Summary of PRESSURE BIOSCIENCES INC

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

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

- our ability to raise additional equity or debt financing on acceptable terms, if at all;
- our belief that we have sufficient liquidity to finance operations into the second quarter of 2010;
- our need to take additional cost reduction measures, cease operations or sell our operating assets, if we are unable to obtain sufficient additional financing in the future;
- the amount of cash necessary to operate our business;
- our ability to reduce our rate of cash utilization to an average of approximately $600,000 per quarter during 2009;
- the anticipated uses of grant revenue and increased grant revenue in future periods;
- potential growth in the market for our PCT products;
- our plans and expectations with respect to our pressure cycling technology (PCT) operations, including our expected amount of research and development, selling and marketing and general and administrative expense;
- market acceptance and the potential for commercial success of our PCT products;
- our belief that PCT provides a superior solution for sample preparation;
- our belief that PCT has achieved significant market acceptance in the mass spectrometry market;
- the expected development and success of new product offerings, including our new PCT Micro-Tube Adaptor Kits for accelerated proteolytic digestion;
- the potential applications for PCT;
- the expected benefits and results from our research and development efforts;
- the expected benefits and results from our collaboration program;
- our expectation of obtaining additional research grants from the government in the future;
- the expected tax benefits we may receive due to the American Recovery and Reinvestment Act of 2009;
- our ability to utilize net operating losses in the future;
- general economic conditions; and
- the anticipated future financial performance and business operations of our company.

These forward-looking statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Report. Except as otherwise required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this Report to reflect any change in our expectations or any change in events, conditions, or circumstances on which any of our forward-looking statements are based or to conform to actual results.

Factors that could cause or contribute to differences in our future financial and operating results include those discussed in the risk factors set forth in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2008, as well as those discussed elsewhere in this Report, including the following:

If we fail to obtain substantial additional capital, we may not be able to continue our business.

Based on our current projections, we believe our current cash resources, which include the funds we received from the private placement completed in February 2009, are sufficient to fund our normal operations into the second quarter of 2010.

We will need additional capital sooner than we currently expect if we experience unforeseen costs or expenses, unanticipated liabilities or delays in implementing our business plan, developing our products and achieving commercial sales. We also believe that we will need substantial capital to accelerate the growth and development of our pressure cycling technology products and services in the sample preparation area, as well as for applications in other areas of life sciences.

Our actual results and performance, including our ability to raise additional capital, may be adversely affected by current economic conditions.

Our actual results and performance could be adversely affected by the current economic conditions in the global economy, which pose a risk to the overall demand for our products from our customers who may elect to defer or cancel purchases of our products in response to tighter credit markets, negative financial news, and general uncertainty in the economy. In addition, our ability to obtain additional financing, on acceptable terms, if at all, may be adversely affected by the crisis in the credit markets and the uncertainty in the current economic climate.

We qualify all of our forward-looking statements by these cautionary statements. You should read this section in combination with the section entitled Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2008 included in our Annual Report on Form 10-K for the year ended December 31, 2008.

OVERVIEW

We are a life sciences company focused on the development and commercialization of a novel, enabling, platform technology called pressure cycling technology ("PCT"). PCT uses cycles of hydrostatic pressure between ambient and ultra-high levels (up to 35,000 psi and greater) to control bio-molecular interactions.

Our pressure cycling technology uses instrumentation that is capable of cycling pressure between ambient and ultra-high levels (up to 35,000 psi or greater) at controlled temperatures to rapidly and repeatedly control the interactions of bio-molecules. Our pressure-generating instrument is called the Barocycler®. Our PCT-related consumables product line includes PULSE (Pressure Used to Lyse Samples for Extraction) Tubes as well as application specific ("ProteoSolve") kits. Our Barocycler instrument, together with our consumable products and reagents, make up the PCT Sample Preparation System ("PCT SPS").

We have experienced negative cash flows from operations with respect to our pressure cycling technology business since our inception. As of March 31, 2009, we had cash of approximately $2.1 million. During 2008, we took a number of cost reduction measures, including a comprehensive restructuring program to significantly reduce costs, centralize core operations, and refocus our business strategy in specific areas where our products have found significant market acceptance. The restructuring program included: a reduction in personnel of eight full-time employees (40% of the workforce), reduction in travel and meeting attendance for all personnel, continued reduction in investor relations activities, decreases in the base salary of most of our employees and all of our executive officers, a shutdown of our R&D facility in Rockville, MD, a consolidation of our R&D activities in Massachusetts, and delay of several research & development and marketing programs. We believe that these initiatives will significantly decrease our rate of cash utilization, from just under $1 million per quarter in the second half of 2008 to an average of approximately $600,000 per quarter during 2009. We also believe that these actions, taken together with the proceeds we received from our $1.8 million equity financing completed in February 2009, will enable us to extend our cash resources into the second quarter of 2010.

Despite the difficulty in the capital markets and the necessity to implement a very challenging restructuring program during the second half of 2008, we are quite proud of the number of accomplishments that we realized during the first quarter of 2009. These successes include:

· Sale of Series A Convertible Preferred Stock and Warrants in a Private Placement - On February 12, 2009, we received approximately $1.8 million from the sale of 156,980 units, consisting of shares of Series A Convertible Preferred Stock and warrants, in a private placement to 35 accredited investors.

· Phase I SBIR Grant Award - During the first quarter, we were notified by the National Institute of Allergy and Infectious Diseases ("NIAID") of the National Institutes of Health (NIH) that we had been awarded a Phase I SBIR grant (1R43A1081518-01) for a total of $109,998 to be billed over six months. Entitled "Sample Preparation Using Pressure for Microbiome Studies and Clinical Diagnostics", the grant will help fund research studies focused on discovering and cataloging the microbes that live on and in the human body.

· Presentation by Dr. Alexander Ivanov - Dr. Ivanov of the Harvard School of Public Health delivered a presentation at the 13th annual international meeting of the Association of Biomolecular Resource Facilities ("ABRF") in February 2009 entitled "Searching for Efficient and High-Throughput Alternatives for Essential Sample Preparation Techniques in Mass Spectrometry-based Functional Proteomics". Dr. Ivanov and his colleagues stated that "good control, efficiency, and reproducibility of protein extraction from cells and tissues are essential for diverse biological and basic research applications" and that "effective and specific proteolytic digestion of proteins prior to mass spectrometry ("MS") analysis is one of the fundamental techniques most commonly used in any proteomics laboratory". Dr. Ivanov and his colleagues concluded that "PCT resulted in significant improvement of throughput and reproducibility of sample preparation for proteomic analysis" and that "superior extraction rates were observed with pressure-assisted sample preparation". Dr. Ivanov's presentation was awarded the "Best Poster Presentation" at the ABRF Annual Meeting.

· The Journal of Biomolecular Techniques Outstanding Manuscript Award - This annual award recognizes the best research article published each year in the Journal. The 2009 award was presented to scientists from PBI and the Harvard School of Public Health for their manuscript "Tissue Fractionation by Hydrostatic Pressure Cycling Technology: the Unified Sample Preparation Technique for Systems Biology Studies" at the February 2009 ABRF Annual Meeting. The paper discussed the unique ability of PCT and the Company's patent-pending ProteoSolve-SB™ reagent kit to simultaneously extract DNA, RNA, proteins, and lipids from the same sample. The award was accepted by Dr. Vera Gross of PBI, the paper's corresponding author.

· Third Consecutive Quarter of Double Digit Growth of PCT Sample Preparation System Installations - On May 5, 2009, we announced that total revenue for the first quarter of 2009 was $306,762 compared to $132,376 for the comparable period in 2008, a 132% increase. We also announced that we had installed 10 PCT Sample Preparation Systems in the quarter, an increase of three installations from the first quarter 2008.

· Continued Reduction in our Rate of Cash Utilization - On May 5, 2009, we announced that our operating loss for the first quarter of 2009 was $849,911 compared to $1,371,413 for the same period in 2008, a decrease of $521,502, or 38%. We also announced that our cash used in first quarter 2009 operating activities was approximately $655,000, as compared to approximately $1,212,000 for the same quarter of 2008.

· Measured Progress on the Development of the PCT MicroTube Adapter Kits for Accelerated Proteolytic Digestion - We are working on the development of new "micro-tube" adaptor kits for our two existing Barocycler instruments. These new PCT-based products are expected to allow an increase in throughput of greater than 10-fold in a number of important application areas, while maintaining or increasing the quality of results. These new products are also expected to allow us to enter into several exciting markets heretofore unavailable to us, such as the large sample preparation market for mass spectrometry. Feedback and data received from our beta testing sites on the new micro-tube format have been very positive, productive, and encouraging. We have also made significant progress on the remaining development issues related to the adapter kits. We believe that we will meet the expected release date of June 30, 2009.

We hold 13 United States and 6 foreign patents covering multiple applications of PCT in the life sciences field. Our pressure cycling technology employs a unique approach that we believe has the potential for broad use in a number of established and emerging life sciences areas, including;

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

Since we began operations as Pressure BioSciences in February 2005, we have installed 84 Barocycler instruments, including 10 instruments in the first quarter of 2009, 41 instruments in 2008, 20 instruments in 2007, 8 instruments in 2006, and 5 instruments in 2005. Our customers include researchers at academic laboratories and government agencies, as well as biotechnology, pharmaceutical and other life sciences companies in the United States, and six foreign distribution partners.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2009 and 2008

Revenue

We recognized revenue of $306,762 for the three months ended March 31, 2009, as compared to $132,376 for the same period in the prior year.

PCT Products, Services, Other. Revenue from the sale of PCT products and services was $222,142 for the three months ended March 31, 2009 as compared to $81,473 for the same period in the prior year. During the first quarter of 2009, we completed the installation of ten Barocycler instruments, as compared to seven in the same period of 2008. Seven of the ten were domestic installations and three were international sales, compared to five domestic installations and two international sales for the same quarter in 2008. The increase in revenue observed in the first quarter of 2009 was due in part to this increase in the number of Barocycler units sold during the period, as well as to increased sales of consumable products and to PCT-related scientific services that were provided.

We expect the number of units installed will continue to increase in future periods as we continue to commercialize our technology, although we may experience some delays in customer purchases due to current economic conditions in the global economy. Furthermore, we may realize some difficulties in signing up new international distribution partners if we are unable to secure additional funding through equity or debt financings. We also expect that some portion of future installations will continue to be for the smaller, lower priced, Barocycler NEP2320 model and some will be placed under lease or short-term rental agreements. Therefore, we expect that the average revenue per installation will continue to fluctuate from period to period as we continue to drive our installed base and commercialize PCT. We also expect that as we continue to expand the installed based of Barocycler instruments in the field we will realize increasing revenues from the sale of consumable products and extended service contracts. In the short-term, these recurring revenue streams may continue to fluctuate from period to period.

Grant Revenue. During the three months ended March 31, 2009 and 2008, we recorded $84,620 and $50,903 of grant revenue, respectively. Grant revenue recorded during the first quarter of 2009 was related to the $850,000 SBIR Phase II grant that we were awarded in June 2008 and to an SBIR Phase I grant of approximately $110,000 awarded in January 2009. We expect grant revenues to increase over the next several quarters as the amount of time and expense incurred in connection with these grants continues to increase. The level of grant revenue that we recognize in any given quarter is dependent upon the level of resources we devote to grant related work in the period.

Cost of PCT Products and Services

The cost of PCT products and services was $140,243 for the three months ended March 31, 2009 compared to $48,449 for the comparable period in 2008. This increase in cost of PCT products and services was due primarily to the increase in the number of units installed under sale, lease, or rental arrangements during the period and the corresponding increase in the related royalties on PCT products. Costs of PCT products and services as a percentage of revenue increased to 63.1% for the three months ended March 31, 2009, as compared to 59.5% for the three months ended March 31, 2008. The increase in the cost of PCT products and services as a percentage of revenue was due primarily to two factors: (a) three of the ten units that we installed during the first quarter of 2009 were sold to our international distributors at usual, discounted prices, compared to two units to international distributors in the same period of 2008, and (b) one of the Barocycler units sold during the first quarter of 2008 was a collaboration model NEP3229 that had been previously expensed resulting in a lower cost of PCT products in the prior year.

The relationship between the cost of PCT products and services and PCT revenue will depend greatly on the mix of instruments we sell, the quantity of such instruments, and the mix of consumable products that we sell in a given period.

Research and Development

Research and development expenditures were $307,224 in the first quarter of 2009 as compared to $490,931 in the same period in 2008, a decline of 37%. This decline in R&D expenses was primarily due to the significant restructuring and cost-reduction programs that we initiated in the third and fourth quarters of 2008, including the termination of seven R&D employees. The headcount in R&D during the first quarter of 2009 was three, compared to ten during the same period in 2008. The decline in expenses was also due to a significant decrease in the number of R&D projects being funded by the Company during the first quarter of 2009.

Research and development expense recognized in the first quarters of 2009 and 2008 included $52,972 and $43,237 of non-cash, stock-based compensation expense, respectively. We expect that the level of stock-based compensation expense in the near future will be higher than the amount recorded during the first quarter of 2009, due to a grant of stock options at the end of the quarter.

Selling and Marketing

Selling and marketing expenses decreased to $278,416 for the three months ended March 31, 2009 from $463,161 for the comparable period in 2008, a decline of $184,745 or 40%. This decline in selling and marketing expense was primarily due to the significant restructuring and cost-reduction programs that we initiated in the third and fourth quarters of 2008, including the termination of four sales directors and one marketing assistant. The headcount in selling and marketing during the first quarter of 2009 was four, compared to eleven during the same period in 2008. A significant decrease in advertising, exhibit booth rental, and travel cost expense also contributed to the reduction in overall selling and marketing expense incurred during the first quarter of 2009.

We recorded an allowance for bad debts of $55,600 in the first quarter of 2009. Due to our continued increase in sales and the number and type of customers, we concluded that it was appropriate to initiate a bad debt allowance.

During the first quarter of 2009 and 2008, selling and marketing expense included $21,208 and $33,032 of non-cash, stock-based compensation expense, respectively. We expect the level of stock-based compensation expense in the near future will be higher than the amount recorded during the first quarter of 2009 due to a grant of stock options at the end of the quarter.

General and Administrative

General and administrative costs totaled $430,790 for the three months ended March 31, 2009 as compared to $501,248 for the comparable period in 2008, a decrease of $70,458 or 14%. This decrease in general and administrative expense was primarily due to the significant restructuring and cost-reduction programs that we initiated in the third and fourth quarters of 2008. The decline in expenses was also due to a significant decrease in investor relations costs, and compensation savings from the resignation of our Chief Financial Officer in November 2008. At this time, the Company is not actively pursuing a replacement for the CFO.

During the first quarters of 2009 and 2008, general and administrative expense included $71,723 and $41,936 of non-cash, stock-based compensation expense, respectively. We expect the level of stock-based compensation expense in the near future will be higher than the amount recorded during the first quarter of 2009 due to a grant of stock options at the end of the quarter.

Operating Loss

Our operating loss was $849,911 for the three months ended March 31, 2009 as compared to $1,371,413 for the comparable period in 2008, a decrease of $521,502 or 38%. During the second half of 2008, we initiated a number of cost reduction measures, including a comprehensive restructuring program to significantly reduce costs, centralize core operations, and refocus our business strategy in specific areas where our products had found significant market acceptance. The restructuring program included: a reduction in personnel of twelve full-time employees, reduction in travel and meeting attendance for all personnel, continued reduction in investor relations activities, decreases in the base salary of most of our employees and all of our executive officers, a shutdown of our R&D facility in Rockville, MD, a consolidation of our R&D activities in Massachusetts, and delay or cancellation of several research and development and marketing programs.

We believe that these initiatives will significantly decrease our rate of cash utilization, from just under $1 million per quarter in the second half of 2008 to an average of approximately $600,000 per quarter during 2009.

Interest Income

Interest income totaled $2,403 for the three months ended March 31, 2009 as compared to interest income of $30,308 in the prior year period. The decrease is due to lower average cash balances and lower yields on these balances during the first quarter of 2009, as compared to the first quarter of 2008.

Income Taxes

In the quarter ended March 31, 2009, we recorded a benefit for income taxes of $623,262 due to provisions in the American Recovery and Reinvestment Act of 2009 relating to net operating loss carry-backs. The cash is expected to be received during the second half of 2009. There was no provision for an income tax benefit during the same period in 2008. Aside from the impact of the passage of this law, we do not expect any additional income tax benefits relating to carry-backs to prior periods. If we are successful in commercializing PCT and in generating operating income, then we may be able to utilize any net operating losses we may have at the time against such future operating profits.

Net Loss

During the first quarter of 2009, we recorded a net loss of $224,246 or $(0.10) per share, as compared to $1,341,105 or $(0.61) per share in the first quarter of 2008. Our net loss in the first quarter of 2009 was lower than the corresponding net loss of the first quarter of 2008 principally due to the recognition of an expected federal income tax refund of $623,262 pursuant to the American Recovery and Reinvestment Act of 2009 as well as the result of increased revenue and lower operating costs.

LIQUIDITY AND FINANCIAL CONDITION

As of March 31, 2009, our working capital position was $3,091,727, the primary components of which were cash and cash equivalents, accounts receivable, inventory, prepaid expenses, deposits, and income taxes receivable, partially offset by accounts payable, accrued employee compensation, and other accrued expenses. As of December 31, 2008, our working capital position was $1,602,556, the primary components of which were cash and cash equivalents, accounts receivable, inventory, prepaid expenses, and deposits.

During the second half of 2008, we took a number of cost reduction measures, including a comprehensive restructuring program to significantly reduce costs, centralize core operations, and refocus our business strategy in specific areas where our products had found significant market acceptance. The restructuring program included: a reduction in personnel of twelve full-time employees, reduction in travel and meeting attendance for all personnel, continued reduction in investor relations activities, decreases in the base salary of most of our employees and all of our executive officers, a shutdown of our R&D facility in Rockville, MD, a consolidation of our R&D activities in Massachusetts, and the delay or cancellation of several research and development and marketing programs. We believe that these initiatives significantly decreased our rate of cash utilization, from just under $1 million per quarter during the second half of 2008 to an expected average of approximately $600,000 per quarter during 2009.

On December 19, 2008, we received $200,000 from one of our distributors in the escrow account for the private placement. Prior to February 12, 2009, the distributor requested that the $200,000 be used as payment for anticipated future purchases of our PCT instrument and consumable products, and not for an investment in the private placement. This amount was recorded as deferred revenue in the first quarter of 2009. As of March 31, 2009, $162,800 remained in deferred revenue for future product purchases. Three Barocycler units have been shipped against this advance payment.

We believe that because of the cost restructuring measures we have undertaken, together with the $1,805,270 we received in connection with our February 2009 private placement of units (consisting of Series A Convertible Preferred Stock and warrants), we have sufficient cash resources to fund normal operations into the second quarter of 2010. We believe we will need substantial additional capital to fund our operations beyond the second quarter of 2010. If we are able to obtain additional capital or otherwise increase our revenues, we may increase spending in specific research and development applications and engineering projects and may hire additional sales personnel or invest in targeted marketing programs. In the event that we are unable to obtain financing on acceptable terms, or at all, we may be required to limit or cease our operations, pursue a plan to sell our operating assets, or otherwise modify our business strategy, which could materially harm our future business prospects.

Net cash used in operations for the three months ended March 31, 2009 was $249,955 as compared to $1,166,904 for the three months ended March 31, 2008. The decrease in cash used in operations in 2009 as compared to 2008 is . . .