================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                 ______________

                                   FORM 10-QSB
                                 ______________


        [X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                OF THE SECURITIES EXCHANGE ACT OF 1934
                For the Quarterly Period Ended September 30, 2005

                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 0-21537




                            PACIFIC BIOMETRICS, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


           Delaware                                         93-1211114
 ------------------------------                       ----------------------
(State or other jurisdiction of                         (I.R.S. Employer
 incorporation or organization)                       Identification Number)


       220 West Harrison Street                          (206) 298-0068
       Seattle, Washington 98119                 -------------------------------
--------------------------------------           (Registrant's telephone number,
(Address of principal executive office)               including area code)




Check whether the issuer: (1) 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 for
such reports), and (2) has been subject to such filing requirements for the past
90 days.                                                       Yes  [X]  No  [_]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).                               Yes  [_]  No  [X]

As of November 12, 2005, the issuer had 12,749,746 shares of common stock
outstanding.

Transitional Small Business Disclosure Format:                 Yes  [_]  No  [X]

================================================================================
<PAGE>
                            PACIFIC BIOMETRICS, INC.

                              INDEX TO FORM 10-QSB





                                                                            Page
PART I - FINANCIAL INFORMATION                                              ----

ITEM 1 - FINANCIAL STATEMENTS

         Consolidated Balance Sheets as of September 30, 2005
         (unaudited) and June 30, 2005 (audited)..........................     3

         Consolidated Statements of Operations for the three months
         ended September 30, 2005 and 2004 (unaudited)....................     4

         Consolidated Statements of Cash Flows for the three months
         ended September 30, 2005 and 2004 (unaudited)....................     5

         Notes to Consolidated Financial Statements (unaudited)...........     6


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS..............................    10


ITEM 3 - CONTROLS AND PROCEDURES..........................................    18





PART II - OTHER INFORMATION

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS......    18


ITEM 6 - EXHIBITS.........................................................    18




SIGNATURES................................................................    19

<PAGE>
                            PACIFIC BIOMETRICS, INC.
                           CONSOLIDATED BALANCE SHEETS



<TABLE><CAPTION>
                                                                              SEPTEMBER 30,     JUNE 30,
                                                                                  2005            2005
                                                                              ------------    ------------
                                                                               (unaudited)      (audited)
                                                                              ------------    ------------
<S>                                                                           <C>             <C>
                                     ASSETS

Current assets:
    Cash and cash equivalents                                                 $    652,342    $  1,438,543
    Accounts receivable, net of allowance for doubtful accounts of $22,100
       and $22,100, respectively                                                 1,208,211         607,867
    Prepaid expenses and other assets                                              412,782         603,464
    Deferred financing cost on secured convertible note - current portion          107,170         107,170
                                                                              ------------    ------------
          Total current assets                                                   2,380,505       2,757,044

Property and equipment, net                                                        695,325         437,436
                                                                              ------------    ------------
Other assets:
    Deferred financing cost on secured convertible note - long-term portion        205,995         232,787
                                                                              ------------    ------------
          Total assets                                                        $  3,281,825    $  3,427,267
                                                                              ============    ============

                      LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
    Accounts payable                                                          $    666,760    $    438,342
    Accrued liabilities                                                            658,525         846,267
    Advances from clients                                                          838,121         697,561
    Capital lease obligations - current portion                                     51,994          51,994
    Secured convertible notes - current portions                                   369,733          83,333
    Other notes payable - current portion                                          124,426         331,429
                                                                              ------------    ------------
          Total current liabilities                                              2,709,559       2,448,926

Capital lease obligations - long-term portion                                       95,856         108,493
Secured convertible notes - long-term portions, net of unamortized fair
   value assigned to the beneficial conversion features and warrants of
   $2,447,011 and $2,659,284, respectively                                       1,119,656       1,193,783
Other notes payable - long-term portion                                                 --          38,148
                                                                              ------------    ------------
          Total liabilities                                                      3,925,071       3,789,350
                                                                              ------------    ------------

Stockholders' deficit:
    Preferred stock, $0.01 par value, 5,000,000 shares
          Series A preferred stock, 1,550,000 shares designated, 1,550,000
            shares issued and outstanding, liquidation preference of $2.00
            per share, aggregating $3,100,000                                       15,500          15,500
    Common stock, $0.01 par value, 30,000,000 shares authorized, 12,749,746
          and 13,325,705 shares issued and outstanding, respectively               304,985         304,985
    Additional paid-in capital                                                  25,431,238      25,430,844
    Accumulated deficit                                                        (26,393,547)    (26,111,988)
    Treasury stock                                                                  (1,423)         (1,423)
                                                                              ------------    ------------
          Total stockholders' deficit                                             (643,247)       (362,083)
                                                                              ------------    ------------
          Total liabilities and stockholders' deficit                         $  3,281,825    $  3,427,267
                                                                              ============    ============
</TABLE>

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

                                       -3-
<PAGE>
                            PACIFIC BIOMETRICS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)



<TABLE><CAPTION>
                                                                                   THREE MONTHS ENDED
                                                                                      SEPTEMBER 30,
                                                                              ----------------------------
                                                                                  2005            2004
                                                                              ------------    ------------
<S>                                                                           <C>             <C>
Revenues                                                                      $  1,834,442    $    434,741

Laboratory expenses and cost of sales                                              940,760         409,526
                                                                              ------------    ------------
          Gross profit                                                             893,682          25,215

Operating expenses:
    Selling, general and administrative                                            833,982         698,906
    Research and product development                                                 9,545           6,304
                                                                              ------------    ------------

Income (loss) from operations                                                       50,155        (679,995)
                                                                              ------------    ------------

Other income (expense):
    Interest expense                                                               (94,959)        (68,728)
    Amortization of fair value assigned to beneficial conversion
       features and warrants                                                      (212,273)        (66,682)
    Amortization of deferred finance costs                                         (26,793)        (16,125)
    Interest income                                                                  1,492              91
    Other income                                                                       818           1,833
                                                                              ------------    ------------
Total operating expense                                                           (331,715)       (149,611)
                                                                              ------------    ------------

Loss before income taxes                                                          (281,560)       (829,606)

Income taxes                                                                            --              --
                                                                              ------------    ------------

Net loss                                                                      $   (281,560)   $   (829,606)
                                                                              ============    ============


Net loss per share:
    Basic loss per share                                                      $      (0.02)   $      (0.07)
                                                                              ============    ============
    Diluted loss per share                                                    $      (0.02)   $      (0.07)
                                                                              ============    ============

Weighted average common shares outstanding:
    Basic                                                                       12,746,540      12,465,487
                                                                              ============    ============
    Diluted                                                                     12,746,540      12,465,487
                                                                              ============    ============
</TABLE>


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

                                       -4-
<PAGE>
                            PACIFIC BIOMETRICS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)


<TABLE><CAPTION>
                                                                                                    THREE MONTHS ENDED
                                                                                                       SEPTEMBER 30,
                                                                                               ----------------------------
                                                                                                   2005            2004
                                                                                               ------------    ------------
<S>                                                                                            <C>             <C>
Cash flows from operating activities:
    Net loss                                                                                   $   (281,560)   $   (829,606)
    Reconciliation of net loss to net cash provided by (used in) operating activities:
          Depreciation and amortization                                                              51,993          37,964
          Amortization of fair value assigned to beneficial conversion features and warrants        212,273          66,682
          Amortization of deferred finance costs on secured convertible notes                        26,792          16,125
          Compensation expense (income) from fair value adjustment to options                           395          (2,246)
          Changes in assets and liabilities:
             Accounts receivable, net                                                              (600,344)         22,376
             Inventories                                                                                 --         (23,390)
             Prepaid expenses and other assets                                                      190,682         (95,976)
             Advances from clients                                                                  140,561          (9,887)
             Accounts payable                                                                       139,668        (100,190)
             Accrued liabilities                                                                   (187,742)        145,463
                                                                                               ------------    ------------
                 Net cash used in operating activities                                             (307,282)       (772,685)
                                                                                               ------------    ------------

Cash flows from investing activities:
    Purchases of capital equipment                                                                 (221,131)        (74,180)
                                                                                               ------------    ------------
                 Net cash used in investing activities                                             (221,131)        (74,180)
                                                                                               ------------    ------------

Cash flows from financing activities:
    Payments on notes payable                                                                      (245,152)        (85,471)
    Payments on notes payable to related parties                                                         --         (22,183)
    Transfer to restricted cash                                                                          --             (91)
    Payments on capital lease obligations                                                           (12,637)        (11,728)
                                                                                               ------------    ------------
                 Net cash used in financing activities                                             (257,790)       (119,473)
                                                                                               ------------    ------------

Net decrease in cash and cash equivalents                                                          (786,203)       (966,338)
Cash and cash equivalents, beginning of period                                                    1,438,543       2,941,014
                                                                                               ------------    ------------

Cash and cash equivalents, end of period                                                       $    652,342    $  1,974,676
                                                                                               ============    ============

Cash paid during the period for interest                                                       $     83,567    $     54,745
                                                                                               ============    ============

Cash paid for income taxes

Non-Cash Investing and Financing Activities                                                    $         --    $         --
                                                                                               ============    ============
    Proceeds from exercise of stock options and warrants                                       $        474    $         --
    Shares released from escrow under restructure agreement with prior landlord                $    542,400    $         --
</TABLE>


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

                                       -5-
<PAGE>
                            PACIFIC BIOMETRICS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


1.    ORGANIZATION AND BASIS OF PRESENTATION

Pacific Biometrics, Inc., a Delaware corporation ("PBI" or the "Company"),
provides specialty reference laboratory services to the pharmaceutical and
diagnostics industries. The Company was incorporated in Delaware in May 1996.
The Company conducts its business primarily through its wholly owned subsidiary,
Pacific Biometrics, Inc., a Washington corporation ("PBI-WA"). The Company's two
other wholly owned subsidiaries are PBI Technology, Inc., a Washington
corporation, and BioQuant, Inc., a Michigan corporation. All material
intercompany balances and transactions have been eliminated in the accompanying
consolidated unaudited financial statements.

The foregoing unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Regulation S-B as promulgated by the
Securities and Exchange Commission ("SEC"). Accordingly, these financial
statements do not include all of the disclosures required by generally accepted
accounting principles in the United States of America for complete financial
statements. These unaudited interim financial statements should be read in
conjunction with the audited financial statements for the period ended June 30,
2005. In the opinion of management, the unaudited interim financial statements
furnished herein include all adjustments, all of which are of a normal recurring
nature, necessary for a fair statement of the results for the interim period
presented. Operating results for the three-month period ending September 30,
2005 are not necessarily indicative of the results that may be expected for the
year ending June 30, 2006.

The preparation of financial statements in accordance with generally accepted
accounting principles in the United States of America requires the use of
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities known to exist as
of the date the financial statements are published, and the reported amounts of
revenues and expenses during the reporting period. Uncertainties with respect to
such estimates and assumptions are inherent in the preparation of the Company's
financial statements; accordingly, it is possible that the actual results could
differ from these estimates and assumptions and could have a material effect on
the reported amounts of the Company's financial position and results of
operations.

Unaudited interim financial statements include all adjustments such as normal
recurring accruals that are, in the opinion of management, necessary for a fair
statement of results of interim periods. Operating results for the three months
ended September 30, 2005 are not necessarily indicative of the results that may
be expected for any future period. The accompanying unaudited financial
statements and related notes should be read in conjunction with the audited
financial statements and notes thereto, for its fiscal year ended June 30, 2005,
as previously reported in the Company's annual report on Form 10-KSB.


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The process of preparing financial statements in conformity with accounting
principles generally accepted in the United States of America requires the use
of estimates and assumptions regarding certain types of assets, liabilities,
revenues, and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements. Accordingly,
upon settlement, actual results may differ from estimated amounts.

STOCK-BASED COMPENSATION

The Company applies APB Opinion 25, Accounting for Stock Issued to Employees,
and related interpretations in accounting for its stock-based employee
compensation plan. The Company has adopted the disclosure-only provisions of
SFAS No. 123 - "Accounting for Stock-Based Compensation." During the three month
periods ended September 30, 2005 and 2004, the Company granted 125,000 and
6,000, respectively, of incentive-based stock options under incentive
compensation plans. Had compensation cost been determined based on the fair
value of

                                       -6-
<PAGE>
stock options granted in a manner consistent with the method promulgated by SFAS
No. 123, the Company's net loss and loss per share would have been changed to
the pro forma amounts below for the quarters ended September 30:

                                                          2005          2004
                                                       ----------    ----------
      Net loss as reported                             $ (281,560)   $ (829,606)
      Add:
           Total stock-based employee compensation
           awards, net of related tax benefits            (99,900)       (2,034)
                                                       ----------    ----------
      Pro forma net loss                               $ (381,460)   $ (831,640)
                                                       ==========    ==========
      Net loss per share:
           Basic - as reported                         $    (0.02)   $    (0.07)
                                                       ==========    ==========
           Diluted - as reported                       $    (0.02)   $    (0.07)
                                                       ==========    ==========
           Basic - pro forma                           $    (0.03)   $    (0.07)
                                                       ==========    ==========
           Diluted - pro forma                         $    (0.03)   $    (0.07)
                                                       ==========    ==========


To estimate compensation expense, the Company uses the Black-Scholes
option-pricing model and assumptions deemed reasonable by management. Stock
options are valued as of the date of grant. The following assumptions were used
to compute the fair value of option grants for the quarters ended September 30:

                                          2005              2004
                                        --------          --------
      Expected volatility                108.08%           131.03%
      Expected dividend yield             0.00%             0.00%
      Risk-free interest rate             4.20%             3.83%
      Expected life                     10 years          10 years

VARIABLE ACCOUNTING

On May 3, 2002, the Board of Directors voted to reduce the exercise price of all
then outstanding options to $0.06 per share. No initial expense was recognized
on this repricing, as the new exercise price equaled the market value of the
Company's stock on that date. As of September 30, 2005 and 2004, respectively, 0
and 7,902 of these options remained outstanding. For the quarters ended
September 30, 2005 and 2004, in accordance with accounting for options under
variable pricing rules, the Company recognized approximately $395 in
compensation expense and $2,200 in compensation income, respectively,
representing the change in the relative market price of the Company's common
shares to $0.99 (on the date the remaining options were exercised) and $0.84 per
share, respectively. The Company expects to no longer recognize stock-based
compensation expense or income in the future on the repriced stock options since
all outstanding repriced stock options have been exercised or have expired.

BENEFICIAL CONVERSION FEATURE

In accordance with Financial Accounting Standards Board Emerging Issues Task
Force Issue (EITF) No. 98-5 and FASB EITF No. 00-27, using the relative fair
value method of Accounting Principles Board Opinion 14 ("APB 14"), the Company
recorded a beneficial conversion feature ("BCF") related to the issuance of
convertible debt that has conversion features at fixed rates that are
in-the-money when issued and recorded the value allocated to warrants issued
with those instruments. The BCF for the convertible debt and for the value
allocated to warrants are measured and recognized by allocating a portion of the
proceeds to additional paid-in capital with an offset to discount on the
convertible debt.

For the convertible debt and related warrants, the recorded discount is
amortized as interest expense using the straight-line interest method over the
life of the debt.

LOSS PER SHARE

Basic loss per share is based upon the weighted average number of common shares
outstanding. Diluted earnings per share is computed on the basis of the weighted
average number of common shares outstanding plus the effect of outstanding stock
options that have vested or will vest within 60 days of September 30, 2005 (or
November 29,

                                       -7-
<PAGE>
2005) and warrants using the "treasury stock" method and the effect of preferred
stock on an as-converted basis. Diluted loss per share is computed on the basis
of the weighted average number of common shares outstanding and does not include
the effect of dilution from outstanding stock options that have vested or will
vest within 60 days of September 30, 2005 and warrants using the "treasury
stock" method and the effect of preferred stock on an as-converted basis. All
per share calculations exclude treasury shares and shares held in trust as
security for a note payable.

Due to the Company's net loss for the quarter ended September 30, 2005, common
stock equivalents related to the Company's a) in-the-money, vested options, b)
in-the-money warrants, and c) convertible preferred stock were not used in the
computation of diluted loss per share because the effect would be anti-dilutive.
As of September 30, 2005, the Company's common stock equivalents included: a)
in-the-money, vested options to purchase 892,033 shares of common stock; b)
in-the-money warrants to purchase 570,727 shares of common stock; and c)
1,550,000 shares of Series A preferred stock convertible into 516,667 shares of
common stock.

Due to the Company's net loss for the quarter ended September 30, 2004, common
stock equivalents related to the Company's a) in-the-money, vested options, b)
in-the-money warrants, and c) convertible preferred stock were not used in the
computation of diluted loss per share because the effect would be anti-dilutive.
As of September 30, 2004, the Company's common stock equivalents included: a)
in-the-money, vested options to purchase 629,793 shares of common stock; b)
in-the-money warrants to purchase 58,727 shares of common stock; and c)
1,550,000 shares of Series A preferred stock convertible into 516,667 shares of
common stock.

The components of basic and diluted loss per share were as follows for the
quarters ended September 30:
<TABLE><CAPTION>
                                                                             2005              2004
                                                                         ------------      ------------
<S>                                                                      <C>               <C>
Net loss                                                            (A)  $   (281,560)     $   (829,606)
Net loss applicable to common stockholders                          (B)  $   (281,560)     $   (829,606)
Weighted average number of outstanding shares of common stock       (C)    12,746,540        12,465,487
                                                                         ============      ============
Weighted average number of outstanding shares of common stock
and common stock equivalents                                        (D)    12,746,540        12,465,487
                                                                         ============      ============
Net loss per share:
      Basic                                                        (B/C) $      (0.02)     $      (0.07)
                                                                         ============      ============
      Diluted                                                      (A/D) $      (0.02)     $      (0.07)
                                                                         ============      ============
</TABLE>


3.    GOING CONCERN AND MANAGEMENT'S PLANS

The Company had net losses in the quarters ended September 30, 2005 and 2004.
The Company has historically experienced recurring losses from operations and
has had cash flow shortages. While the Company had a positive working capital
position at June 30, 2005 (fiscal year end) and an operating profit for the
quarter ended September 30, 2005, it has a working capital deficit at September
30, 2005 and significant amounts of notes payable and other liabilities, and
negative stockholders' equity. Historically, the Company has had deficiencies in
working capital and stockholders' equity and has had significant amounts of
current and past due debt. These matters raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

On-going, the Company's strategy is to meet the needs for outsourcing by
pharmaceutical, biotechnology, and diagnostic companies and other central
laboratories, and to assist in enhancing the drug and diagnostic development
processes by developing and delivering innovative services that apply science
and technology in the provision of high quality service within the Company's
areas of specialty. The Company's primary business strategy will continue its
focus on providing high quality specialty central laboratory services in its
core areas, including cardiovascular disease and bone and joint diseases because
of active drug development activities. In addition, the company is continuing to
improve its business development efforts in an attempt to grow and diversify its
client base. The Company is also using most of its capital expenditures and
investments to enhance its information systems with the goal of improving and
streamlining the Company's project and data management capabilities.

Even after the aforementioned and other related steps, the Company still has
significant debts that need to be settled, as well as fluctuating revenues. The
Company will continue to review its operating and financial requirements and
attempt to settle outstanding debts with cash generated from its operations,
with stock, and/or from the sale or

                                       -8-
<PAGE>
licensing of its technology assets. The Company may not be successful in these
efforts and may have to seek protection from creditors under the bankruptcy
laws.

These financial statements have been prepared on a going concern basis and no
potential adjustments have been recorded that may be required as a result of a
potential inability to continue as a going concern.


4.    CONCENTRATION OF CREDIT RISK

The largest client in the quarter ended September 30, 2005 individually
accounted for approximately 35% and 18% of the Company's total revenue in
quarters ended September 30, 2005 and 2004, respectively. Revenue from the
Company's five largest clients represented approximately 81% and 56% of total
revenue in the quarters ended September 30, 2005 and 2004, respectively. As of
September 30, 2005 and 2004, respectively, approximately 51% and 42% of the
Company's accounts receivable balance was from the two largest clients at that
time.

The Company maintains its cash in two commercial accounts at a major financial
institution. At September 30, 2005, the Company's cash balance in two accounts
exceeded the $100,000 Federal Deposit Insurance Corporation ("FDIC") limit by
$552,342 and at June 30, 2005, the Company's cash balance in two accounts
exceeded FDIC limit by $1,338,543.


5.    RELATED PARTY TRANSACTIONS

During the quarter ended September 30, 2004, the Company purchased certain
computer equipment and other furniture and equipment from Saigene Corporation, a
related party. The property and equipment was valued at $73,585 and the Company
paid $15,000 in cash and recorded an account payable to Saigene of $58,585. The
Company also entered into an office sharing agreement for Saigene to use some of
the Company's office space. For each month of that office-sharing agreement, the
$58,585 payable to Saigene was reduced at a (non-cash) rate of $1,540 per month.
At June 30, 2005 the balance due to Saigene was $0. There have been no
comparable related party transactions during the first quarter of fiscal 2006.


6.    SUBSEQUENT EVENTS

On November 3, 2005, subsequent to the end of the first quarter of fiscal 2006,
the Company obtained a new non-revolving line of credit with Franklin Funding
for an aggregate amount of up to $500,000 for equipment financing. The terms of
this new line of credit are substantially the same as those under the prior loan
and security agreement with Franklin Funding dated August 5, 2003. This line of
credit is secured by the equipment and does not impose any financial covenants.
All borrowings under the line of credit must be made by May 3, 2006. Borrowings
under the line of credit bear interest at a rate of 17.64% per annum and are
repayable monthly based on a 36-month amortization schedule, with final payment
due on November 3, 2008. As additional consideration for the credit facility,
the Company agreed to grant to the lender stock purchase warrants to purchase up
to an aggregate of 50,000 shares of common stock, on the basis of warrants for
5,000 shares for each $50,000 in principal amount borrowed. As of November 7,
2005, $200,000 was borrowed under this line of credit.





                                       -9-
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

Investors should read the following discussion and analysis in conjunction with
our consolidated financial statements and related notes in this Form 10-QSB and
our audited financial statements and related notes for the year ended June 30,
2005, included in our Annual Report on Form 10-KSB.

This Quarterly Report on Form 10-QSB contains a number of forward-looking
statements that reflect management's current views and expectations with respect
to our business, strategies, products, future results and events and financial
performance. All statements other than statements of historical fact, including
future results of operations or financial position, made in this Quarterly
Report on Form 10-QSB are forward looking. In particular, the words "expect,"
"anticipate," "estimate", "desire", "goal", " believe", "may", "will", "should",
"intend", "objective", "seek", "plan", "strive", variations of such words, or
similar expressions, or the negatives of these words, are intended to identify
forward-looking statements, but are not the exclusive means of identifying such
statements and their absence does not mean that the statement is not
forward-looking. Examples of forward looking statements include statements as to
our estimates for future revenues and cost of revenues, our expectations
regarding future expenses, including research and development and sales and
marketing expenses, our estimates regarding the adequacy of our capital
resources, our capital requirements and our needs for additional financing,
planned capital expenditures, use of our working capital, sources of revenue and
anticipated revenue, including licenses of intellectual property, technology
development and service contracts, our business development efforts, future
acquisitions or investments, the impact of economic and industry conditions on
us and our clients, the anticipated growth of our business, our ability to
attract clients, expectations regarding competition and the impact of recent
accounting pronouncements.

The forward-looking statements contained in this Report are subject to risks and
uncertainties, including those discussed below and in the section captioned
"Factors that May Affect Operating Results," and as discussed in our Annual
Report on Form 10-KSB for the year ended June 30, 2005, that could cause actual
results to differ materially from those projected. These risks and uncertainties
include, but are not limited to, the concentration of business with large
clients, the ability to develop new technology and introduce new products,
competition, fluctuations in general economic conditions, the risk of
bankruptcy, and changes in policies by regulatory agencies. For additional
factors that can affect these forward-looking statements, see the "Risk Factors"
section within our Annual Report on Form 10-KSB for the year ended June 30,
2005, and in our Registration Statements on Form SB-2. The forward-looking
statements contained in this Report speak only as of the date hereof. We caution
readers not to place undue reliance on any such forward-looking statements. We
expressly disclaim any obligation or undertaking to release publicly any updates
or revisions to any forward-looking statements contained herein to reflect any
change in management's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.


OVERVIEW

We provide specialty central laboratory services to support pharmaceutical and
laboratory diagnostic manufacturers in the conduct of human clinical research,
for use in their drug and diagnostic product development efforts. Our clients
include a number of the world's largest multi-national pharmaceutical,
biotechnology and diagnostic companies. Our well-recognized specialty areas
include cardiovascular disease (dyslipidemia, atherosclerosis, and coronary
heart disease), diabetes (and obesity), and bone and joint diseases
(osteoporosis as well as osteo and rheumatoid arthritis). Coupled with our
specialty testing, we also have central laboratory capability and provide
full-service central laboratory support for multi-center clinical trials,
including routine safety lab tests (general chemistry, hematology, and
urinalysis). Our company is a Delaware corporation, incorporated in May 1996,
and we conduct our operations primarily through our wholly-owned subsidiary,
Pacific Biometrics, Inc., a Washington corporation.


                                      -10-
<PAGE>
CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no material changes to our critical accounting policies and
estimates since the end of our 2005 fiscal year. For detailed information on our
critical accounting policies and estimates, see our financial statements and
notes thereto included in this Report and our Annual Report on Form 10-KSB for
the year ended June 30, 2005.

The following discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates including,
among others, those affecting revenues, the allowance for doubtful accounts, and
the useful lives of tangible and intangible assets. The discussion below is
intended to be a brief discussion of some of the judgments and uncertainties
that can impact the application of these policies and the specific dollar
amounts reported on our financial statements. 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 our basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions, or if management made
different judgments or utilized different estimates. Many of our estimates or
judgments are based on anticipated future events or performance, and as such are
forward-looking in nature, and are subject to many risks and uncertainties,
including those discussed below and elsewhere in this Report. We do not
undertake any obligation to update or revise this discussion to reflect any
future events or circumstances.

We have identified below some of our accounting policies that we consider
critical to our business operations and the understanding of our results of
operations. This is neither a complete list of all of our accounting policies,
nor does it include all the details surrounding the accounting policies we have
identified. There are other accounting policies that are significant to our
company. For a more detailed discussion on the application of these and our
other accounting policies, see "Note 2 to the Consolidated Financial Statements"
included in this Report and "Note 2 to Consolidated Financial Statements"
included in our Annual Report on Form 10-KSB for the year ended June 30, 2005.

      REVENUE RECOGNITION

We recognize revenue in the period that the related services are performed.
Historically, a majority of our net revenue has been earned under contracts
which range in duration from six months to eighteen months, but can extend in
duration up to two years or longer. Service contracts generally take the form of
fixed-price arrangements. Under fixed-price contracts, revenue is recognized as
services are performed, with performance generally assessed using output
measures, such as units-of-work performed to date as compared to the total
units-of-work contracted. Changes in the scope of work generally result in a
renegotiation of contract pricing terms. Renegotiated amounts are not included
in net revenue until earned and realization is assured. We also receive advances
from certain clients related to the services to be performed for them. These
advances are deferred and recognized as revenue in the period the related
services are performed. Estimates of costs to complete are made, as appropriate,
to provide for losses expected on contracts. Costs are not deferred in
anticipation of contracts being awarded, but instead are expensed as incurred.
All out-of-pocket costs are included in total revenue and expenses.

      BENEFICIAL CONVERSION FEATURE

In accordance with Financial Accounting Standards Board (FASB) Emerging Issues
Task Force Issue (EITF) No. 98-5 and FASB EITF No. 00-27, using the relative
fair value method of Accounting Principles Board Opinion 14 ("APB 14"), we
recorded a beneficial conversion feature ("BCF") related to the issuance of
convertible debt that has conversion features at fixed rates that are
in-the-money when issued and recorded value allocated to warrants issued with
those instruments. The BCF for the convertible debt and for the value allocated
to warrants are measured and recognized by allocating a portion of the proceeds
to additional paid-in capital with an offset to a discount on the convertible
debt.

                                      -11-
<PAGE>
For convertible debt and related warrants, the recorded discount is amortized as
interest expense using the straight-line method over the life of the debt.

      OPERATING EXPENSES

Historically, we have segregated our recurring operating expenses among three
categories: laboratory and cost of goods sold; selling, general and
administrative expenses; and research and development. Laboratory expenses and
cost of goods sold consist of amounts necessary to complete the revenue and
earnings process, and includes direct labor and related benefits, other direct
costs, and an allocation of facility charges and information technology costs,
and depreciation and amortization. Also, laboratory expenses and cost of goods
sold include shipping and handling fees and reimbursable out-of-pocket costs.
Laboratory expenses and cost of goods sold, as a percentage of net revenue,
tends, and is expected, to fluctuate from one period to another, as a result of
changes in labor utilization and the mix of service offerings involving studies
conducted during any period of time. Selling, general and administrative
expenses include business development activities, sales and marketing expenses
and related commissions, and laboratory administration expenses. Selling,
general and administrative expenses consist primarily of administrative payroll
and related benefit charges, legal and accounting fees, advertising and
promotional expenses, administrative travel and an allocation of facility
charges, information technology costs, and depreciation and amortization.
Research and development expenses consist of direct labor and related benefits,
supplies, legal fees for patent applications, travel expenses, and depreciation
and amortization.

We depreciate equipment and computers over three to five years, while leasehold
improvements are depreciated over the remaining life of the lease or ten years.
This estimate of a three to five-year useful life on equipment and computers and
a useful life based on the remaining years left on the building lease for
leasehold improvements reflects management's judgment that these useful life
periods reflect a reasonable estimate of the life over which the equipment,
computers and leasehold improvements will be used by us. However, the amount of
depreciation expense we record in any given period will change if our estimates
of the useful life of our equipment, computers or leasehold interests were to
increase or decrease.

RESULTS OF OPERATIONS FOR THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

REVENUE:

------------------------------------------------------------------------------
                                 THREE MONTHS ENDED
                                    SEPTEMBER 30,           $            %
DOLLARS IN THOUSANDS,          ----------------------   ----------  ----------
ROUNDED TO NEAREST THOUSAND       2005        2004        CHANGE      CHANGE
---------------------------    ----------  ----------   ----------  ----------
Revenue                        $    1,834  $      435   $    1,399        322%
------------------------------------------------------------------------------

Our revenue is generated from clinical trials and diagnostic testing services.
Our revenue increased to $1,834,000 from $435,000 or approximately 322% between
the comparable quarters ended September 30, 2005 and 2004, respectively. This
was the result of an increase in the size and number of clinical trials testing
services we performed. This increase reflects the continuing significant
increases in open work orders we have been experiencing over three of the past
four quarters.

During the quarter ended September 30, 2005, revenue generated from clinical
trials testing services accounted for approximately 58% of our total revenues,
while revenue generated from the provision of diagnostic services and trials
accounted for approximately 9%. During the quarter ended September 30, 2004,
revenue generated from clinical trials testing services accounted for
approximately 28% of our total revenues, while revenue generated from the
provision of diagnostic services and trials accounted for approximately 47%.
During the quarter ended September 30, 2004 revenue generated from referral
sources accounted for approximately 21% of our total revenue, while we had 31%
revenue from this source for the quarter ended September 30, 2005. The increase
in the percentage of our revenue related to referral sources reflects our
efforts to improve and enhance our relationships with larger laboratories,
including our marketing relationship with Quintiles.

                                      -12-
<PAGE>
LABORATORY EXPENSE AND COST OF GOODS SOLD:

------------------------------------------------------------------------------
                                 THREE MONTHS ENDED
                                    SEPTEMBER 30,           $            %
DOLLARS IN THOUSANDS,          ----------------------   ----------  ----------
ROUNDED TO NEAREST THOUSAND       2005        2004        CHANGE      CHANGE
---------------------------    ----------  ----------   ----------  ----------
Laboratory Expense and Cost
of Goods Sold                  $      941  $      410   $      531        130%
---------------------------    ----------  ----------   ----------  ----------
Percentage of Revenues                51%         94%
-----------------------------------------------------

Laboratory expense and cost of goods sold consist primarily of salaries and
related benefits to employees performing analyses of clinical trial samples, the
cost of supplies for analysis of clinical trial samples, subcontractor
laboratory services, and other expenses such as business and occupation taxes.
For the comparable quarters ended September 30, 2005 and 2004, laboratory
expenses and cost of goods sold increased approximately 130% to $941,000 from
$410,000. As a percentage of revenue, laboratory expense and cost of goods sold
decreased to approximately 51% for the quarter ended September 30, 2005 from
approximately 94% for the quarter ended September 30, 2004. The relative
decrease in laboratory expense and cost of goods sold as a percentage of revenue
was primarily the result of the significant increase in revenues over the
comparable quarters and the fixed components of laboratory expense and cost of
goods sold.

The largest component increase in laboratory expense and costs of goods sold was
the 316% increase in lab supplies to approximately $287,000 from $69,000 for the
quarters ended September 30, 2005 and 2004, respectively. Lab supplies
represented approximately 31% and 17% of laboratory expense and cost of goods
sold for the quarters ended September 30, 2005 and 2004, respectively. The
increase in lab supplies between the comparable quarters is the result of the
increase in clinical and diagnostic testing services we provided to our clients.

Salaries and related benefits rose 84% to approximately $364,000 from $198,000
for the quarters ended September 30, 2005 and 2004, respectively. Salaries and
related benefits accounted for approximately 39% and 48% of total laboratory
expense and cost of goods sold for the quarters ended September 30, 2005 and
2004, respectively. The significant increase in salaries and benefits is due to
hiring in the lab and client services to support increased volume. On September
30, 2005 we had 31 FTE in our laboratory services area which includes
laboratory, client services, and information systems staff. This compares to 17
FTE on September 30, 2004.

For the quarter ended September 30, 2005, we incurred computer consulting
expenses of approximately $76,000 in connection with initial stages of
implementation of our new ClinAxys II Laboratory Information System, and
recruiting expenses of approximately $23,000. We had no comparable expenses
during the quarter ended September 30, 2004. We anticipate that we will incur
additional computer consulting expense during fiscal 2006 as we complete the
implementation of our new laboratory information system.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE:

------------------------------------------------------------------------------
                                 THREE MONTHS ENDED
                                    SEPTEMBER 30,            $           %
DOLLARS IN THOUSANDS,          ----------------------   ----------  ----------
ROUNDED TO NEAREST THOUSAND       2005        2004        CHANGE      CHANGE
---------------------------    ----------  ----------   ----------  ----------
Selling, General and
Administrative Expense         $      834  $      699   $      135         19%
---------------------------    ----------  ----------   ----------  ----------
Percentage of Revenues                45%        161%
-----------------------------------------------------

Our selling, general and administrative expense consists primarily of
compensation for our executive officers, board members and other selling,
general and administrative personnel, legal and accounting fees, and payments
under consulting arrangements. Selling, general and administrative expense
increased 19% to approximately $834,000 from $699,000 for the quarters ended
September 30, 2005 and 2004, respectively. As a percentage of revenue,

                                      -13-
<PAGE>
selling, general and administrative expense was 45% and 161%, respectively, for
the quarters ended September 30, 2005 and 2004.

The 19% increase in selling, general and administrative expense was primarily
the result of a 41% increase to $491,000 from $349,000 in overall salaries,
commissions, consulting fees, board fees and related benefits for the quarters
ended September 30, 2005 and 2004, respectively. This increase was greatest for
laboratory administration (increased from $100,000 to $213,000 for the three
months ended September 30, 2004 and 2005, respectively) and laboratory sales
(increased from $37,000 to $87,000 for the three months ended September 30, 2004
and 2005, respectively). These increases were the result of increased business
development efforts and hiring of additional personnel to assist in laboratory
administration.

Offsetting this increase was a 26% reduction to $143,000 from $193,000 in legal,
accounting, printing and general public company costs for the quarters ended
September 30, 2005 and 2004, respectively. During the quarter ended September
30, 2004 as compared to the quarter ended September 30, 2005 we incurred higher
legal fees and accounting expenses that were primarily the result of work on our
two resale registration statements during the quarter ended September 30, 2004.
Those two registration statements were declared effective on September 28, 2004.
We had no comparable registration expense for the quarter ended September 30,
2005.

Offsetting some of the increase in our selling, general and administrative
expense for the quarter ended September 30, 2005 was the decrease in management
fees to $0 we paid under the terms of our management agreement with Saigene
Corporation. Effective August 31, 2004, we terminated the agreement, eliminating
further management fees. For the comparable quarters ended September 30, 2005
and 2004, management fees decreased to approximately $0 from $40,000,
respectively.

Selling, general and administrative expenses also include compensation expense
or income resulting from the May 2002 repricing of all then-outstanding stock
options to the then-current market price of $0.06. To adjust these options to
fair market value, we recognized income (expense) of approximately $(400) and
$2,200 for the quarters ended September 30, 2005 and 2004, respectively. As of
September 30, 2005 and 2004, respectively, 0 and 7,902 repriced options remained
outstanding. (See "Note 12 to Notes to Consolidated Financial Statements" in our
Report on Form 10-KSB for the year ended June 30, 2005.)

RESEARCH AND PRODUCT DEVELOPMENT:

------------------------------------------------------------------------------
                                 THREE MONTHS ENDED
                                    SEPTEMBER 30,            $           %
DOLLARS IN THOUSANDS,          ----------------------   ----------  ----------
ROUNDED TO NEAREST THOUSAND       2005        2004        CHANGE      CHANGE
---------------------------    ----------  ----------   ----------  ----------
Research and Product
Development                    $       10  $        6   $        4         67%
---------------------------    ----------  ----------   ----------  ----------
Percentage of Revenues                 1%          1%
-----------------------------------------------------

Research and product development expenses consist mainly of our expenditures
incurred in connection with development of our OsteoPatch, SalivaSac, LIDA and
cell viability technology held in our subsidiary PBI Technology. For the
comparable quarters ended September 30, 2005 and 2004, research and product
development expenses increased 67% to approximately $10,000 from $6,000. The
increase was primarily due to activities associated with promoting our
technology assets and our engagement of a consultant to assist us in business
development efforts associated with the OsteoPatch technology. We anticipate
that we will continue to incur relatively small research and development
expenses. However, if we are unable to increase revenues or raise additional
funding to continue to fund our existing research and development efforts, we
might seek to further reduce our research and development efforts and expenses.

                                      -14-
<PAGE>
OTHER EXPENSE:

------------------------------------------------------------------------------
                                 THREE MONTHS ENDED
                                    SEPTEMBER 30,            $           %
DOLLARS IN THOUSANDS,          ----------------------   ----------  ----------
ROUNDED TO NEAREST THOUSAND       2005        2004        CHANGE      CHANGE
---------------------------    ----------  ----------   ----------  ----------
Other Expense                  $      332  $      150   $      182        121%
---------------------------    ----------  ----------   ----------  ----------
Percentage of Revenues                18%         34%
-----------------------------------------------------

Total other expense increased 121% or $182,000 to $332,000 from $150,000 during
the quarters ended September 30, 2005 and 2004, respectively.

A major component of other expense in the quarter ended September 30, 2005 was
approximately $95,000 of interest expense on notes payable and lease
obligations. We also incurred approximately $212,000 of non-cash interest
expense that represented the amortization of the intrinsic value of the
beneficial conversion features of the two secured convertible notes and fair
market value allocated to 2,207,905 warrants related to our two secured
convertible notes with Laurus in May 2004 and January 2005 (respectively, the
"2004 Note" and "2005 Note".) As of September 30, 2005, $2,447,011 remained
unamortized and will be amortized, using the effective interest method, over the
remaining lives of the 2004 and 2005 Notes, or upon their earlier conversion.
(See "Note 9 to Notes to Consolidated Financial Statements" in our Report on
Form 10-KSB for the year ended June 30, 2005.) In comparison, major components
of other expense in the quarter ended September 30, 2004 was approximately
$69,000 of interest expense on notes payable and lease obligations, and
approximately $67,000 of non-cash interest expense that represented the
amortization of the intrinsic value of the beneficial conversion feature of the
2004 Note and fair market value allocated to 681,818 warrants related to our
2004 Note. (See "Note 9 to Notes to Consolidated Financial Statements" in our
Report on Form 10-KSB for the year ended June 30, 2005.)

For the quarter ended September 30, 2005, we also incurred approximately $27,000
in expense related to the amortization of our deferred finance costs associated
with both the 2004 Note and the 2005 Note, whereas for the quarter ended
September 30, 2004, we incurred approximately $16,000 in such amortization
expense of our deferred finance cost associated with only the 2004 Note.

NET LOSS:

------------------------------------------------------------------------------
                                 THREE MONTHS ENDED
                                    SEPTEMBER 30,            $           %
DOLLARS IN THOUSANDS,          ----------------------   ----------  ----------
ROUNDED TO NEAREST THOUSAND       2005        2004        CHANGE      CHANGE
---------------------------    ----------  ----------   ----------  ----------
Net Loss                       $     (282) $     (830)  $      548         66%
---------------------------    ----------  ----------   ----------  ----------
Percentage of Revenues              (15)%      (191)%
-----------------------------------------------------

We had a net loss of approximately $282,000 and $830,000 for the quarters ended
September 30, 2005 and 2004, respectively. The improvement in the net loss
between the quarters ended September 30, 2005 and 2004 was approximately
$548,000 and is primarily attributable to our significantly increased revenues
in the comparable quarters. This increase in revenue was only partially offset
by increases in laboratory expenses and cost of goods sold, and selling, general
and administrative expenses.

We realized operating income of $50,000 for the quarter ended September 30,
2005, as compared to an operating loss of $680,000 for the quarter ended
September 30, 2004. Excluding the effects of the following non-cash items: 1)
the amortization of the fair market value of the beneficial conversion feature
and warrants of $212,000; 2) the amortization of deferred finance costs on the
2004 Note and 2005 Note of $27,000; and 3) depreciation and amortization of
$52,000, we realized earnings of approximately $10,000 for the quarter ended
September 30, 2005.

                                      -15-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:

We had net operating income for the quarter ended September 30, 2005, compared
to a net operating loss for the quarter ended September 30, 2004, as well as for
the fiscal year ended June 30, 2005. Revenue and operating income for the
quarter ended September 30, 2005 were higher than in each quarter in the prior
fiscal year. Even so, unless revenue continues to increase, we will likely
continue to experience net losses and our cash and working capital positions
will be adversely impacted. Our operations historically have been funded through
revenue generated from operations and from the sale and issuance of our common
stock, preferred stock and debt.

At September 30, 2005, our cash and cash equivalents were approximately
$652,000, compared to approximately $1,483,000 at June 30, 2005. The decrease in
our cash and equivalents for the quarter ended September 30, 2005 is primarily
attributable to our financing and investing activities. The most significant
component of the decrease was the increase in accounts receivable which was
partially offset by our increase in accounts payable. The second most
significant component was the reduction of our notes payable as we paid off a
note to our former landlord in the amount of $187,000. In addition, we used cash
for the purchase of software and hardware associated with our laboratory
information system, as well as for other equipment purchases.

At September 30, 2005, we had approximately $1,208,000 in accounts receivable,
compared to approximately $608,000 as of June 30, 2005, reflecting the timing of
revenues billed and collected, and the significant increase in our revenue. We
generally have a high collectibility rate on our accounts receivable, and our
allowance for doubtful accounts is only $22,100. Additionally, given the
significant increase in our revenue for the quarter ended September 30, 2005 as
compared to the quarter ended September 30, 2004, accounts receivable
represented a proportionately smaller percentage of revenue in the current
quarter at approximately 66% compared to 79%.

Total liabilities recorded on our balance sheet as of September 30, 2005 were
approximately $3,925,000 compared to approximately $3,789,000 as of June 30,
2005. The increase in liabilities was primarily the result of increased business
activity resulting in increased accounts payable and advances from clients.
During the quarter ended September 30, 2005, notes payable also increased from
the amortization of the beneficial conversion features and warrants associated
with our two secured convertible notes with Laurus. Significant components of
our liabilities include the 2004 and 2005 Notes with Laurus, and, to a lesser
degree, our prior borrowings in fiscal 2004 under our $250,000 credit facility
with Franklin Funding. As required by U.S. generally accepted accounting
principles, the liability we recorded as of September 30, 2005 for the 2004 and
2005 Notes reflected a discount from the face value of the notes by
approximately $2,477,000, related to the valuation of the beneficial conversion
features and the warrants. During the quarter ended September 30, 2005, Laurus
did not convert any of the principal amount due on the 2004 Note and as of
September 30, 2005 the remaining principal balance on the 2004 Note was
$2,436,400. No amounts of the 2005 Note have been converted, and as of September
30, 2005 the remaining principal balance on the 2005 Note was $1,500,000.
Accordingly, if the discount to face value is disregarded, our total liabilities
as of September 30, 2005 and June 30, 2005, respectively, would be approximately
$6,402,000 and $6,449,000.

At September 30, 2005, we had a working capital deficit of approximately
$329,000 compared to a working capital surplus of approximately $308,000 at June
30, 2005. The approximately $637,000 decrease in working capital is attributable
to several changes in the components of working capital. Changes providing
favorable impact include increases in accounts receivable, along with decreases
in accrued liabilities and other notes payable. Changes negatively impacting our
working capital since June 30, 2005 include decreases in prepaid expenses, along
with increases in our accounts payable, advances from clients and the
incremental addition of the current portion of our two secured convertible notes
with Laurus. This last component negatively impacting our working capital
position reflects the current portion of our two convertible secured notes with
Laurus, whereby principal payments are scheduled to begin in June 2006 and
August 2006 for our 2004 Note and 2005 Note, respectively.

Since we have not recorded any discounts related to the beneficial conversion
features and warrants related to the current portions of our two secured
convertible notes with Laurus, our working capital positions at September 30,
2005 and June 30, 2005, respectively, are not effected by the discount balance.

Net cash used in operating activities was approximately $307,000 for the quarter
ended September 30, 2005, primarily to fund our increased accounts receivable
and other changes in our working capital. For the quarter ended

                                      -16-
<PAGE>
September 30, 2005, net cash used in operations included the effect of
approximately $52,000 in depreciation and amortization and approximately
$239,000 related to amortization of the discount and deferred finance costs of
the Laurus debt. Our investing activities for the quarter ended September 30,
2005 used approximately $221,000 primarily for the purchase of software and
hardware associated with our laboratory information system. Cash flows used in
financing activities included approximately $258,000 in payments on notes
payable, notes payable to related parties, and payments on capital lease
obligations.

As described above, we experienced throughout fiscal 2005 significant net losses
and (except for the proceeds from our 2005 Note with Laurus) the degradation of
our cash and working capital position from operations. Although we had a
degradation of our cash and working capital position during the quarter ended
September 30, 2005 this reduction in cash and working capital was smaller than
in previous quarters. Any future decrease in revenue would likely adversely
affect our financial condition, and require us to seek additional capital. We
may not be able to raise sufficient financing, whether debt or equity.

In November 2005, subsequent to the end of the first quarter of fiscal 2006, we
obtained a new non-revolving line of credit with Franklin Funding for an
aggregate amount of up to $500,000 for equipment financing. The terms of this
new line of credit are substantially the same as those under the prior loan and
security agreement with Franklin Funding dated August 5, 2003. This line of
credit is secured by the equipment and does not impose any financial covenants.
All borrowings under the line of credit must be made by May 3, 2006. Borrowings
under the line of credit bear interest at a rate of 17.64% per annum and are
repayable monthly based on a 36-month amortization schedule, with final payment
due on November 3, 2008. As additional consideration for the credit facility, we
agreed to grant to the lender stock purchase warrants to purchase up to an
aggregate of 50,000 shares of common stock, on the basis of warrants for 5,000
shares for each $50,000 in principal amount borrowed. As of November 7, 2005, we
had borrowed $200,000 under this line of credit.

Other than this new non-revolving line of credit with Franklin Funding, we do
not have available to us another bank line of credit or other general borrowing
facility. In addition, based on the terms of the Laurus debt financing, raising
additional capital may be difficult or highly dilutive to existing stockholders.

Management continues to contemplate alternatives to enable us to fund continuing
operations, including loans from management or employees, salary deferrals and
reductions and other cost cutting mechanisms, and raising additional capital by
private placements of equity or debt securities or through the establishment of
other funding facilities. In addition, we are exploring strategic alternatives,
which may include a merger, asset sale, joint venture or another comparable
transaction. None of these potential alternatives may be available to us, or may
only be available on unfavorable terms. If we are unable to obtain sufficient
cash to continue to fund operations or if we are unable to locate a strategic
partner, we may be forced to seek protection from creditors under the bankruptcy
laws or cease operations. Any inability to obtain additional cash as needed
could have a material adverse effect on our financial position, results of
operations and our ability to continue in existence. Our auditors added an
explanatory paragraph to their opinion on our fiscal 2005 financial statements
stating that there was substantial doubt about our ability to continue as a
going concern.

FACTORS THAT MAY AFFECT OPERATING RESULTS

Our operating results and financial condition will fluctuate due to a number of
factors, including, but not limited to, the following factors:

o    Our business development and marketing efforts and our ability to enter
     into and build relationships with new clients, and obtain additional
     projects from existing clients;
o    The timing and number of clinical trials by clients, the number of samples
     submitted to us for testing, and the amount of revenues generated from
     these tests;
o    Our ability to participate in and win bids from RFPs (requests for
     proposals) for clinical tests;
o    Our ability to manage our cash flow, including by managing or reducing our
     expenses;
o    Our ability to raise money from debt or equity financing to help fund cash
     flows;

                                      -17-
<PAGE>
o    Capital expenditure requirements, including for research and development
     efforts, upgrading or replacing laboratory equipment and making investments
     in information technology;
o    Our ability to motivate and retain our existing employees; and
o    Plans to pursue alternative business strategies, which may include entering
     into a joint venture, asset sale or merger.

Many of the above factors are outside of our control, and all of the above
factors are difficult for us to forecast. These factors can materially adversely
affect our business and operating results for one quarter or a series of
quarters.


ITEM 3.  CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures designed to ensure that
information required to be disclosed in our reports filed or submitted under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms. As of the end of the period covered by this Report on Form
10-QSB, we carried out an evaluation, under the supervision and with the
participation of management, including our Chief Executive Officer and Interim
Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based
upon that evaluation, management and our Chief Executive Officer and Interim
Chief Financial Officer concluded that our disclosure controls and procedures
are effective.

A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Because of the inherent limitations in all control systems no
evaluation of controls can provide absolute assurance that all control issues if
any, within a company have been detected.

During the quarterly period covered by this report, there have been no
significant changes in our internal controls or in other factors that have
materially affected, or are reasonably likely to materially affect our internal
controls over financial reporting. In response to the Sarbanes-Oxley Act of
2002, we are continuing a comprehensive review of our disclosure procedures and
internal controls and expect to make minor modifications and enhancements to
these controls and procedures.



PART II - OTHER INFORMATION

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On November 3, 2005, we entered into a Loan and Security Agreement with Franklin
Funding, Inc., providing us a non-revolving line of credit of up to $500,000 for
equipment financing. In connection with the Loan and Security Agreement, we
agreed to grant to Franklin Funding stock purchase warrants to purchase up to
50,000 shares of our common stock, in increments of 5,000 shares, for each
$50,000 borrowed, each with an exercise price determined as of the respective
date of borrowing. As of November 7, 2005, we have issued to Franklin Funding
warrants to purchase 20,000 shares, at an exercise price of $1.17 per share. The
warrants were issued in reliance on the statutory exemption from registration
provided by Section 4(2) of the Securities Act.


ITEM 6.  EXHIBITS

         31.1   Certification of Ronald R. Helm, Chief Executive Officer
         31.2   Certification of Michael L. Hartzmark, Interim Chief Financial
                Officer
         32.1   Certification of Ronald R. Helm, Chief Executive Officer of
                Pacific Biometrics, Inc., pursuant to 18 U.S.C. 1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
         32.2   Certification of Michael L. Hartzmark, Interim Chief Financial
                Officer of Pacific Biometrics, Inc., pursuant to 18 U.S.C. 1350,
                as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.

                                      -18-
<PAGE>

         In accordance with 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.




Dated:   November 14, 2005          /s/ Ronald R. Helm
                                    ------------------------------
                                    Ronald R. Helm
                                    Chief Executive Officer
                                    (principal executive officer)




                                    /s/ Michael L. Hartzmark
                                    ------------------------------
                                    Michael L. Hartzmark
                                    Interim Chief Financial Officer
                                    (principal financial and accounting officer)



















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