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 when needed or at acceptable terms;
- our belief that we have sufficient liquidity to finance operations at the current level into mid-2009 due to certain cost reduction initiatives we have undertaken;
- our plans and expectations with respect to our pressure cycling technology (PCT) operations;
- potential growth in the market for our PCT products;
- market acceptance and the potential for commercial success of our PCT products;
- our belief that PCT provides a superior solution for sample preparation;
- the expected development and success of new product offerings;
- the potential applications for PCT;
- the expected benefits and results from our research and development efforts;
- the anticipated impact of the reduction in workforce including the re-alignment of our sales force from seven full time sales directors to three;
- the expected benefits and results from our collaboration program;
- our expectation of increased grant revenue during the remainder of 2008 and our expectation of obtaining additional research grants from the government in the future;
- the amount of cash necessary to operate our business;
- the availability of net operating losses to offset potential future operating income;
- 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 6 of our Annual Report on Form 10-K for the year ended December 31, 2007, as well as those discussed elsewhere in this Report. 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, 2007 included in our Annual Report on Form 10-K for the year ended December 31, 2007.

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 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 the ProteoSolve-lrs kit for the detergent-free extraction of proteins from lipid-rich samples, together make up the PCT Sample Preparation System ("PCT SPS").

Our pressure cycling technology employs a unique approach that we believe has the potential for broad applications in a number of established and emerging life sciences areas, including;

- sample preparation for genomic, proteomic, metabolomic, lipidomic, and small molecule studies;

- pathogen inactivation;

- protein purification;

- control of chemical (enzymatic) reactions; and

- immunodiagnostics.

Since we began operations as Pressure BioSciences in February 2005, we have focused substantially all of our research and development and commercialization efforts on sample preparation for genomic, proteomic, metabolomic, lipidomic, and small molecule studies.

Our business strategy is to commercialize pressure cycling technology in the area of sample preparation for genomic, proteomic, metabolomic, lipidomic, and small molecule studies ("sample preparation"). We also plan to pursue the further development and commercialization of PCT in other life sciences applications, which could include working with various strategic partners that have greater scientific and regulatory expertise in the respective applications than we do.

To support our current strategy, our primary focus is the execution of our commercialization plan for PCT in sample preparation. If we are successful commercializing our technology in the sample preparation market, we believe that our financial results will be positively affected by a combination of the revenue from the sale, lease, and rental of the Barocycler instruments, and by the recurring revenue streams that we hope to realize from the sale of the single-use PULSE Tubes, PCT-dependent kits, and extended service contracts on our instrumentation. We believe the recurring revenue streams that could be generated from our instruments in the field are a very important component of our future financial success. Therefore, we believe that in the short-term it is more important for us to focus on increasing the number of installed Barocyclers in the field than it is for us to record revenue in the current period. To this end, we have offered our prospective customers the opportunity to lease or rent the Barocycler instruments, and in some cases we have engaged in short-term reagent rental agreements. Under a reagent rental agreement we provide the customer with a Barocycler instrument in exchange for a minimum purchase commitment of consumable products. While these lease, rental and reagent rental arrangements do not provide us with the immediate revenue of an instrument sale, they do serve to expand the utilization of PCT and they provide a stream of revenue in the form of rental payments and consumable purchases. We define sales, leases, rentals and reagent rentals of Barocycler instruments as revenue-generating installations.

We also derive revenue from Small Business Innovation Research ("SBIR") grants awarded to us by the National Institutes of Health (NIH). In 2006 and 2007, we received two SBIR Phase I grants in the aggregate amount of $300,000. These grants have funded experiments to demonstrate the feasibility of using pressure cycling technology in various applications in the life sciences. We have several SBIR Phase I and II grants under review at the present time. In June 2008, we were notified that the Company was awarded its first Phase II SBIR Grant from the NIH. The grant is for $850,000 to be billed over two years and will help fund continuing experiments directed towards the development and commercialization of novel, automated, and reproducible methods for the extraction of clinically important protein biomarkers, sub-cellular molecular complexes, and organelles (such as mitochondria) from cells and tissues using the our patented pressure cycling technology.

In furtherance of our commercialization strategy, throughout 2007 and early 2008 we increased spending in all major areas of our business. Although we continued to receive very positive feedback from our prospective customers our commercialization plans had not developed as quickly as we had hoped and our revenues in the first half of 2008 failed to meet our internal expectations. The underperformance of our sales, relative to our internal plans, combined with our view of the condition of the capital markets prompted us to implement a number of cost reduction initiatives, including the delay of certain research and development projects, 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, and a reduction in our workforce which included the re-alignment of our domestic sales force from seven full time sales directors to three. We have also delayed the hiring of new personnel to fill previously vacated positions. We believe that implementing such changes to our business plan will allow us to extend our existing cash balances into the middle of 2009, without significantly impacting our short-term commercialization efforts.

The extent to which we increase, or decrease, our operational costs over the coming quarters is dependent upon our judgment of the investment required to successfully commercialize PCT and our ability to secure additional funding through equity or debt financings. If we are unable to increase the number of installations of PCT Systems and if we are unable to secure additional funding through equity or debt financings, we will undertake additional cost reduction measures.

In June 2008, we engaged Emerging Growth Equities, Ltd. ("EGE"), an investment banking firm located in King of Prussia, PA., to assist us in identifying potential and suitable investors in a private placement of the Company's securities. The engagement of EGE contemplates a private placement of the Company's securities exempt from the registration requirements under Regulation D promulgated under the Securities Act of 1933, as amended of up to $8,000,000, or more at the Company's discretion. We can provide no assurance that any such equity or debt offerings will occur, or that additional financing will be available to us on acceptable or affordable terms.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2008 and 2007

Revenue

We recognized revenue of $120,184, for the three months ended June 30, 2008, as compared to $202,127 for the same period in the prior year.

PCT Products, Services, Other. Revenue from the sale of PCT products and services was $117,698 for the three months ended June 30, 2008 as compared to $136,355 for the same period in the prior year. During the second quarter of 2008 we completed the installation of seven Barocycler instruments at customer locations, as compared to four in the same period of 2007. The decrease in revenue, despite an increase in the number of installations was due in part to a shift in product mix; three of the seven installations in the second quarter of 2008 were sales of the less expensive NEP2320 whereas all four installations in the second quarter of 2007 were sales of our more expensive NEP3229. Also contributing to this decrease was the fact that two of our seven installations were made pursuant to short-term rental agreements, which generally range from three to twelve months in length. These agreements have a minimal impact on current period revenues but provide a revenue stream over the life of the respective agreements in the form of rental payments and purchases of our consumable products.

We expect the number of units installed will continue to increase in future periods as we continue to commercialize our technology. 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.

Grant revenue. During the three months ended June 30, 2008 and 2007, we recorded $2,486 and $65,772 of grant revenue, respectively, in connection with our two SBIR Phase I grants. This decrease in grant revenue during the second quarter of 2008 as compared to the same period in 2007 was due to the completion of billing of our two Phase I grants. We expect grant revenues to increase in the remaining quarters of 2008 as the work on our recently awarded SBIR Phase II grant will begin in the third quarter and continue at varying levels for the next six to eight quarters. 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 $88,434 for the three months ended June 30, 2008 compared to $57,629 for the comparable period in 2007. This increase in cost of PCT products and services despite a decrease in revenue is due to an adjustment of approximately $40,000 to reduce our estimated warranty liability during 2007. Aside from this adjustment our cost of PCT products and services, as a percentage of PCT revenue in the second quarter of 2008 is consistent with the same period in 2007.

The relationship between our 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 decreased to $461,672 in the second quarter of 2008 as compared to $538,015 in the same period in 2007. During the second quarter of 2008 we delayed certain engineering initiatives to reduce our overall operating expense. During the same period in 2007 we incurred substantial costs related to the development of prototype NEP2320 instrumentation.

Research and development expense recognized in the second quarter of 2008 and 2007 included $53,633 and $14,934, respectively, of non-cash, stock-based compensation expense. We expect the level of stock-based compensation expense for the remaining quarters of 2008 to be similar to the amount recorded during the current quarter.

We plan to maintain our current headcount in research and development until we secure additional funding through equity or debt financings. We believe that with our existing staff, we can continue to pursue what we believe to be our most important research and development programs.

Selling and Marketing

Selling and marketing expenses increased to $521,606 for the three months ended June 30, 2008 from $350,823 for the comparable period in 2007. This increase in selling and marketing expense was primarily the result of our increase in the size of our domestic sales force, the addition of a Vice President of Sales in February 2008, and the continued emphasis on strategic marketing programs.

During the second quarter of 2008 and 2007, selling and marketing expense included $42,200 and $3,498, respectively, of non-cash, stock-based compensation expense. We expect the level of stock-based compensation expense for the remaining quarters of 2008 to be similar to the amount recorded during the current quarter.

We expect selling and marketing expense to decrease in the third and fourth quarter, until we secure additional funding through equity or debt financings. As part of our cost reduction measures we re-aligned our domestic sales force from seven full time sales directors to three. We believe this re-alignment, and our other cost reduction measures, provides us with a manageable balance between the need to conserve our cash resources and the need to support our short-term commercialization plans.

General and Administrative

General and administrative costs totaled $635,672 for the three months ended June 30, 2008, as compared to $624,462 for the comparable period in 2007. The increase is due to a charge of $100,556 of non-cash stock-based compensation expense in connection with the grant of non-qualified, fully-vested stock options to purchase 10,000 shares of our common stock to each of our four independent directors in April 2008. Aside from this non-cash charge our general and administrative spending decreased due to an overall decrease in investor relations spending, Sarbanes-Oxley compliance costs, and other cost reduction efforts.

We expect that general and administrative spending, excluding stock-based compensation expense, in the remaining quarters of 2008 will approximate the level of spending incurred during the second quarter.

Operating Loss from Continuing Operations

Our operating loss from continuing operations was $1,587,200 for the three months ended June 30, 2008 as compared to an operating loss from continuing operations of $1,368,802 for the comparable period in 2007. The operating loss from continuing operations for the three months ended June 30, 2008 included $251,789 of non-cash, stock-based compensation expense as compared to $40,838 in the comparable period in 2007. Aside from non-cash, stock-based compensation expense, our operating loss during the second quarter of 2008 was approximately the same as the operating loss during the second quarter of 2007. These results are partially due to our cost reduction measures implemented during the second quarter of 2008, such as the delaying several research and development projects and delaying the hiring of new personnel to fill previously vacated positions, partially offset by increased spending in sales and marketing and a decrease in gross profit due to the overall decrease in grant related revenue.

The extent to which we increase, or decrease, our operational costs over the coming quarters is dependent upon our judgment of the investment required to successfully commercialize PCT and our ability to secure additional funding through equity or debt financings. We expect that the gross profit from increasing revenues will partially mitigate the impact of our increased spending, if any, on our overall operating loss.

Realized gain of sale on securities held for sale

In the three months ended June 30, 2007 we completed the liquidation of our investment in Panacos Pharmaceuticals and realized a gain on securities sold of $1,301,247.

Interest Income

Interest income totaled $16,549 for the three months ended June 30, 2008 as compared to interest income of $80,482 in the prior year period. The decrease is due to lower average cash balances and lower yields on these balances during 2008, as compared to 2007.

Income Taxes from Continuing Operations

In the quarter ended June 30, 2008, we did not record a benefit for income taxes from continuing operations. During the same period in 2007, we recorded a benefit for income taxes of $3,516.

We do not expect to record any income tax benefit for the foreseeable future due to the fact that we are no longer able to carry back current losses against taxable income from prior periods and because we expect our operating losses to continue for several years. If we are successful commercializing PCT and if we are able to generate operating income, then we may be able to utilize the net operating loss carry-forwards that we generate.

Gain on Assets Related to Discontinued Operations

During the second quarter of 2008 there were no charges for discontinued operations. During the first half of 2007, we realized a gain on the sale of Source Scientific, LLC of $1,155,973. This gain is comprised of the $378,503 charge that we recorded in the first quarter of 2007 under the provisions of Staff Accounting Bulletin ("SAB") Topic 5E, "Accounting for Divestiture of a Subsidiary or Other Business Operation ("SAB Topic 5E") and the gain of $1,534,476, net of income taxes of $218,060, that we recorded during the second quarter of 2007, the period in which we completed the sale. We recorded this gain in connection with the receipt on May 29, 2007 of $1,780,071 from Mr. Richard W. Henson and Mr. Bruce A. Sargeant, the principals of Source Scientific, LLC, as full payment for their purchase of our remaining interest in that business.

Upon completion of the transaction, we accounted for the total gain on the sale of our ownership interests in Source Scientific, LLC as discontinued operations. The charge that we recorded during the first quarter of 2007, under the provisions of SAB Topic 5E, was reclassified as discontinued operations to reflect this change.

Net loss

During the second quarter of 2008 we recorded a net loss of $1,570,651 as compared to net income of $1,550,919 in the second quarter of 2007. While our overall level of operating costs in the second quarter of 2008 was similar to the level of spending in the second quarter of 2007, these costs were not offset by the gain on sale of marketable securities, gain on sale of assets from discontinued operations, and the benefit from income taxes, during 2008, as was the case in 2007. We expect our net loss for the full year of 2008 to be higher than the net loss reported for the full year in 2007.

Six Months Ended June 30, 2008 and 2007

Revenue

We recognized revenue of $252,560, for the six months ended June 30, 2008, as compared to $333,748 for the same period in the prior year.

PCT Products, Services, Other. Revenue from the sale of PCT products and services was $199,171 for the six months ended June 30, 2008 as compared to $174,297 for the same period in the prior year. During the first half of 2008 we completed the installation of fourteen Barocycler instruments at customer locations, as compared to five in the same period of 2007. The modest increase in revenue, despite a significant increase in the number of installations was due in part to a shift in product mix; four of the fourteen installations in the first half of 2008 were sales of the less expensive NEP2320 whereas all five installations in the first half of 2007 were sales of the more expensive NEP3229. Also contributing to this trend was the fact that six of our fourteen installations in the first half of 2008 were made pursuant to short-term rental agreements, which generally range from three to twelve months in length. These agreements have a minimal impact on current period revenues but provide a revenue stream over the life of the respective agreements in the form of rental payments and purchases of our consumable products.

We expect the number of units installed will continue to increase in future periods as we continue to commercialize our technology. We also expect that some portion of future installations will 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.

Grant revenue. During the six months ended June 30, 2008 and 2007, we recorded $53,389 and $159,451 of grant revenue, respectively, in connection with our two SBIR Phase I grants. This decrease in grant revenue was due to a shift in resources from grant related activities to other research and development projects when the remaining Phase I grant was completed during the second quarter of 2008. We expect grant revenues to increase in the remaining quarters of 2008 as the work on our recently awarded SBIR Phase II grant will begin in the third quarter and continue, at varying levels, for the next six to eight quarters. 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 $136,883 for the six months ended June 30, 2008 compared to $89,282 for the comparable period in 2007. This increase in cost of PCT products and services was primarily due to an adjustment of approximately $40,000 to reduce our estimated warranty liability during 2007. Aside from this adjustment our cost of PCT products and services, as a percentage of PCT revenue decreased in the first half of 2008 as compared to the first half of 2007. This increase in our gross margin during the first half of 2008 as compared to the first half of 2007 is due to a favorable shift in the mix of the products that we sold. During the first half of 2008 four of the fourteen instruments that we installed were NEP2320 instruments that were sold during the period. Although the NEP2320 is a less expensive alternative for our customers it typically yields a higher gross margin when we sell at, or near, list price. We did not sell any NEP2320's during the first half of 2007. Revenues from the sale of consumable products, such as PULSE Tubes and ProteoSolve kits also increased in the first six months of 2008 as compared to the same period in 2007. Our consumable products typically yield higher gross margins than our Barocycler instruments.

The relationship between our cost of PCT products and services and PCT revenue will continue to 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 decreased to $952,603 in the first half of 2008 as compared to $999,547 in the same period in 2007. Research and development costs in 2007 included significant spending associated with the design and development of the Barocycler NEP2320. The decrease was partially offset by increases in compensation-related costs due to the planned expansion of our research and development capabilities in the second half of 2007 and early 2008.

Research and development expense recognized in the first half of 2008 and 2007 included $96,870 and $64,428, respectively, of non-cash, stock-based compensation expense. We expect the level of stock-based compensation expense for the remaining quarters of 2008 to be similar to the amount recorded in the second quarter.

Selling and Marketing

Selling and marketing expenses increased to $984,767 for the six months ended June 30, 2008 from $607,354 for the comparable period in 2007. This increase in selling and marketing expense was primarily the result of our increase in the size of our domestic sales force, the addition of a Vice President of Sales in February 2008 and the continued emphasis on strategic marketing programs.

During the first half of 2008 and 2007, selling and marketing expense included $75,232 and $19,492, respectively, of non-cash, stock-based compensation expense. We expect the level of stock-based compensation expense for the remaining quarters of 2008 to be similar to the amount recorded in the second . . .