form10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2011or

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

For the transition period from _____________ to _____________

Commission file number 0-21615

PRESSURE BIOSCIENCES, INC.

(Exact Name of Registrant as Specified in its Charter)

Massachusetts		04-2652826
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

14 Norfolk Avenue

South Easton, Massachusetts 02375

(Address of Principal Executive Offices) (Zip Code)

(508) 230-1828

(Registrant’s Telephone Number, Including Area Code)

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

x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o

Non-accelerated filer o Smaller reporting company x

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

o Yes x No

The number of shares outstanding of the Issuer’s common stock as of November 11, 2011 was 6,570,147.

TABLE OF CONTENTS

	Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010	3

Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2011 and 2010	4

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010	5

Notes to Consolidated Financial Statements	6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	25

Item 4. Controls and Procedures	34

PART II - OTHER INFORMATION

Item 5. Other Information	35

Item 6. Exhibits	36

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	September 30,			December 31,
ASSETS	2011			2010
CURRENT ASSETS
Cash and cash equivalents	$	296,970		$	552,849
Restricted cash		-			20,014
Accounts receivable		115,028			233,846
Inventories		1,129,662			1,104,056
Deposits		6,472			6,472
Prepaid income taxes		4,739			1,442
Prepaid expenses and other current assets		128,250			296,756
Total current assets		1,681,121			2,215,435

PROPERTY AND EQUIPMENT, NET		98,181			192,777
OTHER ASSETS
Intangible assets, net		145,920			182,394
TOTAL ASSETS	$	1,925,222		$	2,590,606

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	658,977		$	234,568
Accrued employee compensation		205,745			172,251
Accrued professional fees and other		304,183			337,698
Deferred revenue		20,826			27,153
Short-term debt, net of debt discount of $123,677		296,336			-
Warrant derivative liability		284,437			-
Total current liabilities		1,770,504			771,670

LONG TERM LIABILITIES
Deferred revenue		9,330			9,427
TOTAL LIABILITIES		1,779,834			781,097

COMMITMENTS AND CONTINGENCIES (Note 4)

STOCKHOLDERS' EQUITY
Series A convertible preferred stock, $.01 par value; 313,960 shares authorized; 15,571 shares issued and outstanding on September 30, 2011 and 261,135 shares issued and outstanding on December 31, 2010 (Liquidation value of $179,070)		155			2,621
Series B convertible preferred stock, $.01 par value; 279,256 shares authorized; 1,348 shares issued and outstanding on September 30, 2011 and 88,711 shares on December 31, 2010 (Liquidation value of $25,342)		13			887
Series C convertible preferred stock, $.01 par value; 303,125 shares authorized; 88,098 shares issued and outstanding on September 30, 2011 and 0 shares on December 31, 2010 (Liquidation value of $1,101,225)		881			-
Common stock, $.01 par value; 20,000,000 shares authorized; 6,353,016 shares issued and outstanding on September 30, 2011 and 2,711,750 shares issued and outstanding on December 31, 2010		63,530			27,118
Warrants to acquire preferred stock and common stock		1,823,852			1,248,909
Additional paid-in capital		12,802,217			12,095,237
Accumulated deficit		(14,545,260	)		(11,565,263	)
Total stockholders' equity		145,388			1,809,509
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,925,222		$	2,590,606

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

-3-

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010

REVENUE:
PCT products, services, other	$	217,734		$	194,730		$	589,063		$	667,262
Grant revenue		62,688			177,373			62,688			397,758
Total revenue		280,422			372,103			651,751			1,065,020

COSTS AND EXPENSES:
Cost of PCT products and services		93,610			86,285			250,835			300,360
Research and development		248,188			382,054			730,962			980,338
Selling and marketing		193,975			313,412			740,358			890,265
General and administrative		490,460			432,939			1,351,303			1,445,742
Total operating costs and expenses		1,026,233			1,214,690			3,073,458			3,616,705

Operating loss		(745,811	)		(842,587	)		(2,421,707	)		(2,551,685	)

Interest (expense) income		(39,358	)		438			(39,029	)		1,560
Change in fair value of warrant derivative liability		223,446			-			307,467			-
Loss before income taxes		(561,723	)		(842,149	)		(2,153,269	)		(2,550,125	)
Income tax benefit		-			244,479			-			244,479
Net loss		(561,723	)		(597,670	)		(2,153,269	)		(2,305,646	)
Accrued interest on convertible debt		5,208			-			5,208			-
Accrued and deemed dividends on convertible preferred stock		(397,331	)		(95,205	)		(944,782	)		(408,767	)
Net loss applicable to common shareholders	$	(953,846	)	$	(692,875	)	$	(3,092,843	)	$	(2,714,413	)


Net loss per share attributable to common stockholders - basic and diluted	$	(0.15	)	$	(0.26	)	$	(0.50	)	$	(1.01	)

Weighted average common stock shares outstanding used in the basic and diluted net loss per share calculation		6,253,349			2,687,853			6,228,585			2,683,706

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

-4-

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Nine Months Ended
	September 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,153,269	)	$	(2,305,646	)

Adjustments to reconcile net loss to operating cash flows:
Depreciation and amortization		109,520			149,265
Stock-based compensation expense		113,689			227,476
Change in fair value of warrant derivative liability		(307,467	)		-
Bad debt expense		-			18,420

Changes in operating assets and liabilities:
Short-term investments		-			(248,000	)
Accounts receivable		118,818			(9,579	)
Inventories		(4,056	)		(494,470	)
Deposits		-			175,538
Income tax receivable		-			(244,479	)
Accounts payable		537,150			175,129
Accrued employee compensation		33,494			90,055
Deferred revenue and other accrued expenses		(49,125	)		(27,543	)
Prepaid expenses and other current assets		71,296			32,413
Net cash used in operating activities		(1,529,950	)		(2,461,421	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment		-			(86,949	)
Net cash used in investing activities		-			(86,949	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock option exercises		43,980			-
Decrease in restricted cash		20,014			-
Proceeds from stock warrant exercises		-			1,421,275
Borrowings on short-term loans with detachable warrants		412,000			-
Net proceeds from the issuance of preferred stock		798,077			465,867
Net cash provided by financing activities		1,274,071			1,887,142

Change in cash and cash equivalents		(255,879	)		(661,228	)
Cash and cash equivalents, beginning of period		552,849			1,609,778
Cash and cash equivalents, end of period	$	296,970		$	948,550

SUPPLEMENTAL INFORMATION:
Income taxes paid	$	1,900		$	1,900
Issuance of common stock dividend on preferred stock		150,497			222,931
Issuance of common stock warrants to placement agent		94,313			18,122
Issuance of common stock for services		109,996			18,720
Series B dividend paid in cash		42,037			7,212
Deemed dividend on warrant modifications		325,595			-
Beneficial conversion feature on convertible preferred stock		304,823			154,389

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

-5-

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1)	Business Overview, Liquidity, and Management Plans

We have developed instruments which utilize our unique and proprietary pressure cycling technology (“PCT”), which we sell along with associated consumables and services to life sciences companies, academic institutions and government agencies. There are currently 131 customers who have purchased or currently lease our enabling platform. PCT represents the core of our products and has enabled our customers to perform biological sample preparation and enzymatic digestion in unique ways that were previously unavailable. The enabling capability of our PCT products allows us to continue to increase the number of applications for our platform beyond current uses, which include genomic and proteomic sample preparation, pathogen inactivation, the control of chemical and enzymatic reactions, immunodiagnostics, and protein purification. Additionally, we are pursuing business opportunities to leverage our products and PCT into new markets beyond our current focus of PCT-enhanced enzymatic digestion products designed specifically for the mass spectrometry marketplace, as well as sample preparation products for biomarker discovery, soil and plant biology, forensics, histology, and counter-bioterror applications.

PCT uses internally developed instrumentation that is capable of cycling pressure between ambient and ultra-high levels at controlled temperatures to rapidly and repeatedly control the interactions of bio-molecules. Our instrument, the Barocycler®, and our internally developed consumables product line, which includes PULSE® (Pressure Used to Lyse Samples for Extraction) Tubes as well as application specific kits (which include consumable products and reagents) together make up the PCT Sample Preparation System.

We have experienced negative cash flows from operations with respect to our pressure cycling technology business since our inception. As of September 30, 2011, we had working capital resources of approximately $195,000, which excludes the warrant liability of $284,437. Based on our current projections, including equity financing described in Note 6 below and completed subsequent to September 30, 2011, we believe our current cash resources will enable us to extend our cash resources until February 2012. Refer to Subsequent Event Note 6.

We will need substantial additional capital to fund our operations in periods beyond February 2012. If we are able to obtain additional capital or otherwise increase our revenues, we may increase spending in specific research and development applications and engineering projects and may hire additional sales personnel or invest in targeted marketing programs. In the event that we are unable to obtain financing on acceptable terms, or at all, we will likely be required to cease our operations, pursue a plan to sell our operating assets, or otherwise modify our business strategy, which could materially harm our future business prospects.

2)	Interim Financial Reporting and Basis of Presentation

The accompanying unaudited consolidated financial statements of Pressure BioSciences, Inc. and its subsidiary have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all material adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. For further information, refer to the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 as filed with the Securities and Exchange Commission on March 31, 2011, as amended by the Form 10K/A filed with the Securities and Exchange Commission on May 2, 2011 (as so amended, the “Form 10-K”).

3)	Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Pressure BioSciences, Inc., and its wholly-owned subsidiary PBI BioSeq, Inc. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

To prepare our consolidated financial statements in conformity with generally accepted accounting principles, we are required to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In addition, significant estimates are made in projecting future cash flows to quantify impairment of assets, deferred tax assets and the costs associated with fulfilling our warranty obligations for the instruments that we sell, in our calculation of fair value of stock options

-6-

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

awarded, and our allocation of the proceeds from our equity financings between the preferred stock and warrants sold. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could materially differ from the estimates and assumptions used.

Revenue Recognition

Revenue is recognized when realized or earned when all the following criteria have been met: persuasive evidence of an arrangement exists; delivery has occurred and risk of loss has passed to the customer; the seller’s price to the buyer is fixed or determinable; and collectability is reasonably assured.

Our current instruments, the Barocycler NEP3229 and NEP2320, require a basic level of instrumentation expertise to set up for initial operation. To support a favorable first experience for our customers, we send a highly trained technical representative to the customer site to install every Barocycler that we sell, lease, or rent through our domestic sales force. The installation process includes uncrating and setting up the instrument, followed by introductory user training. Product revenue related to current Barocycler instrumentation is recognized upon the completion of the installation and introductory training process of the instrumentation at the customer location, for domestic installations. Product revenue related to sales of PCT instrumentation to our foreign distributors is recognized upon shipment through a common carrier. We provide for the expected costs of warranty upon the recognition of revenue for the sales of our instrumentation. Our sales arrangements do not provide our customers with a right to return products they have purchased from us. Product revenue related to our consumable products such as PULSE Tubes, MicroTubes, and application specific kits is recorded upon shipment through a common carrier. Shipping costs are included in sales and marketing expense. Any shipping costs billed to customers are recognized as revenue.

We account for our lease agreements under the operating method. We record revenue over the life of the lease term and we record depreciation expense on a straight-line basis over the thirty-six month estimated useful life of the Barocycler instrument. The depreciation expense associated with assets under lease agreements is included in the “Cost of PCT products and services” line item in our consolidated statements of operations. Many of our lease agreements allow the lessee to purchase the instrument at any point during the term of the agreement with partial or full credit for payments previously made. We pay all maintenance costs associated with the instrument during the term of the leases.

Revenue from government grants is recorded when expenses are incurred under the grant in accordance with the terms of the grant award.

Our transactions sometimes involve multiple elements (i.e., products and services). If an arrangement includes undelivered elements that are not essential to the functionality of the delivered elements, we defer the fair value of the undelivered elements with the residual revenue allocated to the delivered elements. Fair value is determined based upon the price charged when the element is sold separately. If there is not sufficient evidence of the fair value of the undelivered elements, no revenue is allocated to the delivered elements and the total consideration received is deferred until delivery of those elements for which objective and reliable evidence of the fair value is not available. We provide certain customers with extended service contracts and, to the extent vendor specific objective evidence, or VSOE, is established, these service revenues are recognized ratably over the life of the contract, which is generally one to four years.

Cash and Cash Equivalents

Our policy is to invest available cash in short-term, investment-grade, interest-bearing obligations, including money market funds, and bank and corporate debt instruments. Securities purchased with initial maturities of three months or less are valued at cost plus accrued interest, which approximates fair market value, and are classified as cash equivalents. Prior to September 30, 2011, we cancelled our corporate credit card and liquidated our entire certificate of deposit that was held as collateral for our corporate credit card.

Research and Development

Research and development costs, which are comprised of costs incurred in performing research and development activities including wages and associated employee benefits, facilities, consumable products and overhead costs, are expensed as incurred. Our research and development activities are performed at our facilities in Massachusetts in conjunction with our collaboration partner sites. In support of our research and development activities, we utilize our Barocycler instruments that are capitalized as fixed assets and depreciated over their expected useful lives.

-7-

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Inventories

Inventories are valued at the lower of cost (average cost) or market (sales price). The cost of Barocyclers consists of the cost charged by the contract manufacturer. The cost of manufactured goods includes material, freight-in, direct labor and applicable overhead. The composition of inventory as of September 30, 2011 and December 31, 2010 is as follows:

	September 30,		December 31,
	2011		2010
Raw materials	$	235,420	$	198,534
Finished goods		894,242		905,522
Total	$	1,129,662	$	1,104,056

Our finished goods inventory as of September 30, 2011 included 70 Barocycler instruments. Our finished goods inventory as of December 31, 2010 included 79 Barocycler instruments. Net sales and purchases of leased Barocycler units with the cost of $21,551 are reflected in the inventory change on the consolidated statement of cash flows.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. For financial reporting purposes, depreciation is recognized using the straight-line method, allocating the cost of the assets over their estimated useful lives of three years for certain laboratory equipment, from three to five years for management information systems and office equipment, and three years for all PCT finished units classified as fixed assets. Property and equipment includes net book value of $85,831 relating to Barocycler instruments held under lease or collaboration.

Intangible Assets

We have classified as intangible assets, costs associated with the fair value of acquired intellectual property. Intangible assets including patents are amortized on a straight-line basis over 16 years. The Company’s intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. When impairment is indicated, any excess of carrying value over fair value is recorded as a loss. As of the date of this report’s filing, no event has come to our attention that would cause us to record an impairment of intangible assets.

Long-Lived Assets and Deferred Costs

The Company’s long-lived assets and other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Through the date of this report’s filing, the Company had not experienced impairment losses on its long-lived assets.

Concentrations

Credit Risk

Our financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents, and trade receivables. We have cash investment policies which, among other things, limit investments to investment-grade securities. We perform ongoing credit evaluations of our customers, and the risk with respect to trade receivables is further mitigated by the fact that many of our customers are government institutions, large pharmaceutical and biotechnology companies, and academic laboratories.

The following table illustrates the level of concentration of customers as a percentage of total revenues during the three months and nine months ended September 30, 2011 and 2010:

-8-

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	For the Three Months Ended
	September 30,
	2011	2010
Top Five Customers	58%	69%
Federal Agencies	29%	54%

	For the Nine Months Ended
	September 30,
	2011	2010
Top Five Customers	29%	51%
Federal Agencies	15%	44%

The following table illustrates the level of concentration of customers as a percentage of net accounts receivable balance as of September 30, 2011 and December 31, 2010:

	September 30,	December 31,
	2011	2010
Top Five Customers	78%	72%
Federal Agencies	25%	29%

Product Supply

Source Scientific, LLC has been our sole contract manufacturer for all of our PCT instrumentation. We have a network of manufacturers and sub-contractors to supply components for our other products. Until we develop a network of manufacturers and subcontractors, obtaining alternative sources of supply or manufacturing services could involve significant delays and other costs and challenges, and may not be available to us on reasonable terms, if at all. The failure of a supplier or contract manufacturer to provide sufficient quantities, acceptable quality and timely products at an acceptable price, or an interruption of supplies from such a supplier could harm our business and prospects.

Computation of Loss per Share

Basic loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding. Diluted loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding plus additional common shares that would have been outstanding if dilutive potential common shares had been issued. For purposes of this calculation, convertible preferred stock, common stock dividends, warrants to acquire preferred stock convertible into common stock, and warrants and options to acquire common stock, are all considered common stock equivalents in periods in which they have a dilutive effect and are excluded from this calculation in periods in which these are anti-dilutive.

-9-

The following table illustrates our computation of loss per share for the three months and nine months ended September 30, 2011 and 2010:

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Numerator:
Net loss	$	(561,723	)	$	(597,670	)	$	(2,153,269	)	$	(2,305,646	)
Accrued interest on convertible debt, after tax		5,208			-			5,208			-
Accrued dividend for Preferred Stock		(71,736	)		(59,074	)		(196,310	)		(59,074	)
Deemed dividend on warrant modifications		(325,595	)		-			(325,595	)		-
Beneficial conversion feature for Preferred Stock		-			-			(304,823	)		(154,389	)
Series A Preferred dividends paid in Common Stock		-			-			(76,017	)		(152,130	)
Series B Preferred dividends paid in Common Stock		-			(28,919	)		-			(35,962	)
Series B Preferred dividends paid in cash		-			(7,212	)		(42,037	)		(7,212	)
Net loss applicable to common shareholders	$	(953,846	)	$	(692,875	)	$	(3,092,843	)	$	(2,714,413	)

Denominator for basic and diluted loss per share:
Weighted average common stock shares outstanding		6,253,349			2,687,853			6,228,585			2,683,706

Loss per common share - basic and diluted	$	(0.15	)	$	(0.26	)	$	(0.50	)	$	(1.01	)

The following table presents securities that could potentially dilute basic loss per share in the future. For all periods presented, the potentially dilutive securities were not included in the computation of diluted loss per share because these securities would have been anti-dilutive. The Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible Preferred Stock are presented below as if they were converted into common shares according to the conversion terms in Note 5. Subsequent to September 30, 2011 all of the remaining outstanding shares of Series A Convertible Preferred Stock and Series B Convertible Preferred Stock were voluntarily converted by the holders into 169,190 shares of Common Stock.

	For the Three Months Ended		For the Nine Months Ended
	September 30,		September 30,
	2011	2010	2011	2010
Stock options	1,503,500	1,097,543	1,503,500	1,019,500
Convertible debt	412,000	-	412,000	-
Common stock warrants	4,210,074	1,619,800	4,210,074	1,619,800
Preferred stock warrants	-	940,550	-	940,550
Convertible preferred stock:
Series A Convertible Preferred	155,710	2,621,350	155,710	2,621,350
Series B Convertible Preferred	13,480	887,110	13,480	887,110
Series C Convertible Preferred	880,980	-	880,980	-
	7,175,744	7,166,353	7,175,744	7,088,310

Accounting for Income Taxes

We account for income taxes under the asset and liability method, which requires recognition of deferred tax assets, subject to valuation allowances, and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established if it is more likely than not that all or a portion of the net deferred tax assets will not be realized. If substantial changes in the Company’s ownership should occur, as defined in Section 382 of the Internal Revenue Code, there could be sufficient limitations on the amount of net loss carry forwards that could be used to offset future taxable income.

Warrant Derivative Liability

The Series C warrants are measured at fair value and liability-classified because the Series C warrants contain “down-round protection” and therefore, do not meet the scope exception for treatment as a derivative under ASC 815, Derivatives and Hedging, (“ASC 815”). Since “down-round protection” is not an input into the calculation of the fair value of the warrants, the warrants cannot be considered indexed to the Company’s own stock which is a requirement for the scope exception as outlined under ASC 815. The estimated fair value of the warrants was determined using the Black-Scholes formula, resulting in an allocation of the gross proceeds of

-10-

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

$591,904 to the total warrants issued. The fair value will be affected by changes in inputs to that model including our stock price, expected stock price volatility, the contractual term, and the risk-free interest rate. We will continue to classify the fair value of the warrants as a liability until the warrants are exercised, expire or are amended in a way that would no longer require these warrants to be classified as a liability, whichever comes first. This down-round protection expires either 12 or 24 months subsequent to the issuance of the Series C Units, depending on the amount of additional capital raised by the Company.

The assumptions for the Black-Scholes pricing model are represented in the table below for the warrants issued in both tranches reflected on a per share common stock equivalent basis.

							Warrants revalued at September 30, 2011
Assumptions	April 8, 2011			June 20, 2011			April 8, 2011			June 20, 2011
Expected life (in months)		36.0			36.0			30.0			33.0
Expected volatility		118.5	%		118.5	%		96.2	%		96.1	%
Risk-free interest rate		0.625	%		0.625	%		0.5	%		0.5	%
Exercise price	$	2.13		$	2.13		$	2.13		$	2.13
Fair value per warrant	$	0.70		$	0.62		$	0.31		$	0.34

The assumptions for the warrants issued to the investment banker show the range of values for both tranches. The investment banker received two sets of warrants in each tranche with half of the warrants assigned a different exercise price.

	Investment Banker Warrants
	April 8, 2011						June 20, 2011
Assumptions	$	1.50		$	2.38		$	1.50		$	2.38
Expected life (in months)		60.0			60.0			60.0			60.0
Expected volatility		99.1	%		99.1	%		99.9	%		99.9	%
Risk-free interest rate		1.500	%		1.500	%		1.500	%		1.500	%
Exercise price	$	1.50		$	2.38		$	1.50		$	2.38
Fair value per warrant	$	0.83		$	0.75		$	0.74		$	0.67

Accounting for Stock-Based Compensation

We maintain equity compensation plans under which incentive stock options and non-qualified stock options are granted to employees, independent members of our Board of Directors and outside consultants. We recognize equity compensation expense over the requisite service period using the Black-Scholes formula to estimate the fair value of the stock options on the date of grant.

Determining Fair Value of Stock Option Grants

Valuation and Amortization Method - The fair value of each option award is estimated on the date of grant using the Black-Scholes pricing model based on certain assumptions. The estimated fair value of employee stock options is amortized to expense using the straight-line method over the vesting period.

Expected Term - The Company uses the simplified calculation of expected life, as the Company does not currently have sufficient historical exercise data on which to base an estimate of expected term. Using this method, the expected term is determined using the average of the vesting period and the contractual life of the stock options granted.

Expected Volatility - Expected volatility is based on the Company’s historical stock volatility data over the expected term of the award.

Risk-Free Interest Rate - The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term.

Forfeitures - The Company records stock-based compensation expense only for those awards that are expected to vest. Specifically, the Company estimates the forfeiture rate and adjusts the expense that it recognizes to reflect the estimated number of stock options that will go unexercised. The Company estimated a forfeiture rate of 5% for awards granted based on historical experience and future expectations of options vesting.

-11-

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We recognized stock-based compensation expense of $32,520 and $82,373 for the three months ended September 30, 2011 and 2010, respectively. The following table summarizes the effect of this stock-based compensation expense within each of the line items of our costs and expenses within our Consolidated Statements of Operations:

	For the Three Months Ended September 30,
	2011		2010
Research and development	$	11,609	$	15,293
Selling and marketing		6,452		21,613
General and administrative		14,459		45,467
Total stock-based compensation expense	$	32,520	$	82,373

We recognized stock-based compensation expense of $113,689 and $227,476 for the nine months ended September 30, 2011 and 2010, respectively. The following table summarizes the effect of this stock-based compensation expense within each of the line items of our costs and expenses within our Consolidated Statements of Operations:

	For the Nine Months Ended September 30,
	2011		2010
Research and development	$	36,951	$	56,200
Selling and marketing		40,192		56,155
General and administrative		36,546		115,121
Total stock-based compensation expense	$	113,689	$	227,476

Fair Value of Financial Instruments

Due to their short maturities, the carrying amounts for cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate their fair value. Long-term liabilities are primarily related to liabilities transferred under contractual arrangements with carrying values that approximate fair value. There are three levels of inputs that may be used to measure fair value:

Level 1. Observable inputs such as quoted prices in active markets;

Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own

assumptions.

As of September 30, 2011, the Company’s warrant derivative liability is considered a level 3 item, see “Warrant Derivative Liability” within this section.

Advertising

Advertising costs are expensed as incurred. During the nine months ended September 30, 2011, we did not incur significant advertising expenses but in the same period last year, we incurred $23,545 in advertising expenses.

Rent Expense

Rental costs are expensed as incurred. During the nine months ended September 30, 2011 and 2010, we incurred $103,248 and $106,373, respectively, in rent expense for the use of our corporate office and research and development facilities.

4)	Commitments and Contingencies

Operating Leases

-12-

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our corporate offices are currently located at 14 Norfolk Avenue, South Easton, Massachusetts 02375. In November 2007, we signed a lease agreement commencing in February 2008 pursuant to which we lease approximately 5,500 square feet of office space. We renewed the lease until August 31, 2011 with no increase in the monthly payment and are negotiating an extension of the lease. We are currently paying approximately $6,500 per month on a month-to-month basis for the use of these facilities.

Effective January 1, 2010, we entered into a three-year lease agreement with the University of Massachusetts, pursuant to which we are leasing laboratory and office space on campus at the university. We pay $5,000 per month for the use of these facilities.

Royalty Commitments

In 1996, we acquired our initial equity interest in BioSeq, Inc., which at the time was developing our original pressure cycling technology. BioSeq, Inc. acquired its pressure cycling technology from BioMolecular Assays, Inc. (“BMA”) under a technology transfer and patent assignment agreement. In 1998, we purchased all of the remaining outstanding capital stock of BioSeq, Inc., and at such time, the technology transfer and patent assignment agreement was amended to require us to pay BMA a 5% royalty on our sales of products or services that incorporate or utilize the original pressure cycling technology that BioSeq, Inc. acquired from BMA. We are also required to pay BMA 5% of the proceeds from any sale, transfer or license of all or any portion of the original pressure cycling technology. These payment obligations terminate in 2016. During the three months ended September 30, 2011 and 2010, we incurred $7,350 and $7,752, respectively, in royalty expense associated with our obligation to BMA. During the nine months ended September 30, 2011 and 2010, we incurred $18,962 and $25,173, respectively, in royalty expense associated with our obligation to BMA.

In connection with our acquisition of BioSeq, Inc., we licensed certain limited rights to the original pressure cycling technology back to BMA. This license is non-exclusive and limits the use of the original pressure cycling technology by BMA solely for molecular applications in scientific research and development and in scientific plant research and development. BMA is required to pay us a royalty equal to 20% of any license or other fees and royalties, but not including research support and similar payments, it receives in connection with any sale, assignment, license or other transfer of any rights granted to BMA under the license. BMA must pay us these royalties until the expiration of the patents held by BioSeq, Inc. in 1998, which we anticipate will be in 2016. We have not received any royalty payments from BMA under this license.

Battelle Memorial Institute

In December 2008, we entered into an exclusive patent license agreement with the Battelle Memorial Institute ("Battelle"). The licensed technology is described in the patent application filed by Battelle on July 31, 2008 (US serial number 12/183,219). This application includes subject matter related to a method and a system for improving the analysis of protein samples, including through an automated system utilizing pressure and a pre-selected agent to obtain a digested sample in a significantly shorter period of time than current methods, while maintaining the integrity of the sample throughout the preparatory process. Pursuant to the terms of the agreement we paid Battelle a non-refundable initial fee. In addition to royalty payments on net sales on “licensed products”, we are obligated to make minimum royalty payments of $5,000 for each year that we retain the rights outlined in the patent license agreement and we are required to have our first commercial sale of the licensed products within one year following the issuance of the patent covered by the licensed technology.

Severance and Change of Control Agreements

Each of our executive officers is entitled to receive a severance payment if terminated by the Company without cause. The severance benefits would include a payment in an amount equal to one year of each executive officer’s annualized base salary compensation plus accrued paid time off. Additionally, each executive officer will be entitled to receive medical and dental insurance coverage for one year following the date of termination. The total commitment related to these agreements in the aggregate is approximately $0.9 million, of which $83,500 is accrued as personal time off within accrued compensation.

Each of our executive officers, other than Mr. Richard T. Schumacher, our President and Chief Executive Officer, is entitled to receive a change of control payment in an amount equal to one year of such executive officer’s annualized base salary compensation, accrued paid time off, and medical and dental coverage, in the event of a change of control of the Company. In the case of Mr. Schumacher, this payment would be equal to two years of annualized base salary compensation, accrued paid time off, and two years of medical and dental coverage. The total commitment related to these agreements in the aggregate is approximately $1.2 million, of which $83,500 is accrued as personal time off within accrued compensation.

Placement Agent Agreement

-13-

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On November 4, 2011, the Company entered into an agreement with a former placement agent, pursuant to which the Company and the placement agent released each other of their respective obligations under a prior investment banking agreement. In connection with this agreement, the Company issued the placement agent a promissory note with an original principal amount of $150,000 with a maturity date of May 4, 2011. The promissory note is interest free, provided that, if the Company does not repay the principal amount on or before the maturity date, it will accrue interest at a rate of 18% per annum.

5)	Stockholders’ Equity

Preferred Stock

In 1996, our Board of Directors authorized the issuance of 1,000,000 shares of preferred stock with a par value of $0.01. As of September 30, 2011, 20,000 shares of preferred stock have been designated as Series A Junior Participating Preferred Stock, none of which were issued and outstanding, 313,960 shares of preferred stock have been designated as Series A Convertible Preferred Stock, par value $0.01 per share (“Series A Convertible Preferred Stock”), of which 15,571 shares were issued and outstanding, 279,256 shares of preferred stock have been designated as Series B Convertible Preferred Stock, par value $0.01 per share (“Series B Convertible Preferred Stock”), of which 1,348 shares were issued and outstanding and 303,125 shares of preferred stock have been designated as Series C Convertible Preferred Stock, par value $0.01 per share (“Series C Convertible Preferred Stock”), of which 88,098 shares were issued and outstanding.

Series A Convertible Preferred Stock

On February 12, 2009, we completed a private placement, pursuant to which we sold an aggregate of 156,980 units (the “Series A Units”) for a purchase price of $11.50 per unit (the “Series A Purchase Price”), resulting in gross proceeds to us of $1,805,270 (the “Series A Private Placement”). Each Series A Unit consisted of (i) one share of Series A Convertible Preferred Stock convertible into 10 shares of our common stock, (ii) a warrant to purchase one share of Series A Convertible Preferred Stock at an exercise price equal to $12.50 per share, with a term expiring 15 months after the date of closing (“15-Month Series A Preferred Stock Warrant”); and (iii) a warrant to purchase 10 shares of common stock at an exercise price equal to $2.00 per share, with a term expiring 30 months after the date of closing (the “30-Month Common Stock Warrants”). We did not pay any placement fees associated with this transaction but the expenses related to the offering totaled approximately $233,000.

As a result of the issuance of Common Stock in connection with dividends paid on the Series A Preferred Stock and the Series B Preferred Stock, the exercise price of the 30-Month Common Stock Warrants has been adjusted from $2.00 to $1.74 in accordance with the terms of the 30-Month Common Stock Purchase Warrants.

On or about August 10, 2011, holders of 30-Month Common Stock Warrants to purchase 1,569,800 shares of Common Stock entered into an amendment to the 30-Month Common Stock Warrants which extended the expiration date of the warrants to August 11, 2012. On or about September 30, 2011, 30-Month Common Stock Warrants to purchase 1,556,750 shares of Common Stock were further amended to reduce the exercise price from $1.74 to $0.90 and to extend the term until August 12, 2016 and, with respect to affiliates, August 12, 2015. A 30-Month Common Stock Warrant to purchase 13,050 shares of Common Stock was not amended and continues to have an exercise price of $1.74 per share, with a term expiring on August 11, 2012.

The proceeds from the sale of each Series A Unit was allocated between the Series A Convertible Preferred Stock, the 15-Month Series A Preferred Stock Warrant and the 30-Month Common Stock Warrant based on the relative estimated fair value of each security. The estimated fair value of the warrants was determined using the Black-Scholes formula, resulting in an allocation of the gross proceeds of $882,253 to the total warrants issued. The allocation of the gross proceeds to the Series A Convertible Preferred Stock was $923,017. In accordance with the provisions of ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”), an additional adjustment between Additional Paid in Capital and Accumulated Deficit of $489,803 was recorded to reflect an implicit non-cash dividend related to the allocation of proceeds between the stock and warrants issued. The $489,803 represents the value of the adjustment to additional paid in capital related to the beneficial conversion feature of the Series A Convertible Preferred Stock. The value adjustment was calculated by subtracting the fair market value of the underlying common stock on February 12, 2009 issuable upon conversion of the Series A Convertible Preferred Stock from the fair market value of the Series A Convertible Preferred Stock as determined when the Company performed a fair market value allocation of the proceeds to the Series A Convertible Preferred Stock and warrants.

-14-

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On or about September 30, 2011, all but 15,571 shares of the outstanding shares of Series A Convertible Preferred Stock were voluntarily converted. Subsequent to September 30, 2011, the remaining 15,571 shares of Series A Convertible Preferred Stock were voluntarily converted. The Company has no obligation or intention to issue any more shares of Series A Convertible Preferred Stock.

Each share of Series A Convertible Preferred Stock received a cumulative dividend at the rate of 5% per annum of the Series A Purchase Price, payable semi-annually on June 30 and December 31, commencing on June 30, 2009 (with the first payment being pro-rated based on the number of days occurring between the date of issuance and June 30, 2009). The Company was permitted to pay dividends in cash or in shares of common stock at our option, subject to certain conditions. The shares of Series A Convertible Preferred Stock were also entitled to a liquidation preference, such that in the event of any voluntary or involuntary liquidation, dissolution or winding up of our Company, the holders of Series A Convertible Preferred Stock would have been paid out of the assets of the Company available for distribution to our stockholders before any payment was paid to the holders of common stock, an amount per share equal to the Series A Purchase Price, plus accrued and unpaid dividends. The Series A Convertible Preferred Stock would have been treated on an equivalent basis with the holders of the Series B Convertible Preferred Stock and Series C Convertible Preferred Stock with respect to payments made in connection with a liquidation. The Board approved the method of payment in the form of common stock for each of the dividend payment dates through September 30, 2011.

Each share of Series A Convertible Preferred Stock was convertible into 10 shares of common stock at any time at the option of the holder, subject to adjustment for stock splits, stock dividends, recapitalizations and similar transactions (the “Series A Conversion Ratio”). Unless waived under certain circumstances by the holder of Series A Convertible Preferred Stock, such holder’s shares of Series A Convertible Preferred Stock could not have been converted if upon such conversion the holder’s beneficial ownership would exceed certain thresholds. Each share of Series A Convertible Preferred Stock would have been automatically converted into shares of common stock at the Series A Conversion Ratio then in effect: (i) if, after 12 months from the closing of the Series A Private Placement, the common stock traded on the NASDAQ Capital Market (or other primary trading market or exchange on which the common stock was then traded) at a price equal to $4.00 for 20 out of 30 consecutive trading days with average daily trading volume of at least 10,000 shares or (ii) upon a registered public offering by the Company at a per share price equal to $2.30 with aggregate gross proceeds to the Company of not less than $10 million.

The holders of Series A Convertible Preferred Stock were not entitled to vote on any matters presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), except that the holders of Series A Convertible Preferred Stock would have been entitled to vote separately as a class on any matters that would amend, alter or repeal any provision of our Restated Articles of Organization, as amended, in a manner that adversely affects the powers, preferences or rights of the Series A Convertible Preferred Stock and such holders would have been entitled to vote on any matters required by law.

At any time after February 11, 2014, upon 30 days written notice, we would have had the right to redeem the outstanding shares of Series A Convertible Preferred Stock at a price equal to the Series A Purchase Price, plus all accrued and unpaid dividends thereon. The redemption price could have also been paid in two annual installments.

On or about September 30, 2011, 46 of the 47 holders of both the outstanding Series A Convertible Preferred Stock and Series A 30-Month Common Stock Purchase Warrants, issued in the Series A Convertible Preferred Stock financing completed by the Company in February 2009, voluntarily converted an aggregate of 247,187 shares of Series A Preferred Stock into 2,471,870 shares of the Company’s Common Stock.

15-Month Series A Preferred Stock Warrants and 30-Month Common Stock Warrants

Subject to the terms and conditions of the applicable warrants, the Company had the right to call for cancellation of the 15-Month Series A Preferred Stock Warrants if the volume weighted average price of our common stock on the NASDAQ Capital Market (or other primary trading market or exchange on which our common stock is then traded) equaled or exceeded $1.75 for either (i) 10 consecutive trading days or (ii) 15 out of 25 consecutive trading days. Pursuant to these provisions, on March 30, 2010, the Company called all of the 15-Month Series A Preferred Stock Warrants resulting in the issuance of 104,155 shares of Series A Convertible Preferred Stock.

The 15-Month Series A Preferred Stock Warrants had an exercise price equal to $12.50 per share, with a term expiring on May 12, 2010. Each of the 15-Month Series A Preferred Stock Warrants were exercised in connection with the warrant call and, therefore, there are no longer any 15-Month Series A Preferred Stock Warrants outstanding. The amended 30-Month Common Stock Warrants have an exercise price equal to $0.90 per share, with a term expiring on August 12, 2016 (August 12, 2015 for Affiliates). Unless waived under certain circumstances by the holder of the 30-Month Common Stock Warrant, such holder’s 30-Month Common Stock Warrants may not be exercised if upon such exercise the holder’s beneficial ownership would exceed certain thresholds. Each of the 15-Month Series

-15-

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A Preferred Stock Warrants permitted, and each of the 30-Month Common Stock Warrants permit the holder to conduct a “cashless exercise” at any time the holder of the warrant is an “affiliate” as defined in the applicable Securities Purchase Agreement of the Company.

The warrant exercise price and/or number of shares issuable upon exercise of the applicable warrant were subject to adjustment for stock dividends, stock splits or similar capital reorganizations, as set forth in the warrants. The 30-Month Common Stock Warrants that were amended as described above, no longer provide for adjustment to the exercise price and/or number of shares issuable upon exercise of the applicable warrant for stock dividends..

Subject to the terms and conditions of the 30-Month Common Stock Warrant, the Company has the right to call for cancellation the 30-Month Common Stock Warrant if the volume weighted average price for our common stock on the NASDAQ Capital Market (or other primary trading market or exchange on which our common stock is then traded) equals or exceeds $2.80 for either (i) 10 consecutive trading days or (ii) 15 out of 25 consecutive trading days.

The warrants granted in connection with the Series A Units were valued based on a Black-Scholes pricing model at the date of the grant. The 15-Month Series A Preferred Stock Warrants and 30-Month Common Stock Warrants were granted with an exercise price of $1.25 per share of Series A Convertible Preferred Stock and $2.00 per share of common stock, respectively. The 15-Month Series A Preferred Stock Warrants and 30-Month Common Stock Warrants vested immediately. The relative fair value of the warrants was calculated to be $882,253 and was recorded to stockholders’ equity in the first quarter of 2009. The assumptions for the Black-Scholes pricing model are represented in the table below with the 15-month Series A Preferred Stock Warrants being reflected on a per share common stock equivalent basis.


Assumptions	Preferred			Common
Expected life (in months)		15.0			30.0
Expected volatility		142.0	%		109.0	%
Risk-free interest rate		0.875	%		1.375	%
Exercise price	$	1.25		$	2.00
Stock price	$	0.90		$	0.90
Fair value per warrant	$	0.45		$	0.41

Series B Convertible Preferred Stock

On November 18, 2009, we sold an aggregate of 62,039 units (the “Series B Units”) for a purchase price of $18.80 per unit (the “Series B Purchase Price”), resulting in gross proceeds to us of $1,166,333. This was the first tranche of a $2.5 million private placement. The second tranche closed on March 18, 2010 for the sale of 26,672 Series B Units with gross proceeds of $501,434 (collectively the two tranches are referred to as the “Series B Private Placement”). Each Series B Unit consisted of (i) one share of Series B Convertible Preferred Stock convertible into 10 shares of our common stock and (ii) a warrant to purchase one share of Series B Convertible Preferred Stock at an exercise price equal to $23.80 per share for warrants issued in November 2009 and at an exercise price of $28.80 for warrants issued in March 2010, in each case with a term expiring on August 11, 2011 (the “Series B Warrant”).

In connection with the Series B Private Placements, we paid a finder’s fee of $100,478, plus warrants to purchase 5,344 shares of Series B Convertible Preferred Stock at $28.80 per share, expiring August 11, 2012.

On or about August 10, 2011. holders of the Series B Warrants to purchase 887,110 shares of Common Stock entered into an amendment to the Series B Warrants which extended the expiration date of the Series B Warrants to August 11, 2012 and provided that they would be issuable for the equivalent number of shares of Common Stock at a proportionate exercise price. On or about September 30, 2011, Series B Warrants to purchase 887,110 shares of Common Stock were further amended to reduce the exercise price from $2.38 to $1.43, for Series B Warrants issued in November 2009, and from $2.88 to $1.75, for Series B Warrants issued in March 2010 and to extend the term of the Series B Warrants until August 12, 2016 and, with respect to affiliates, until August 12, 2015. All of the Series B Warrants are no longer exercisable for shares of Preferred Stock.

The proceeds from the sale of each Series B Unit were allocated between the Series B Convertible Preferred Stock and the Series B Warrant based on the relative estimated fair value of each security. The estimated fair value of the Series B Warrants was determined using the Black-Scholes formula, resulting in an allocation of the gross proceeds of $592,685 to the total warrants issued for both

-16-

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

tranches. The allocation of the gross proceeds to the Series B Convertible Preferred Stock was $1,075,083 for both tranches. In accordance with the provisions of ASC 470-20, an additional adjustment between Additional Paid in Capital and Accumulated Deficit of $294,838 was recorded to reflect an implicit non-cash dividend related to the allocation of proceeds between the Series B Convertible Preferred Stock and Series B Warrants issued in both tranches. The $294,838 represents the value of the adjustment to additional paid in capital related to the beneficial conversion feature of the Series B Convertible Preferred Stock. The value adjustment was calculated by subtracting the fair market value of the underlying common stock issuable upon conversion of the Series B Convertible Preferred Stock on the date of the respective closing from the fair market value of the Series B Convertible Preferred Stock as determined when the Company performed a fair market value allocation of the proceeds to the Series B Convertible Preferred Stock and Series B Warrants.

On or about September 30, 2011, all of the outstanding shares of Series B Convertible Preferred Stock were voluntarily converted into shares of Common Stock.

Each share of Series B Convertible Preferred Stock received a cumulative dividend at the rate of 5% per annum of the Series B Purchase Price, payable semi-annually on June 30 and December 31, commencing on December 31, 2009 (with the first payment being pro-rated based on the number of days occurring between the date of issuance and December 31, 2009). The Company was permitted to pay dividends in cash or in shares of common stock at our option, subject to certain conditions. The shares of Series B Convertible Preferred Stock were also entitled to a liquidation preference, such that in the event of any voluntary or involuntary liquidation, dissolution or winding up of our Company, the holders of Series B Convertible Preferred Stock would have been paid out of the assets of the Company available for distribution to our stockholders before any payment was paid to the holders of common stock, an amount per share equal to the Series B Purchase Price, plus accrued and unpaid dividends. The Series B Convertible Preferred Stock would have been treated on an equivalent basis with the holders of the Series A Convertible Preferred Stock and Series C Convertible Preferred Stock with respect to payments made in connection with a liquidation. The Board approved the method of payment in the form of common stock for the dividends payable with respect to December 31, 2009 and the June 30, 2010 (to the holders of Series B Convertible Preferred Stock issued in November 2009). The Board approved the method of payment in the form of cash for the dividends payable with respect to June 30, 2010 (to the holders of Series B Convertible Preferred Stock issued in March 2010), December 31, 2010 and for all dividends accrued through September 30, 2011.

Each share of Series B Convertible Preferred Stock was convertible into 10 shares of common stock at any time at the option of the holder, subject to adjustment for stock splits, stock dividends, recapitalizations and similar transactions (the “Series B Conversion Ratio”). Each share of Series B Convertible Preferred Stock would have been automatically converted into shares of common stock at the Series B Conversion Ratio then in effect: (i) if, after 12 months from the closing of the applicable tranche of the Series B Private Placement, the common stock traded on the NASDAQ Capital Market (or other primary trading market or exchange on which the common stock was then traded) at a price equal $5.64 for 20 out of 30 consecutive trading days with average daily trading volume of at least 10,000 shares or (ii) upon a registered public offering by the Company at a per share price equal to $5.64, with aggregate gross proceeds to the Company of not less than $10 million. Unless waived under certain circumstances by the holder of the Series B Convertible Preferred Stock, such holder’s Series B Convertible Preferred Stock could not have been converted if upon such conversion the holder’s beneficial ownership would exceed certain thresholds.

The holders of Series B Convertible Preferred Stock were not entitled to vote on any matters presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), except that the holders of Series B Convertible Preferred Stock would have been entitled to vote separately as a class on any matters that would amend, alter or repeal any provision of our Restated Articles of Organization, as amended, in a manner that adversely affects the powers, preferences or rights of the Series B Convertible Preferred Stock and such holders would have also been entitled to vote on any matters required by law.

At any time after February 12, 2014, upon 30 days written notice, we would have had the right to redeem the outstanding shares of Series B Convertible Preferred Stock at a price equal to the Series B Purchase Price, plus all accrued and unpaid dividends thereon. The redemption price would have been payable in two annual installments. The Series B Convertible Preferred Stock, the Series A Convertible Preferred Stock and Series C Convertible Preferred Stock would have been treated on an equivalent basis with respect to payments made in connection with redemption.

Series B Warrants

The Series B Warrants issued in November 2009 originally had an exercise price equal to $23.80 and the Series B Warrants issued in March 2010 originally had an exercise price equal to $28.80, in each case with a term expiring on August 11, 2011. The Series B Warrants currently have an exercise price of $1.43 for Series B Warrants issued in November 2009, and $1.75 for Series B Warrants issued in March 2010, in each case with a term expiring on August 12, 2016 and, with respect to affiliates, August 12, 2015. The

-17-

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Series B Warrants are currently exercisable for shares of Common Stock. The Series B Warrants permit the holder to conduct a “cashless exercise” at any time the holder of the Series B Warrant is an “affiliate” (as defined in the Securities Purchase Agreement) of the Company.

The Series B Warrant exercise price and/or number of shares issuable upon exercise of the Series B Warrant will be subject to adjustment for stock splits or similar capital reorganizations, as set forth in the Series B Warrants, as amended.

Subject to the terms and conditions of the Series B Warrants, the Company has the right to call for cancellation of the Series B Warrants if the volume weighted average price of our common stock on the NASDAQ Capital Market (or other primary trading market or exchange on which our common stock is then traded) equals or exceeds $4.70 for either (i) 10 consecutive trading days or (ii) 15 out of 25 consecutive trading days.

In connection with the Series B Private Placement on March 18, 2010, we issued warrants to our placement agent to purchase 1,679 shares of Series B Convertible Preferred Stock at $28.80 per share, expiring August 11, 2012. The Series B Warrants and placement agent warrants were valued based on a Black-Scholes pricing model at the date of the grants. The Series B Warrants and placement agent warrants vested immediately. The relative fair value of the Series B Warrants was calculated to be $173,060 and was recorded to stockholders’ equity. The assumptions for the Black-Scholes pricing model are represented in the table below for the warrants issued in both tranches reflected on a per share common stock equivalent basis. The assumptions for the placement agent show the range of values for both tranches.

Assumptions	Preferred			Placement Agent
Expected life (in months)		17.0			33.0
Expected volatility		146.4	%		125.0	%
Risk-free interest rate		1.000	%		1.000	%
Exercise price	$	2.88		$	2.88
Fair value per warrant	$	0.95		$	1.08

15-Month Series A Preferred Stock Warrant Call

On March 30, 2010, the Company called for cancellation any 15-Month Series A Preferred Stock Warrants that remained unexercised as of April 28, 2010. In connection with this warrant call, 15-Month Series A Preferred Stock Warrants to purchase 98,372 shares of Series A Convertible Preferred Stock were exercised at $12.50 per share, for gross proceeds to the Company of $1,229,650, before deducting expenses associated with the warrant call notice. 15-Month Series A Preferred Stock Warrants to purchase an additional 10,150 shares of Preferred Stock were exercised on a cashless basis, resulting in the net issuance of 2,883 shares of Series A Convertible Preferred Stock. Pursuant to the terms of the 15-Month Series A Preferred Stock Warrants, upon exercise of such warrants, the holders became entitled to receive an aggregate of 57,390 shares of common stock in payment of dividends on the Series A Convertible Preferred Stock paid on June 30, 2009 and December 31, 2009.

Series C Convertible Preferred Stock

On April 8, 2011 and April 12, 2011, we completed the first tranche of a private placement, pursuant to which we sold an aggregate of 55,048 units for a purchase price of $15.00 per unit, resulting in gross proceeds to us of $825,720 (the “Series C Private Placement”). This was the first tranche of the $6 million Series C Private Placement. In connection with the second tranche, the purchase price was reduced to $12.50 per unit and we issued an additional 11,011 units to the purchasers who participated in the first tranche, without any additional gross proceeds to us. The second tranche closed on June 20, 2011 for the sale of 22,039 Series C Units for a purchase price of $12.50 per unit with gross proceeds of $275,485. Each unit (“Series C Unit”) consists of (i) one share of Series C Convertible Preferred Stock, $0.01 par value per share (the “Series C Convertible Preferred Stock”) convertible into 10 shares of our Common Stock, (subject to adjustment for stock splits, stock dividends, recapitalization, etc.) and (ii) a three-year warrant to purchase 10 shares of our Common Stock at a per share exercise price equal to the sum of (i) the Common Stock equivalent of the Series C Purchase Price (ii) plus $0.88 (the “Series C Warrant”). The Series C Warrants will be exercisable until the close of business on the third anniversary of the applicable closing date.

We engaged an investment banker (the “Investment Banker”) to assist with the Series C Private Placement. The Company paid the Investment Banker a cash retainer fee of $50,000 and issued a warrant to the Investment Banker to purchase 100,000 shares of Common Stock at an exercise price of $3.00 per share. In connection with the Series C Private Placement, we paid the Investment Banker a fee of (i) approximately $66,000 cash, (ii) an expense allowance of approximately $16,500, (iii) a warrant to purchase 61,638

-18-

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

shares of Common Stock exercisable at a purchase price of $1.50, and (iv) a warrant to purchase 61,638 shares of Common Stock exercisable at a purchase price of $2.38.

The proceeds from the sale of each Series C Unit was allocated between the Series C Convertible Preferred Stock and the Series C Warrants based on the relative estimated fair value of each security. The estimated fair value of the Series C Warrants was determined using the Black-Scholes formula, resulting in an allocation of the gross proceeds of $591,904 to the total warrants issued. The allocation of the gross proceeds to the Series C Convertible Preferred Stock was $509,303. In accordance with the provisions of ASC 470-20, an additional adjustment between Additional Paid in Capital and Accumulated Deficit of $181,907 was recorded to reflect an implicit non-cash dividend related to the allocation of proceeds between the stock and warrants issued. The $181,907 represents the value of the adjustment to additional paid in capital related to the beneficial conversion feature of the Series C Convertible Preferred Stock. The value adjustment was calculated by subtracting the fair market value of the underlying common stock on April 7 and June 20 issuable upon conversion of the Series C Convertible Preferred Stock from the fair market value of the Series C Convertible Preferred Stock as determined when the Company performed a fair market value allocation of the proceeds to the Series C Convertible Preferred Stock and warrants. The warrants are recorded as a liability. See Note 3 “Warrant Derivative Liability”.

Each share of Series C Convertible Preferred Stock will receive a cumulative dividend at the rate of 5% per annum of the respective tranche purchase price, payable semi-annually on June 30 and December 31, commencing on June 30, 2011 (with the first payment being pro-rated based on the number of days occurring between the date of issuance and June 30, 2011). Dividends may be paid in cash or in shares of common stock at our option, subject to certain conditions. The shares of Series C Convertible Preferred Stock also are entitled to a liquidation preference, such that in the event of any voluntary or involuntary liquidation, dissolution or winding up of our Company, the holders of Series C Convertible Preferred Stock will be paid out of the assets of the Company available for distribution to our stockholders before any payment shall be paid to the holders of common stock, an amount per share equal to the Series C Purchase Price, plus accrued and unpaid dividends. Prior to the conversion of all of the outstanding shares of Series A Convertible Prefrred Stock and Series B Convertible Preferred Stock, the Series C Convertible Preferred Stock will be treated on an equivalent basis with the Series A Convertible Preferred Stock and Series C Preferred Stock with respect to payments made in connection with a liquidation. The dividend payable with respect to June 30, 2011 is payable in cash.

Each share of Series C Convertible Preferred Stock is convertible into 10 shares of common stock at any time at the option of the holder, subject to adjustment for stock splits, stock dividends, recapitalizations and similar transactions (the “Series C Conversion Ratio”). Each share of Series C Convertible Preferred Stock will automatically be converted into shares of common stock at the Series C Conversion Ratio then in effect: (i) if, after 12 months from the closing of the applicable tranche of the Series C Private Placement, the common stock trades on the NASDAQ Capital Market (or other primary trading market or exchange on which the common stock is then traded) at a price equal to three-tenths of the Series C Unit purchase price for 20 out of 30 consecutive trading days with average daily trading volume of at least 10,000 shares or (ii) upon a registered public offering by the Company at a per share price equal to at least three-tenths of the Series C Unit purchase price, with aggregate gross proceeds to the Company of not less than $10 million. Unless waived under certain circumstances by the holder of the Series C Convertible Preferred Stock, such holder’s Series C Convertible Preferred Stock may not be converted if upon such conversion the holder’s beneficial ownership would exceed certain thresholds.

The holders of Series C Convertible Preferred Stock are not entitled to vote on any matters presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), except that the holders of Series C Convertible Preferred Stock may vote separately as a class on any matters that would amend, alter or repeal any provision of our Restated Articles of Organization, as amended, in a manner that adversely affects the powers, preferences or rights of the Series C Convertible Preferred Stock and such holders may also vote on any matters required by law.

If we consummate an equity financing (other than the exercise of employee stock options under the Company’s stock option plans, the Series C Private Placement or the exercise of any Series C Warrants, or the exercise or conversion of any currently outstanding Common Stock equivalents) within twelve months after the initial Closing and the gross proceeds to the Company from the sale of the Units are less than $4 million, then each holder of Series C Units may exchange all, but not less than all, of his, her or its Series C Units for the equity securities issued in such next financing and shall become subject to the terms and conditions of such next financing; provided that the exchange of the purchaser’s Series C Units for next financing securities is permitted under the rules and regulations of the NASDAQ Trading Market then in effect. The number of next financing securities into which a purchaser’s Series C Units may be exchanged shall be determined by dividing (a) the aggregate per unit purchase price at which the Series C Units being exchanged were issued, by (b) the price per next financing security at which such securities were issued in the next financing. The requisite holders of the Series C Units waived such right with respect to the Company’s recently completed equity financing.

-19-

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At any time after February 12, 2014, upon 30 days written notice, we have the right to redeem the outstanding shares of Series C Convertible Preferred Stock at a price equal to the Series C Unit purchase price, plus all accrued and unpaid dividends thereon. The redemption price may be paid in two annual installments. All holders of Series A, B, and C Convertible Preferred Stock will be treated on an equivalent basis with respect to payments made in connection with redemption.

Series C Warrants

The Series C Warrants have an exercise price equal to $2.13 with a term expiring on the third anniversary of the deal closing. The Series C Warrants permit the holder to conduct a “cashless exercise” at any time the holder of the Series C Warrant is an “affiliate” (as defined in the Securities Purchase Agreement) of the Company.

The Series C Warrant exercise price and/or number of shares issuable upon exercise of the Series C Warrant will be subject to adjustment for stock dividends, stock splits or similar capital reorganizations, as set forth in the Series C Warrants.

Subject to the terms and conditions of the Series C Warrants, the Company has the right to call for cancellation the Series C Warrants if the volume weighted average price of our common stock on the NASDAQ Capital Market (or other primary trading market or exchange on which our common stock is then traded) equals or exceeds two times the per common share exercise price for either (i) 10 consecutive trading days or (ii) 15 out of 25 consecutive trading days.

Shareholders Rights Plan

On March 3, 2003, our Board of Directors adopted a shareholder rights plan (the “Rights Plan”) and declared a distribution of one Right for each outstanding share of our common stock to shareholders of record at the close of business on March 21, 2003 (the “Rights”). Initially, the Rights will trade automatically with the common stock and separate Right Certificates will not be issued. The Rights Plan is designed to deter coercive or unfair takeover tactics and to ensure that all of our shareholders receive fair and equal treatment in the event of an unsolicited attempt to acquire the Company. The Rights will expire on February 27, 2013 unless earlier redeemed or exchanged. Each Right entitles the registered holder, subject to the terms of a Rights Agreement, as amended, to purchase from the Company one one-thousandth of a share of the Company’s Series A Junior Participating Preferred Stock at a purchase price of $45.00 per one one-thousandth of a share, subject to adjustment. In general, the Rights will not be exercisable until a subsequent distribution date which will only occur if a person or group acquires beneficial ownership of 15% or more of our common stock or announces a tender or exchange offer that would result in such person or group owning 15% or more of the common stock. With respect to any person or group who currently beneficially owns 15% or more of our common stock, the Rights will not become exercisable unless and until such person or group acquires beneficial ownership of additional shares of common stock.

Subject to certain limited exceptions, if a person or group acquires beneficial ownership of 15% or more of our outstanding common stock or if a current 15% beneficial owner acquires additional shares of common stock, each holder of a Right (other than the 15% holder whose Rights become void once such holder reaches the 15% threshold) will thereafter have a right to purchase, upon payment of the purchase price of the Right, that number of shares of our common stock which at the time of such transaction will have a market value equal to two times the purchase price of the Right. In the event that, at any time after a person or group acquires 15% or more of our common stock, we are acquired in a merger or other business combination transaction or 50% or more of our consolidated assets or earning power are sold, each holder of a Right will thereafter have the right to purchase, upon payment of the purchase price of the Right, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the purchase price of the Right.

Our Board of Directors may exchange the Rights (other than Rights owned by such person or group which have become void), in whole or in part, at an exchange ratio of one share of common stock per Right (subject to adjustment). At any time prior to the time any person or group acquires 15% or more of our common stock, the Board of Directors may redeem the Rights in whole, but not in part, at a price of $0.001 per Right.

Stock Options and Warrants

Our stockholders approved our amended 2005 Equity Incentive Plan (the “Plan”) pursuant to which an aggregate of 1,800,000 shares of our common stock were reserved for issuance upon exercise of stock options or other equity awards made under the Plan. Under the Plan, we may award stock options, shares of common stock, and other equity interests in the Company to employees, officers, directors, consultants, and advisors, and to any other persons the Board of Directors deems appropriate.

-20-

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2011, options to acquire 1,340,500 shares were outstanding under the Plan with 399,500 shares available for future grant under the Plan. As of September 30, 2011, options to acquire 163,000 shares are outstanding under the 1999 Non-qualified Stock Option Plan. No additional options may be granted under the 1999 Non-qualified Stock Option Plan.

As of September 30, 2011, 1,569,800 of the 30-Month Common Stock Warrants were outstanding. Series B Warrants to purchase 88,711 shares of Common Stock and 5,344 shares of Series B Convertible Preferred Stock, which includes warrants given to our placement agent, were outstanding. On March 31, 2010, we issued warrants to an investor relations firm to purchase 50,000 shares of our common stock at an exercise price equal to $3.00 per share, with a term expiring on August 11, 2012, in exchange for consulting services provided to us by such firm.

The following tables summarize information concerning common stock issuable upon the exercise of outstanding stock options and warrants to acquire either common stock or preferred stock convertible into common stock, all on a common stock equivalent basis:

	Stock Options					Warrants
				Weighted					Weighted
				Average price					Average price		Total
	Shares			per share		Shares			per share		Shares			Exercisable
Balance outstanding, 12/31/2009		1,564,500		$	2.52		3,806,640		$	1.77		5,371,140			4,905,152
Granted		60,000			1.43		404,510		$	2.88		464,510
Exercised		(18,897	)		1.07		(1,529,800	)		1.25		(1,548,697	)
Expired		-			-		-			-		-
Forfeited		-			-		-			-		-
Balance outstanding, 12/31/2010		1,605,603		$	2.49		2,681,350		$	2.24		4,286,953			4,114,792
Granted		175,000			1.01		1,528,724			1.66		1,751,742
Exercised		(41,103	)		1.07		-			-		(41,103	)
Expired		(146,000	)		2.72		-			-		(146,000	)
Forfeited		(90,000	)		2.52		-			-		(90,000	)
Balance outstanding, 9/30/2011		1,503,500		$	2.34		4,210,074		$	1.42		5,713,574			5,546,908

					Options Outstanding						Options Exercisable
							Weighted Average						Weighted Average
Range of Exercise Prices					Number of Options		Remaining Contractual Life		Exercise Price		Number of Options		Remaining Contractual Life		Exercise Price
$	0.77	-	$	2.70		738,000		7.5	$	1.12		571,334		6.8	$	1.14
	2.71	-		3.08		299,500		3.4		2.93		299,500		3.4		2.94
	3.09	-		3.95		302,000		4.7		3.67		302,000		4.7		3.67
	3.96	-		5.93		164,000		5.3		4.27		164,000		5.3		4.27
$	0.77	-	$	5.93		1,503,500		5.9	$	2.34		1,336,834		5.4	$	2.50

We granted 175,000 employee stock options during the nine months ended September 30, 2011 but we did not grant any during the same period in 2010.

As of September 30, 2011, the total estimated fair value of unvested stock options to be amortized over their remaining vesting period was $105,863. The non-cash, stock-based compensation expense associated with the vesting of these options is expected to be $8,273 for the fourth quarter of 2011, $31,277 in 2012, $27,385 in 2013 and $24,050 in 2014. The aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2011 is approximately $20,000.

Convertible Debt

-21-

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the three months ended September 30, 2011, we received loans in the aggregate amount of $412,000 from five individuals. The loans were made pursuant to Promissory Notes (the “Notes”) with a term of six months, which may be extended with mutual consent of the parties. The interest rate under the Notes is 20% per annum. The Notes may be repaid, at the election of the respective lender (i) in cash, (ii) by conversion into that number of securities issued in the next financing completed by the Company having an aggregate purchase price equal to the then outstanding principal amount of the Note, together with any accrued and unpaid interest due at the time of conversion or (iii) conversion into shares of unregistered Common Stock of the Company at a conversion price of $1.00 per share.

Each of the lenders received warrants to purchase Common Stock as follows:

In connection with a loan received on August 3, 2011, we issued warrants to the lender to purchase 26,315 shares of the Company’s Common Stock, at an exercise price of $0.76 per share, and warrants to purchase 211,765 shares of the Company’s Common Stock, at an exercise price of $0.85 per share, both sets of warrants expire on August 3, 2014.

In connection with a loan received on September 7, 2011 from Richard T. Schumacher, the Company’s Chief Executive Officer, we issued warrants to Mr. Schumacher to purchase 12,048 shares of the Company’s Common Stock, at an exercise price of $0.83 per share, and warrants to purchase 105,882 shares of the Company’s Common Stock, at an exercise price of $0.85 per share, both sets of Warrants expire on September 7, 2014.

In connection with loans received on September 29, 2011, we also issued warrants to the lenders to purchase an aggregate 131,766 shares of the Common Stock, at an exercise price of $0.85 per share, expiring on September 29, 2014.

ASC 470-20 states that the proceeds from the issuance of debt with detachable stock warrants should be allocated between the debt and warrants on the basis of their relative fair market values. The relative fair value of the warrants was calculated to be $155,035 and was recorded to debt discount against the total debt balance of $412,000. The debt discount will be amortized to interest expense over the six-month term of these loans. The assumptions for the Black-Scholes pricing model are represented in the table below for the warrants issued with these loans reflected on a per share common stock equivalent basis.

Assumptions	August 3, 2011			August 3, 2011			September 7, 2011			September 7, 2011			September 29, 2011
Expected life (in months)		36.0			36.0			36.0			36.0			36.0
Expected volatility		97.5	%		97.5	%		97.5	%		97.5	%		97.5	%
Risk-free interest rate		2.000	%		2.000	%		2.000	%		2.000	%		2.000	%
Exercise price	$	0.76		$	0.85		$	0.83		$	0.85		$	0.85
Fair value per warrant	$	0.47		$	0.52		$	0.51		$	0.52		$	0.52

Amendment No. 1 to 30-Month Common Stock Warrants and Series B Warrants

The Company has calculated the fair value of the 30-Month Common Stock Warrants and Series B Preferred Stock Purchase Warrant amended on or about August 10, 2011, as described above using the Black-Scholes model with the below assumptions.

Assumptions	Series A			Series B Nov 09 tranche			Series B Mar 10 tranche
Expected life (in months)		12			12			12
Expected volatility		85.59	%		85.59	%		85.59	%
Risk-free interest rate		0.12	%		0.12	%		0.12	%
Exercise price	$	2.00		$	2.38		$	2.88
Fair value per warrant	$	0.08		$	0.06		$	0.04

The Company has determined that, in each case, the fair value of the amended warrants actually decreased as compared to the fair value of the original warrants as a result of the applicable modifications, as further described below:

A total of 1,569,800 original 30-Month Common Stock Warrants with a maturity date of August 11, 2011 were amended to provide for a maturity date of August 12, 2012; and a total of 887,110 original Series B Warrants with a maturity date of August 11, 2011 were amended to provide for a maturity date of August 12, 2012.

-22-

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As a result:

the aggregate fair value of the 1,569,800 original 30-Month Common Stock Warrants with a maturity date of August 11, 2011, amended to provide for a maturity date of August 12, 2012, decreased from $641,452 to $125,050; and the aggregate fair value of the 887,110 original Series B Warrants with a maturity date of August 11, 2011, amended to provide for a maturity date of August 12, 2012, decreased from $752,978 to $46,103.

We did not record any incremental value for these modifications because of the decrease in the fair value.

Amendment No. 2 to 30-Month Common Stock Warrants and Series B Warrants

The Company has calculated the fair value of the 30-Month Common Stock Warrants and Series B Preferred Stock Purchase Warrant amended on or about September 30, 2011, as described above, using the Black-Scholes model with the below assumptions.

Assumptions	Series A			Series A (Affiliates)			Series B Nov 09 tranche			Series B Mar 10 tranche
Expected life (in months)		48			36			48			48
Expected volatility		111.19	%		120.47	%		111.19	%		111.19	%
Risk-free interest rate		1.00	%		1.00	%		1.00	%		1.00	%
Exercise price	$	0.90		$	0.90		$	1.43		$	1.75
Fair value per warrant	$	0.65		$	0.62		$	0.59		$	0.56

The Company has determined that, in the case of the Series B Warrant Amendment, the fair value of the amended warrants actually decreased as compared to the fair value of the original warrants as a result of the applicable modifications, as further described below:

A total of 1,513,180 original 30-Month Common Stock Warrants with a maturity date of August 12, 2012 were amended to provide for a maturity date of August 12, 2016 (August 12, 2015 for Affiliates) and a reduced price of $0.90; and a total of 887,110 original Series B Warrants with a maturity date of August 12, 2012 were amended to provide for a maturity date of August 12, 2016 (August 12, 2015 for Affiliates) and a reduced exercise price of $1.43 for Series B Warrants issued in November 2009, and $1.75 for Series B Warrants issued in March 2010.

As a result:

the aggregate fair value of the 1,513,180 original 30-Month Common Stock Warrants with a maturity date of August 12, 2012, amended to provide for a maturity date of August 12, 2016 (August 12, 2015 for Affiliates) and a reduced price of $0.90, increased from $641,452 to $967,047; and the aggregate fair value of the 887,110 original Series B Warrants with a maturity date of August 12, 2012, amended to provide for a maturity date of August 12, 2016 (August 12, 2015 for Affiliates) and a reduced exercise price of $1.43 for Series B Warrants issued in November 2009, and $1.75 for Series B Warrants issued in March 2010, decreased from $752,978 to $516,767.

We recorded an increased incremental value of $325,595 for the 30-Month Common Stock Warrant modifications but not for the Series B Warrant modifications because of the decrease in the fair value.

6)	Subsequent Events

We performed a review of events subsequent to the balance sheet date through the date the financial statements were issued and determined, except as disclosed herein, that there were no other such events requiring recognition or disclosure in the financial statements.

Series D Registered Direct Offering

On November 10, 2011, we completed a registered direct offering, pursuant to which we sold an aggregate of 843 units for a purchase price of $1,000 per unit, resulting in gross proceeds to us of $843,000. Each unit consists of (i) one share of Series D Convertible Preferred Stock, $0.01 par value per share convertible into 1,538.46 shares of our Common Stock (with the Company having the discretion either to round up to the next whole number of shares of common stock or to pay cash instead of any fraction of a

-23-

PRESSURE BIOSCIENCES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

share of common stock; no fractional shares of common stock will be issued) (subject to adjustment for stock splits, stock dividends, recapitalization, etc.) and (ii) a five-year warrant to purchase approximately 614 shares of our Common Stock (which number of shares is equal to 39.9% of the purchase pruce of the units divided by $0.65) at a per share exercise price of $0.81 and will be exercisable beginning on or after May 10, 2012 through and including the close of business on May 10, 2017. The financial statements as of September 30 2011 do not include any adjustments related to this offering except for financing costs incurred during the three-months ended September 30, 2011.

Unregistered Stock Issuances

On October 28, 2011, we issued 32,941 shares of Common Stock to holders of Series A Convertible Preferred Stock in payment of dividends accrued through September 30, 2011.

On November 1, 2011, we issued 15,000 shares of Common Stock to an investor relations firm for payment of services rendered.

We issued 47,955 warrants to purchase shares of our Common Stock in exchange for conversion of Series A Convertible Preferred Stock held by individuals who did not also hold warrants. These warrants have an exercise price of $0.90 and a maturity date of August 12, 2016.

Investment Banking Agreement

On November 4, 2011, the Company entered into an agreement with a former placement agent, pursuant to which the Company and the placement agent released each other of their respective obligations under a prior investment banking agreement. In connection with this agreement, the Company issued the placement agent a promissory note with an original principal amount of $150,000 with a maturity date of May 4, 2012. The promissory note is interest free, provided that, if the Company does not repay the principal amount on or before the maturity date, it will accrue interest at a rate of 18% per annum.

-24-

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

-	our ability to raise additional equity or debt financing on acceptable terms, if at all;
-	our belief that we have sufficient liquidity to finance normal operations until February 2012;
-	our need to take additional cost reduction measures, cease operations or sell our operating assets, if we are unable to obtain sufficient additional financing in the future;
-	the amount of cash necessary to operate our business;
-	the amount of grant revenue and anticipated uses of grant revenue in future periods;
-	our plans and expectations with respect to our pressure cycling technology (PCT) operations;
-	the potential applications for PCT in, and the demonstration of proof-of-concept of PCT for, sample preparation, pathogen inactivation, protein purification, control of chemical reactions and immunodiagnostics, among others;
-	the expected expenses, benefits and results from our research and development efforts;
-	the expected benefits and results from our collaboration efforts;
-	the expected increase in number of PCT units installed and the increase in revenues from sale of consumable products and extended service contracts;
-	the potential size of the market for biological sample preparation;
-	general economic conditions; and
-	the anticipated future financial performance and business operations of our Company.

These forward-looking statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Report. Except as otherwise required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this Report to reflect any change in our expectations or any change in events, conditions, or circumstances on which any of our forward-looking statements are based or to conform to actual results. We qualify all of our forward-looking statements by these cautionary statements. You should read this section in combination with the section entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2010 included in our Annual Report on Form 10-K for the year ended December 31, 2010, as amended.

-25-

RISK FACTORS

Factors that could cause or contribute to differences in our future financial and operating results include those discussed in the risk factors set forth in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2010, as well as those set forth below and discussed elsewhere in this Report. The risks described in our Annual Report on Form 10-K and this Report are not the only risks that we face. Additional risks not presently known to us or that we do not currently consider significant may also have an adverse effect on us. If any of the risks actually occur, our business, results of operations, cash flows or financial condition could suffer.

Our common stock may be delisted from The NASDAQ Capital Market, which could negatively impact the price of our common stock, liquidity for our stockholders and our ability to access the capital markets.

Our common stock is listed on The NASDAQ Capital Market. On October 4, 2011, the Company received written notification from the Listing Qualifications Department of the NASDAQ Stock Market LLC, or NASDAQ, stating that our common stock is subject to delisting from The NASDAQ Capital Market, pending the Company’s opportunity to request a hearing before a NASDAQ Listing Qualifications Panel. We had previously received letters from NASDAQ on April 13, 2011, advising us that our stockholders’ equity for the year ended December 31, 2010 had fallen below the minimum requirement for continued inclusion on The NASDAQ Capital Market and on August 15, 2011, advising us that, for the previous 30 consecutive business days, the bid price of the Company’s common stock had closed below the minimum $1.00 per share requirement for continued inclusion on The NASDAQ Capital Market. We have requested a hearing before the NASDAQ Listing Qualifications Panel, which is scheduled for November 17, 2011. The request for a hearing stays any action with respect to the determination letter and allows us to continue listing our shares of common stock on The NASDAQ Capital Market until a decision is rendered by The NASDAQ Listing Qualifications Panel subsequent to the hearing.

If NASDAQ does not accept our plan to bring the Company into compliance with the stockholders’ equity listing standard, if we fail to come into compliance with the minimum $1.00 per share requirement for continued inclusion on The NASDAQ Capital Market or if we fail to comply with any other listing standards applicable to issuers listed on The NASDAQ Capital Market, our common stock will be delisted from The NASDAQ Capital Market.

Upon delisting from The NASDAQ Capital Market, our common stock would be traded on the over-the-counter bulletin board, or OTC. OTC transactions involve risks in addition to those associated with transactions in securities traded on The NASDAQ Capital Market. Many OTC stocks trade less frequently and in smaller volumes than NASDAQ listed stocks. Accordingly, delisting from The NASDAQ Capital Market could adversely affect the trading price of our common stock, significantly limit the liquidity of our common stock and impair our ability to raise additional funds.

-26-

OVERVIEW

We have developed instruments which utilize our unique and proprietary pressure cycling technology (“PCT”), which we sell, along with associated consumables to life sciences companies, academic institutions and government agencies. There are currently 131 customers who have purchased or currently lease our enabling platform. PCT represents the core of our products and has enabled our customers to perform biological sample preparation and enzymatic digestion in unique ways that were previously unavailable. The enabling capability of our PCT products allows us to continue to increase the number of applications for our platform beyond current uses, which include genomic and proteomic sample preparation, pathogen inactivation, the control of chemical and enzymatic reactions, immunodiagnostics, and protein purification. Additionally, we are pursuing business opportunities to leverage our products and PCT into new markets beyond our current focus of PCT-enhanced enzymatic digestion products designed specifically for the mass spectrometry marketplace, as well as sample preparation products for biomarker discovery, soil and plant biology, forensics, histology, and counter-bioterror applications.

PCT uses internally developed instrumentation that is capable of cycling pressure between ambient and ultra-high levels at controlled temperatures to rapidly and repeatedly control the interactions of bio-molecules. Our instrument, the Barocycler®, and our internally developed consumables product line, which includes PULSE (Pressure Used to Lyse Samples for Extraction) Tubes as well as application specific kits (which include consumable products and reagents) together make up the PCT Sample Preparation System.

We have experienced negative cash flows from operations with respect to our pressure cycling technology business since our inception. As of September 30, 2011, we had working capital resources of approximately $195,000, which excludes the warrant liability of $284,437. Based on our current projections, including equity financing subsequent to September 30, 2011, we believe our current cash resources will enable us to extend our cash resources until February 2012.

We hold 14 United States and 10 foreign patents covering multiple applications of PCT in the life sciences field. Our pressure cycling technology employs a unique approach that we believe has the potential for broad use in a number of established and emerging life sciences areas, including;

-	sample preparation for genomic, proteomic, and small molecule studies;
-	pathogen inactivation;
-	protein extraction and recovery;
-	control of chemical (particularly enzymatic) reactions; and
-	immunodiagnostics (clinical laboratory testing).

Since we began operations as Pressure BioSciences in February 2005, we have installed 203 Barocycler instruments, of which 131 have been purchased or are currently being leased by our customers. Our customers include researchers at academic laboratories, government agencies, biotechnology, pharmaceutical and other life sciences companies in the United States, and distribution partners in foreign countries.

	2005	2006	2007	2008	2009	2010	YTD 2011
Installed units	5	8	20	41	54	50	25

RESULTS OF OPERATIONS

Three Months Ended September 30, 2011 and 2010

Total Revenue

We recognized total revenue of $280,422 for the three months ended September 30, 2011 as compared to $372,103 during the three months ended September 30, 2010. This decrease in total revenue was primarily due to a decrease in grant related activities.

PCT Products, Services, Other. Revenue from the sale of PCT products and services was $217,734 for the three months ended September 30, 2011 as compared to $194,730 during the three months ended September 30, 2010. We recorded eight PCT

-27-

installations for the three months ended September 30, 2011 compared to fifteen for the same period in 2010. Revenue from the sale of PCT consumables stayed steady at approximately $21,000 for both periods ended September 30, 2011 and 2010.

Although we had fewer PCT installations in the current period, the previous period’s revenue was lower due to deeply discounted units sold to a distributor and sold as demonstration units offset by more active lease arrangements in the prior period. We generated new revenue in the current period from our SG3 Shredder product launch.

Our domestic and foreign installations of PCT Systems are set forth in the table below:

	For the Three Months Ended
	September 30,
	2011	2010
Domestic	8	14
International	-	1
Total PCT System Installations	8	15

Grant Revenue. During the three months ended September 30, 2011 and 2010, we recorded $62,688 and $177,373 of grant revenue, respectively. We started work this quarter on a Phase I grant received from the National Institutes of Health, or NIH, and a Phase II grant received from the Department of Defense, or DOD. During the prior quarter, we spent significant time with our collaborative partner on the SBIR Phase II grant previously granted to us.

Cost of PCT Products and Services

The cost of PCT products and services was $93,610 for the three months ended September 30, 2011 compared to $86,285 for the comparable period in 2010. Our gross profit margin on PCT products and services increased slightly to 54% for the three months ended September 30, 2011, as compared to 53% for the prior period. The increase in the cost of PCT products and improved profit margin are from the sales of our SG3 Shredder kits launched last quarter that have a higher profit margin.

Research and Development

Research and development expenditures were $248,188 during the three months ended September 30, 2011 as compared to $382,054 in the same period in 2010. This decrease resulted primarily from the full vesting of a significant number of employee stock options and discontinued research by a collaborative partner funded by us through the SBIR Phase II grant, which was completed in 2010.

Research and development expense recognized in the three months ended September 30, 2011 and 2010 included $11,609 and $15,293 of non-cash, stock-based compensation expense, respectively. We granted stock options this quarter.

Selling and Marketing

Selling and marketing expenses decreased to $193,975 for the three months ended September 30, 2011 from $313,412 for the comparable period in 2010. This decrease was primarily due to the full vesting of a significant number of employee stock options, reduced marketing activities and employee cost savings from the departure of our Vice President of Sales.

During the three months ended September 30, 2011 and 2010, selling and marketing expense included $6,452 and $21,613 of non-cash, stock-based compensation expense, respectively. This was primarily due to a significant number of employee options becoming fully vested in the first half of 2011 with no further expensing offset by stock options granted in the current quarter.

General and Administrative

General and administrative costs totaled $490,460 for the three months ended September 30, 2011 as compared to $432,939 for the comparable period in 2010. This increase was primarily from additional audit and legal work associated with corporate transactions.

During the three months ended September 30, 2011 and 2010, general and administrative expense included $14,459 and $45,467 of non-cash, stock-based compensation expense, respectively. This decrease was primarily due to a significant number of employee

-28-

options becoming fully vested in the first half of 2011 with no further expensing offset by stock options awarded in the current quarter. However, a new board member received 25,000 stock options this quarter as part of his compensation as a board member.

Operating Loss

Our operating loss was $745,811 for the three months ended September 30, 2011 as compared to $842,587 for the comparable period in 2010. The decreased operating loss resulted primarily for the reasons noted above.

Interest (expense) income

We recorded $8,013 of interest expense for the three months ended September 30, 2011 related to our short-term loans. We also amortized approximately $31,000 of imputed interest against the debt discount on these short-term loans.

Change in fair value of warrant derivative liability

During the three months ended September 30, 2011, we recorded non-cash income of $223,446 for warrant revaluation expense in our statements of operations due to a decrease in the fair value of the warrant liability related to the Series C Private Placement. This decrease in fair value was primarily due to a decrease in the price per share of our common stock on September 30, 2011 as compared to June 20, 2011 or April 8, 2011, depending on the tranche.

Income Taxes

In the three months ended September 30, 2010, we recorded a tax benefit of $244,479 related to a tax credit, payable in cash, enacted in 2010 for qualifying research expenditures deducted in 2009. This tax credit was paid in November 2010, and reduced our tax loss carry forward for federal income tax purposes by $488,958. There was no tax consequence in the current quarter of 2011.

Net Loss

During the three months ended September 30, 2011, we recorded a net loss applicable to common shareholders of $953,846 or $(0.15) per share, as compared to $692,875 or $(0.26) per share in the three months ended September 30, 2010. We recorded a deemed dividend of $325,595 in connection with warrant modifications done in the current quarter.

Nine Months Ended September 30, 2011 and 2010

Total Revenue

We recognized total revenue of $651,751 for the nine months ended September 30, 2011 as compared to $1,065,020 during the nine months ended September 30, 2010. This decrease in total revenue was due to a lower number of PCT instrument installations during the nine month period ended September 30, 2011 versus the same period in 2010. The primary reasons for the decrease in Barocycler installations and the reduction in grant revenue are described below.

PCT Products, Services, Other. Revenue from the sale of PCT products and services was $589,063 for the nine months ended September 30, 2011 as compared to $667,262 during the nine months ended September 30, 2010. We recorded twenty-five PCT installations for the nine months ended September 30, 2011 compared to thirty-seven for the same period in 2010. Revenue from the sale of PCT consumables was approximately $60,000 for the nine months ended September 30, 2011 compared to approximately $81,000 for the same period in 2010.

The decrease in PCT instrument installations and consumables was due to several factors. Our Vice President of Sales resigned in early May 2011. His responsibilities included direct sales in the New England territory and supervision of the three Sales Directors. Sales and marketing activities were further limited during the past two quarters of 2011 compared to the same period in 2010 as a result of our limited financial resources. The decrease in PCT consumable sales was due for the reasons just stated, and also in part to significant purchases of PULSE Tubes (both ND and Shredder) by certain clients during 2010 whose studies ended prior to the second quarter of 2011.

-29-

Our domestic and foreign installations of PCT Systems are set forth in the table below:

	For the Nine Months Ended
	September 30,
	2011	2010
Domestic	22	36
International	3	1
Total PCT System Installations	25	37

Grant Revenue. During the nine months ended September 30, 2011 and 2010, we recorded $62,688 and $397,758 of grant revenue, respectively. We started work this quarter on a Phase I grant received from the NIH and a Phase II grant received from the DOD. During the prior period, we spent significant time with our collaborative partner on the SBIR Phase II grant previously granted to us.

Cost of PCT Products and Services

The cost of PCT products and services was $250,835 for the nine months ended September 30, 2011 compared to $300,360 for the comparable period in 2010. The decrease corresponds to the decrease in PCT installations and sales of accessories and consumables. Our gross profit margin on PCT products and services stayed steady at 53% for the nine months ended September 30, 2011, as compared to the prior period.

Research and Development

Research and development expenditures were $730,962 during the nine months ended September 30, 2011 as compared to $980,338 in the same period in 2010. This decrease resulted primarily from the completion of employee stock option vesting and discontinued research by a collaborative partner funded by us through the SBIR Phase II grant, which was completed in 2010.

Research and development expense recognized in the nine months ended September 30, 2011 and 2010 included $36,951 and $56,200 of non-cash, stock-based compensation expense, respectively. A significant number of employee options became fully vested in the first quarter of 2011 with no further expensing offset by employee stock options granted in the current third quarter.

Selling and Marketing

Selling and marketing expenses decreased to $740,358 for the nine months ended September 30, 2011 from $890,265 for the comparable period in 2010. This decrease was primarily due to full vesting of a significant number of employee stock options, reduced marketing activities and employee cost savings relating to the departure of our Vice President of Sales.

During the nine months ended September 30, 2011 and 2010, selling and marketing expense included $40,192 and $56,155 of non-cash, stock-based compensation expense, respectively. A significant number of employee options became fully vested in the first quarter of 2011 with no further expensing offset by employee stock options granted in the current third quarter.

General and Administrative

General and administrative costs totaled $1,351,303 for the nine months ended September 30, 2011 as compared to $1,445,742 for the comparable period in 2010. This decrease was primarily due to significant investor relations and patent related activities incurred in the previous period not continuing in the current period in an effort to reduce operating costs.

During the nine months ended September 30, 2011 and 2010, general and administrative expense included $36,546 and $115,121 of non-cash, stock-based compensation expense, respectively. A significant number of employee options became fully vested in the first quarter of 2011 with no further expensing offset by employee stock options granted in the current third quarter.

Operating Loss

Our operating loss was $2,421,707 for the nine months ended September 30, 2011 as compared to $2,551,685 for the comparable period in 2010. The decreased operating loss resulted primarily for the reasons noted above.

Interest (expense) income

-30-

We recorded $8,013 of interest expense for the nine months ended September 30, 2011 related to our short-term loans. We also amortized approximately $31,000 of imputed interest against the debt discount on these short-term loans.

Change in fair value of warrant derivative liability

During the nine months ended September 30, 2011, we recorded non-cash income of $307,467 for warrant revaluation expense in our statements of operations due to a decrease in the fair value of the warrant liability related to the Series C Private Placement. This decrease in fair value was primarily due to a decrease in the price per share of our common stock on September 30, 2011 as compared to June 20, 2011 or April 8, 2011, depending on the tranche.

Income Taxes

In the nine months ended September 30, 2010, we recorded a tax benefit of $244,479 related to a tax credit, payable in cash, enacted in 2010 for qualifying research expenditures deducted in 2009. This tax credit was paid in November 2010, and reduced our tax loss carry forward for federal income tax purposes by $488,958. There was no tax consequence in the nine months ended September 30, 2011.

Net Loss

During the nine months ended September 30, 2011, we recorded a net loss to common shareholders of $3,092,843 or $(0.50) per share, as compared to $2,714,413 or $(1.01) per share in the nine months ended September 30, 2010. We recorded $304,823 and $154,389 in the nine months ended September 30, 2011 and 2010, respectively, relating to the beneficial conversion calculation associated with the intrinsic value of the Series C Convertible Preferred Stock and Series B Convertible Preferred Stock. We paid approximately $42,000 in dividends to holders of the Series B Convertible Preferred Stock in the nine months ended September 30, 2011. We also recorded a deemed dividend of $325,595 in connection with warrant modifications done in the current quarter.

LIQUIDITY AND FINANCIAL CONDITION

As of September 30, 2011, our working capital position, excluding the warrant derivative liability of $284,437, was $195,054. As of December 31, 2010, our working capital position was $1,443,765.

On March 18, 2010, we sold an aggregate of 26,672 units (the “Series B Units”) for a purchase price of $18.80 per unit, resulting in net proceeds to us of $465,867. An initial tranche of Series B Units was sold in November 2009 with net proceeds of $1,078,885. Each Series B Unit issued in the March 2010 tranche consisted of (i) one share of Series B Convertible Preferred Stock convertible into 10 shares of our common stock and (ii) a warrant to purchase one share of Series B Convertible Preferred Stock at an exercise price equal to $28.80 per share with a term expiring on August 11, 2011 (“Series B Warrant”). See Note 5 of the notes to consolidated financial statements for a further description of the Series B Convertible Preferred Stock and Series B Warrants issued in the Series B Private Placement.

In connection with the warrant call notice issued on March 30, 2010, 15 Month Series A Preferred Stock Warrants to purchase 98,372 shares of Series A Convertible Preferred Stock were exercised at $12.50 per share, for net proceeds to the Company of $1,421,275 in March and April 2010, before deducting expenses associated with the warrant call notice. Warrants to purchase an additional 10,150 shares of Series A Preferred Stock were exercised on a cashless basis, resulting in the net issuance of 2,883 shares of Preferred Stock.

On April 8, 2011 and April 12, 2011, we completed the first tranche of a private placement, pursuant to which we sold an aggregate of 55,048 units for a purchase price of $15.00 per unit, resulting in gross proceeds to us of $825,720. This was the first tranche of the $6 million Series C Private Placement. In connection with the second tranche, the purchase price was reduced to $12.50 per unit and we issued an additional 11,011 units to the purchasers who participated in the first tranche, without any additional gross proceeds to us. The second tranche closed on June 20, 2011 for the sale of 22,039 Series C Units for a purchase price of $12.50 per unit with gross proceeds of $275,485. Each unit consists of (i) one share of Series C Convertible Preferred Stock, $0.01 par value per share (the “Series C Convertible Preferred Stock”) convertible into 10 shares of our Common Stock, (subject to adjustment for stock splits, stock dividends, recapitalization, etc.) and (ii) a three-year warrant to purchase 10 shares of our Common Stock at a per share exercise price equal to the sum of (i) the Common Stock equivalent of the Series C Purchase Price (ii) plus $0.88. The Series C Warrants will be exercisable until the close of business on the third anniversary of the applicable closing date.

During the three months ended September 30, 2011, we received loans in the aggregate amount of $412,000 from five individuals. The loans have a term of six months, which may be extended with mutual consent of the parties. The interest rate under the promissory notes is 20% per annum.

-31-

Our accounts payable were $658,977 as of September 30, 2011, as compared to $234, 568 as of December 31, 2011. This increase is due to our efforts to conserve cash for use in operating the business.

Based on our current projections, including equity financing completed subsequent to September 30, 2011, we believe our current cash resources will enable us to extend our cash resources until February 2012.

Net cash used in operations for the nine months ended September 30, 2011 was $1,529,950 as compared to $2,461,421 for the nine months ended September 30, 2010. The prior period included accrued legal fees incurred in connection with the Series B financing and the release of our inventory deposits when Barocyclers were built offset by Barocycler sales.

Net cash used in investing activities for the nine months ended September 30, 2011 was $0 as compared to $86,949 for the same period in the prior year. We purchased tooling and Barocycler equipment for lease arrangements in the prior year.

Net cash provided by financing activities for the nine months ended September 30, 2011 was $1,274,071 as compared to $1,887,142 for the same period in the prior year. We raised approximately $1.1 million in gross proceeds this year from Series C Private Placement offset by approximately $378,000 in offering costs excluding the issuance of additional warrants to the placement agent. We also received six-month loans of $412,000 in the current year. During the same period in the prior year, we closed the second tranche of the Series B Private Placement on March 18, 2010 with the sale of 26,672 Series B Units with net proceeds of $465,867. Warrants were exercised for a total of $1,421,275 in gross proceeds to the Company in the nine months ended September 30, 2010.

COMMITMENTS AND CONTINGENCIES

Operating Leases

Our corporate offices are currently located at 14 Norfolk Avenue, South Easton, Massachusetts 02375. In November 2007, we signed a lease agreement commencing in February 2008 pursuant to which we lease approximately 5,500 square feet of office space. We renewed the lease until August 31, 2011 with no increase in the monthly payment and we are negotiating an extension of the lease. We currently pay approximately $6,500 per month on a month-to-month basis for the use of these facilities.

Effective January 1, 2010, we entered into a three-year lease agreement with the University of Massachusetts, pursuant to which we are leasing laboratory and office space on campus at the university. We are paying $5,000 per month for the use of these facilities.

Royalty Commitments

In 1996, we acquired our initial equity interest in BioSeq, Inc., which at the time was developing our original pressure cycling technology. BioSeq, Inc. acquired its pressure cycling technology from BioMolecular Assays, Inc. (“BMA”) under a technology transfer and patent assignment agreement. In 1998, we purchased all of the remaining outstanding capital stock of BioSeq, Inc., and at such time, the technology transfer and patent assignment agreement was amended to require us to pay BMA a 5% royalty on our sales of products or services that incorporate or utilize the original pressure cycling technology that BioSeq, Inc. acquired from BMA. We are also required to pay BMA 5% of the proceeds from any sale, transfer or license of all or any portion of the original pressure cycling technology. These payment obligations terminate in 2016. During the three months ended September 30, 2011 and 2010, we incurred $7,350 and $7,752, respectively, in royalty expense associated with our obligation to BMA. During the nine months ended September 30, 2011 and 2010, we incurred $18,962 and $17,281, respectively, in royalty expense associated with our obligation to BMA.

-32-

Battelle Memorial Institute

Target Discovery Inc.

In March 2010, we signed a strategic product licensing, manufacturing, co-marketing, and collaborative research and development agreement with Target Discovery Inc. (“TDI”). Under the terms of the agreement, we have been licensed by TDI to manufacture and sell a highly innovative line of chemicals used in the preparation of tissues for scientific analysis ("TDI reagents"). The TDI reagents were designed for use in combination with our pressure cycling technology. The companies believe that the combination of PCT and the TDI reagents can fill an existing need in life science research for an automated method for rapid extraction and recovery of intact, functional proteins associated with cell membranes in tissue samples.

Severance and Change of Control Agreements

Investment Banking Agreement

On November 4, 2011, the Company entered into an agreement with a former placement agent, pursuant to which the Company and the placement agent released each other of their respective obligations under a prior investment banking agreement. In connection with this agreement, the Company issued the placement agent a promissory note with an original principal amount of $150,000 with a maturity date of May 4, 2012. The promissory note is interest free, provided that, if the Company does not repay the principal amount on or before the maturity date, it will accrue interest at a rate of 18% per annum.

RECENT ACCOUNTING STANDARDS

The Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update, or “ASU”, No. 2009-13, Revenue Recognition (Topic 605) — Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”). ASU 2009-13 amends existing revenue guidance related to revenue arrangements with multiple deliverables to allow the use of companies’ estimated selling prices as the value for deliverable elements under certain circumstances and to eliminate the use of the residual method for allocation of deliverable elements. ASU 2009-13 is effective for fiscal years beginning on or after June 15, 2010, with earlier adoption permitted. The Company has evaluated the impact this standard will have on its financial statements.

In January 2010, the FASB issued ASU 2010-06 “Fair Value Measurements and Disclosures” (“ASU 2010-06”). ASU 2010-06 updated section ASC 820-10, Fair Value Measurements and Disclosures, to require a greater level of disaggregated information and more robust disclosure about valuation techniques and inputs to fair value measurements. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, with the exception of the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measures which are effective for interim and annual reporting periods beginning after December 15, 2010. The Company determined that there is no significant impact to its operations from this guidance because the Company invests in assets considered to be in Level 1 status.

-33-

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 filings are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management was necessarily required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of September 30, 2011, we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

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

-34-

PART II. OTHER INFORMATION

ITEM 5. OTHER INFORMATION

Unregistered Stock Issuances

On October 28, 2011, we issued 32,941 shares of Common Stock to holders of Series A Convertible Preferred Stock in payment of dividends accrued through September 30, 2011.

On November 1, 2011, we issued 15,000 shares of Common Stock to an investor relations firm for payment of services rendered.

Investment Banking Agreement

On November 4, 2011, the Company entered into an agreement with a former placement agent, pursuant to which the Company and the placement agent released each other of their respective obligations under a prior investment banking agreement. In connection with this agreement, the Company issued the placement agent a promissory note with an original principal amount of $150,000 with a maturity date of May 4, 2012. The promissory note is interest free, provided that, if the Company does not repay the principal amount on or before the maturity date, it will accrue interest at a rate of 18% per annum.

-35-

ITEM 6. EXHIBITS

Exhibits

4.1*	Form of Warrant Issued to Lenders

4.2*	Form of Promissory Note Issued to Lenders

4.3	Amendment No. 1 to Series B Convertible Preferred Stock Purchase Warrant (incorporated by reference to the Current Report on Form 8-K filed by the Company on August 11, 2011)

4.4	Amendment No. 1 to 30-Month Common Stock Purchase Warrant (incorporated by reference to the Current Report on Form 8-K filed by the Company on August 11, 2011)

4.5	Amendment No. 2 to Series B Convertible Preferred Stock Purchase Warrant (incorporated by reference to the Current Report on Form 8-K filed by the Company on October 6, 2011)

4.6	Amendment No. 2 to 30-Month Common Stock Purchase Warrant (incorporated by reference to the Current Report on Form 8-K filed by the Company on October 6, 2011).

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

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

101*	The following financial information from this Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Cash Flows; and (iv) the Notes to Financial Statements, tagged as blocks of text

* Filed herewith.

-36-

SIGNATURES

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


	PRESSURE BIOSCIENCES, INC.

Date: November 14, 2011	By:	/s/Richard T. Schumacher
		Richard T. Schumacher President & Chief Executive Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)