness of the design and operation of ourdisclosure controls and procedures, as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934. Based upon thatevaluation, our President and Chief Executive Officer (Principal Executive Officer)and Chief Financial Officer (Principal Financial Officer) concluded that ourdisclosure controls and procedures are effective in enabling us to record,process, summarize and report information required to be included in ourperiodic SEC filings within the required time period.**

 

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##### **PART II.**  OTHER INFORMATION

 

**ITEM1.    LEGAL PROCEEDINGS**

 

None.

 

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

 

On December 27, 2004,we commenced an issuer tender offer to purchase up to 5,500,000 shares of ourcommon stock. We offered to purchase these shares at a purchase price of $3.50per share, net to the seller in cash, without interest. The tender offer wascompleted on February 11, 2005, and no further purchases will be madepursuant to the terms of the tender offer. The following table below sets forththe results of our issuer tender offer.

 
| **Period**                                                 | ** ** | **Total  Number of  Shares  Purchased** | ** ** | **Average Price  Paid per Share** | ** ** | **Total  Number of  Shares  Purchased as  Part of  Publicly  Announced  Plans or  Programs** | ** ** | **Maximum  Number of  Shares that  May Yet Be  Purchased  Under the  Plans or  Programs** | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|
| ** **                                                 | ** ** | ** **                              | ** ** | ** **                        | ** ** | ** **                                                                                        | ** ** | ** **                                                                                     | ** ** |
| December 27, 2004 through February 11, 2005 |       | 5,203,001                               | (1)        | $                                 | 3.50       |                                                                                              | 5,203,001  |                                                                                           | 0          |   |
|                                                            |            |                                         |            |                                   |            |                                                                                                   |            |                                                                                                |            |  |

 

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(1)                                  Includes754,275 shares that were issued upon exercise of stock options

 

**ITEM 3.   DEFAULT UPON SENIOR SECURITIES**

 

None.

 

##### **ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

##### ** **

None.

 

**ITEM 5.  OTHER INFORMATION**

 

EffectiveApril 11, 2005, Steven E. Hebert was elected to serve as our VicePresident – Finance, Chief Financial Officer and Assistant Treasurer.  Mr. Hebert served as a part-timefinancial consultant to us since October 2004.  From January 2004 to September 2004,Mr. Hebert served as an accounting and financial consultant.  From December 1998 to September 2003,Mr. Hebert served as the Vice President and Corporate Controller forBrooks Automation, Inc., a NASDAQ listed company and provider of factoryand tool automation software, hardware, and integration services to thesemiconductor industry.  His positions atBrooks Automation included serving as Corporate Controller from December 1998to May 2002 and Vice President, Interim Chief Financial Officer andCorporate Controller from September 2002 to February 2003.

 

On May 5, 2005, weentered into a lease agreement with Saul Holdings Limited Partnership, pursuantto which have agreed to lease approximately 2,784 square feet of office spacelocated at 209 Perry Parkway, Gaithersburg, Maryland 20877 for a term of twelvemonths.  We will pay base annual rent in the amount of $55,680, or $4,640per month during the initial term of the lease.

 

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**ITEM 6. EXHIBITS**

 

**(a)****                        Exhibits**

 
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                              | ** ** | **Reference**   |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|
|       |       |                                                                                                                                                                                                                                                                    |       |            |
| 10.1       |       | Flex Space Office Lease dated May 5,  2005 by and between Saul Holdings Limited Partnership and Pressure  BioSciences, Inc. filed as Exhibit 10.1 to the Company’s Current  Report on Form 8-K filed with the Commission on May 11, 2005. |       | *               |
|       |       |                                                                                                                                                                                                                                                                    |       |            |
| 31.1       |       | Principal  Executive Officer Certification Pursuant to Item 601(b)(31) of Regulation  S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of  2002                                                                                                   |       | Filed  herewith |
|       |       |                                                                                                                                                                                                                                                                    |       |            |
| 31.1       |       | Principal  Financial Officer Certification Pursuant to Item 601(b)(31) of Regulation  S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of  2002                                                                                                   |       | Filed  herewith |
|       |       |                                                                                                                                                                                                                                                                    |       |            |
| 32.1       |       | Principal  Executive Officer Certification Pursuant to Item 601(b)(32) of Regulation  S-K, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of  2002                                                                                                   |       | Filed  herewith |
|       |       |                                                                                                                                                                                                                                                                    |       |            |
| 32.1       |       | Principal  Financial Officer Certification Pursuant to Item 601(b)(32) of Regulation  S-K, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of  2002                                                                                                   |       | Filed  herewith |

 

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*In accordance with Rule 12b-32 under the Securities Exchange Act of 1934,as amended, reference is made to the document previously filed with theSecurities and Exchange Commission, which document is hereby incorporated byreference.

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|   | PRESSURE BIOSCIENCES, INC.                                                                                  |
|--------|-------------------------------------------------------------------------------------------------------------|
|   | (Registrant)                                                                                                |
|   |                                                                                                        |
|   |                                                                                                        |
| Date:  | May 16, 2005                                                                                           |   | By: | /s/ Richard  T. Schumacher |   |
|   | Richard  T. Schumacher                                                                                      |
|   | President,  Chief Executive Officer and Treasurer                                                           |
|   |                                                                                                        |
|   |                                                                                                        |
|   | By:                                                                                                         | /s/ Steven  E. Hebert |   |
|   | Steven  E. Hebert                                                                                           |
|   | Executive  Vice President-Finance and Chief Financial Officer  (Principal Financial and Accounting Officer) |
|        |                                                                                                             |  |  |  |  |  |  |

 

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