<PAGE>



                     U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                   FORM 10-QSB

[X]                QUARTERLY REPORT SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended  MARCH 31, 2000
                              -------------------


[ ]            TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE
                                  EXCHANGE ACT

                         Commission File Number 0-21537
                                                -------

                            PACIFIC BIOMETRICS, INC.
--------------------------------------------------------------------------------
         (Exact name of small business issuer specified in its charter)

         Delaware                                           93-1211114
--------------------------------------------------------------------------------
(State or other jurisdiction of                           (IRS Employer
incorporation or organization)                          Identification No.)


               23120 Alicia Parkway #200, Mission Viejo, CA 92692
--------------------------------------------------------------------------------
                    (Address of principal executive offices)

                                  949-455-9724
--------------------------------------------------------------------------------
                           (Issuer's telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months, and (2) has been
subject to such filing requirements for the past 90 days. Yes ( ) No (X)
Registrant has failed to timely file periodic reports on Form 10-QSB for the
period ended March 31, 2000, September 30, 2000, December 31, 2000, March 31,
2001 and Form 10-KSB for the period ended June 30, 2000.

As of May 31, 2001 there were outstanding 3,810,171 shares of common stock.

Transitional Small Business Disclosure Format (check one) Yes (   )  No ( X )

<PAGE>

                            PACIFIC BIOMETRICS, INC.

                              INDEX TO FORM 10-QSB


PART I - FINANCIAL INFORMATION
                                                                            Page
                                                                            ----
ITEM 1  - FINANCIAL STATEMENTS

Consolidated Balance  Sheet...................................................3

Consolidated Statements of  Operations........................................4

Condensed Consolidated Statements of Cash Flows...............................6

Notes to Consolidated Financial  Statements...................................8

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
         OF FINANCIAL CONDITION AND RESULTS OF
         OPERATIONS..........................................................13


PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS...................................................21

ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS...........................22

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES.....................................22

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................22

ITEM 5 - OTHER

INFORMATION..................................................................22

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K....................................22



<PAGE>

                            PACIFIC BIOMETRICS, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)
                           CONSOLIDATED BALANCE SHEET
                                 MARCH 31, 2000
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                     ASSETS

<S>                                                             <C>
Current assets:
    Cash and cash equivalents                                   $     37,022
    Accounts receivable, net of allowance for doubtful
          accounts of $40,000                                        233,063
    Other receivable                                                  40,303
    Prepaid expenses and other                                        10,445
                                                                ------------
          Total current assets                                       320,833

Property and equipment, net                                          302,849

Other assets:
    Restricted cash                                                   66,845
    Deposit and other                                                  1,250
                                                                ------------
          Total assets                                          $    691,777
                                                                ============

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
    Notes payable to bank                                       $     40,827
    Notes payable to related parties                                 474,130
    Notes payable other                                               16,667
    Accounts payable                                                 524,542
    Accrued liabilities                                              750,037
    Dividends payable                                                351,282
    Deferred compensation                                            149,034
    Advances from customers                                           87,666
    Technology licenses payable                                    2,244,040
    Capital lease obligations                                        420,108
                                                                ------------
          Total current liabilities                                5,058,333
                                                                ------------

    Capital lease obligations - long term portion                     77,845
                                                                ------------
          Total long term liabilities                                 77,845
                                                                ------------

Stockholders' deficit:
    Preferred stock, $0.01 par value, 5,000,000 shares
          authorized, 1,550,000 shares issued and outstanding         15,500
    Common stock, $0.01 par value, 30,000,000 shares
          authorized, 3,810,171 shares issued and outstanding         38,102
    Additional paid-in capital common stock                       13,494,624
    Additional paid-in capital preferred stock                     5,001,512
    Deficit accumulated during the development stage             (22,994,139)
                                                                ------------
          Total stockholders' deficit                             (4,444,401)
                                                                ------------
          Total liabilities and stockholders' deficit           $    691,777
                                                                ============
</TABLE>

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

<PAGE>

                            PACIFIC BIOMETRICS, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
            FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                               Three Month Period Ended March 31
                                                -------------------------------
                                                     2000             1999
                                                --------------   --------------
<S>                                             <C>              <C>
Revenues                                        $      560,571   $      411,435
                                                --------------   --------------

Operating expenses:
    Laboratory expense and cost of goods sold          303,357          328,089
    Research and product development                    25,049          120,707
    Selling, general and administrative                176,589          426,757
    Amortization of intangible assets                        0          200,452
                                                --------------   --------------

          Total operating expenses                     504,995        1,076,005
                                                --------------   --------------

Operating income (loss)                                 55,576         (664,570)
                                                --------------   --------------

Other income (expense):
    Interest expense                                   (56,540)         (25,684)
    Interest income                                        532            2,101
    Write-off of intangible assets                           0       (2,078,100)
    Grant and other income                             (16,049)           1,605
                                                --------------   --------------
                                                       (72,057)      (2,100,078)
                                                --------------   --------------

Net loss                                        $      (16,481)  $   (2,764,648)
                                                ==============   ==============

Preferred stock dividend paid or accrued               (62,000)         (62,000)
                                                --------------   --------------


Net loss applicable to common stockholders      $      (78,481)  $   (2,826,648)
                                                ==============   ==============


Basic and diluted loss per share                $        (0.02)  $        (0.76)
                                                ==============   ==============

Number of shares used in per-share calculation       3,810,171        3,710,788
                                                ==============   ==============
</TABLE>

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

                            PACIFIC BIOMETRICS, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
            FOR THE NINE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
       AND FOR THE PERIOD FROM INCEPTION (DECEMBER 1992) TO MARCH 31, 2000
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                            For the Period
                                                     Nine Month Period Ended March 31        from Inception
                                                    ----------------------------------     (December 1992) to
                                                        2000                  1999            March 31,2000
                                                    ------------          ------------         ------------
<S>                                                 <C>                   <C>                  <C>
Revenues                                            $  1,071,987          $  1,047,663         $ 10,098,837
                                                    ------------          ------------         ------------

Operating expenses:
    Laboratory expense and cost of goods sold            714,852               912,146            7,621,317
    Research and product development                      52,431               873,469            5,688,977
    Selling, general and administrative                  791,226             1,540,669            9,274,120
    Purchased in-process research and development              0                     0            6,373,884
    Amortization of intangible assets                          0               601,356            1,616,565
                                                    ------------          ------------         ------------

          Total operating expenses                     1,558,509             3,927,640           30,574,863
                                                    ------------          ------------         ------------

Operating loss                                          (486,522)           (2,879,977)         (20,476,026)
                                                    ------------          ------------         ------------

Other income (expense):
    Interest expense                                    (140,790)             (161,637)            (757,124)
    Interest income                                        1,569                25,018              318,851
    Write-off of intangible assets                             0            (2,078,100)          (2,078,100)
    Grant and other income                                47,086                 6,682               (1,740)
                                                    ------------          ------------         ------------
                                                         (92,135)           (2,208,037)          (2,518,113)
                                                    ------------          ------------         ------------


Net loss                                            $   (578,657)         $ (5,088,014)        $(22,994,139)
                                                    ============          ============         ============

Preferred stock dividend paid or accrued                (186,000)             (186,000)
                                                    ------------          ------------

Net loss applicable to common stockholders
                                                    $   (764,657)         $ (5,274,014)
                                                    ============          ============


Basic and diluted loss per share                    $      (0.20)         $      (1.42)
                                                    ============          ============

Number of shares used in per-share calculation         3,810,171             3,710,038
                                                    ============          ============
</TABLE>


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

<PAGE>

                            PACIFIC BIOMETRICS, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
            FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
                                   (UNAUDITED)



                                                  Three Month Period March 31
                                                   -------------------------
                                                     2000             1999
                                                   ---------       ---------

   Cash provided (used) by operations              $ 358,712       $(298,752)

   Cash used in investing activities                  (4,419)              0

   Cash (used ) provided by financing activities    (347,616)         83,976
                                                   ---------       ---------

Increase (decrease) in cash and cash equivalents       6,677        (214,776)

Cash and cash equivalents:

Beginning of period                                   30,345         368,131
                                                   ---------       ---------

End of period                                      $  37,022       $ 153,355
                                                   =========       =========


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

<PAGE>

                            PACIFIC BIOMETRICS, INC.
                            (A DELAWARE CORPORATION)
                      (A COMPANY IN THE DEVELOPMENT STAGE)
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
            FOR THE NINE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
       AND FOR THE PERIOD FROM INCEPTION (DECEMBER 1992) TO MARCH 31, 2000
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                             For the Period
                                        Nine Month Period Ended March 31     from Inception
                                        --------------------------------   (December 1992) to
                                           2000                 1999          March 31, 2000
                                        -----------          -----------       -----------
<S>                                     <C>                  <C>               <C>
   Cash used by operations              $    60,022          $(1,906,167)      $(9,554,711)

   Cash used in investing activities        (11,200)             (35,493)         (250,160)

   Cash (used ) provided by financing
      activities                            (48,177)            (149,041)        9,841,893
                                        -----------          -----------       -----------

Decrease in cash and cash equivalents           645           (2,090,701)           37,022

Cash and cash equivalents:

Beginning of period                          36,377            2,244,056                 0
                                        -----------          -----------       -----------

End of period                           $    37,022          $   153,355       $    37,022
                                        ===========          ===========       ===========
</TABLE>


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

<PAGE>

                            PACIFIC BIOMETRICS, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   ORGANIZATION AND BASIS OF PRESENTATION

Pacific Biometrics, Inc. ("PBI" or the "Company") is a development stage company
that provides specialty reference laboratory services to the pharmaceutical and
diagnostics industries. The Company had previously been engaged in the
development and commercialization of non-invasive diagnostics to improve the
detection and management of chronic diseases. The Company has developed two
patented platform technologies that permit the use of sweat and saliva as
diagnostic fluids.

The Company was incorporated in Delaware in May 1996. The Company conducts its
business through its wholly owned subsidiaries, Pacific Biometrics, Inc., a
Washington corporation ("PBI-WA") and BioQuant, Inc., a Michigan corporation
("BioQuant"). On June 28, 1996, the Company completed the mergers (the
"Mergers") whereby BioQuant and PBI-WA became wholly owned subsidiaries of the
Company in separate stock-for-stock exchange transactions.

Except for the revenues from laboratory services, nominal revenues have been
generated from the Company's products. Consequently, the Company is a
development stage enterprise.

All material intercompany balances and transactions have been eliminated in the
accompanying consolidated financial statements.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Technology

The Company had an exclusive worldwide license for the use of a transdermal
perspiration collection device for all medical diagnostic applications of
Sudormed's skin patch technology, which is the basis for the Company's
OsteoPatch(TM) system. This license allowed for the development of all other
potential applications of such technology, except for those relating to alcohol
and drugs of abuse. Pursuant to the license agreement, the Company had agreed to
pay Sudormed approximately $3 million over a fifteen-month period plus an
ongoing royalty payment based on sales of products developed under this license.
Such payments included a lump-sum payment of $1.6 million due in December 1998.
The

<PAGE>

Company is in default on this obligation (see Note 6).

The Company has licensed exclusive rights, related to bone resorption in human
perspiration, to use patented pyridinium crosslinks antibody technology (this is
an exclusive worldwide license excluding Japan). The Company owns a fully paid
license to the assay technology used with the OsteoPatch(TM) product. Licensing
fees to this antibody technology have been fully amortized.

The SalivaSac(R) is a proprietary patented product of the Company that collects
and processes saliva for medical diagnostic purposes.

Risks and Uncertainties

Any product that the Company develops will likely require approvals from the
Food and Drug Administration (FDA) and international regulatory agencies prior
to commercialized sales. With respect to the Company's OsteoPatch(TM) product,
the Company failed to receive FDA approval and, as a result, has ceased product
development and has defaulted on the Sudormed license agreement.

In April 2000, the Company entered into an agreement to sell the laboratory
business, the only source of revenue for the Company (see Note 6). Additionally,
the Company's securities have been delisted from the Nasdaq Stock Market.

The Company's financial position also creates risks and uncertainties as
discussed below in Note 3.

3.   GOING CONCERN

The Company has experienced recurring losses from operations and cash flow
shortages, and has reported deficiencies in working capital and stockholders'
equity. Also the Company has significant amounts of debt past due. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

Management has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with the
ability to continue in existence for the near term. These steps include
significant reductions in expenses and staffing, suspension of research and
development projects, attempts to license or sell SalivaSac(R) technology,
renegotiations of contractual commitments, and a proposed sale of the Company's
laboratory (see Note 6).

Even if the Company is able to sell the laboratory operations, the Company will
still have significant debts and claims that need to be settled. The Company
will attempt to settle

<PAGE>

these debts with cash, stock, and technology assets. There can be no assurance
that the Company will be successful in these negotiations and therefore may have
to seek protection from creditors under the bankruptcy laws.

4.   EARNINGS PER SHARE

As the Company had a net loss from continuing operations for the period ended
March 31, 2000 and 1999 basic and diluted net loss per share are the same.

Net loss applicable to common stockholders includes $186,000 in cumulative
dividends on the convertible preferred stock for each of the periods ended March
31, 2000 and 1999.

Basic and diluted net loss per common share for the period ended March 31, 2000
and 1999 were calculated as follows:

                                             Nine Month     Nine Month
                                            Period Ended   Period Ended
                                             3/31/2000      3/31/1999
                                            -----------    -----------
Net Loss                                    $  (578,657)   $(5,088,014)

Preferred Stock cumulative dividend            (186,000)      (186,000)
                                            -----------    -----------

Net Loss available to Common stockholders   $  (764,657)   $(5,274,014)
                                            ===========    ===========

Basic and diluted net loss per share        $     (0.20)   $     (1.42)
                                            ===========    ===========

Weighted average shares outstanding -
    basic and diluted                         3,810,171      3,710,038
                                            ===========    ===========


5.   COMMITMENTS AND CONTINGENCIES

Legal Proceedings

On May 10, 2001 a Final Judgment of Permanent Injunction was issued by the
United States District Court for the District of Columbia ordering the Company
to (a) file with the SEC, on or before June 29, 2001,: (1) the Company's Annual
Report on Form 10-KSB for its fiscal year ended June 30, 2000; (2) the Company's
Quarterly Reports on Form 10-QSB for its quarters ended March 31, September 30,
and December 31, 2000; and (3) such other periodic reports which may become due
prior to the entry of the Final Judgment, and (b) file timely and in proper form
with the SEC accurate and complete information and reports of the Company as are
required to be filed under the securities laws.

<PAGE>

On September 24, 1997 the Company received from the former manufacturer of
SPINPRO(R) a demand for arbitration in connection with alleged breaches of the
contract relating to the manufacture of SPINPRO(R). The former manufacturer is
seeking damages of approximately $515,000. The Company does not believe that the
claims have any merit and believes that the ultimate outcome of this proceeding
will not have a material impact on the Company. The Company has contested such
claims and has filed counterclaims against the former manufacturer. The Company
has also filed for arbitration against a former vendor relating to SPINPRO(R),
seeking damages for alleged breach of contract with respect to the manufacture
of molds for SPINPRO(R) parts.

The landlord of the Company's previous office and laboratory space in Lake
Forest, California was proceeding against the Company to cancel the lease. The
landlord has obtained a judgment against the Company from Orange County Superior
Court for approximately $150,000 related to the default on the lease. In
addition, liabilities continue to accrue at about $13,000 per month until the
space is leased. The total liability to the Company is estimated to be
approximately $350,000. The Company has been advised by Saigene Corporation
("Saigene"), the proposed purchaser of the Company's laboratory, that Saigene
has purchased from the landlord of the Lake Forest property, for the sum of
$350,000, the rights to all claims and judgments rendered against the Company
related to its default on the Lake Forest lease, subject to the sale of the
Company's laboratory assets to Saigene. However, it is unclear whether or not
Saigene may re-assign such rights to the landlord if the sale of the laboratory
assets to Saigene is not completed. In any event, Saigene, under the terms of
the Purchase Agreement (see Note 6), has agreed that Saigene will be responsible
for satisfaction of such judgment and, therefore, the Company believes it would
be entitled to seek recovery from Saigene for any costs or liabilities as a
result of Saigene's failure to satisfy such claim.

6.   SUBSEQUENT EVENTS

In May 2000, 3M notified the Company that, in its capacity as a secured party in
possession of the Sudormed assets, it demands payment in full of the $1.6
million plus accrued interest and fees due under the License Agreement between
the Company and Sudormed. 3M is seeking to settle this claim or seek a judgment
in a court of law and has objected to the laboratory sale transaction that is
proceeding with Saigene. The Company disputes 3M's claim and intends to defend
itself in this matter. If 3M should be successful in blocking the proposed sale
of the laboratory, or commences a legal action against the Company, the Company
may have no alternative than to seek protection from creditors under the
bankruptcy laws.

As previously reported, the Company executed an Agreement of Purchase and Sale
of Assets dated April 18, 2000 and a First Amendment to Agreement of Purchase
and Sale of Assets dated June 22, 2000 (together, the "Purchase Agreement") with
Saigene. The Purchase Agreement, which is subject to stockholder approval, will
transfer the business and all assets

<PAGE>

of the Company's Seattle laboratory operation to Saigene for a total
consideration of $4,000,000. Saigene failed to satisfy certain conditions
relating to payments as required and defaulted on the Purchase Agreement.
Saigene requested a further extension to January 20, 2001 to complete the
Purchase Agreement and the Company and Saigene signed a Second Amendment to
Agreement of Purchase and Sale of Assets, dated August 4, 2000 (the "Second
Amendment").

In exchange for this extension, Saigene agreed to the following additional
terms. Saigene paid the Company $50,000 on May 22, 2000 and $75,000 on July 19,
2000 as part of the purchase price. Saigene paid $20,000 on each of August 28th,
September 20th, October 20th, November 20th and December 20, 2000. One half of
each $20,000 payment will be credited toward the purchase price and one-half of
each payment will be consideration paid for the additional time extension.
Payments toward the purchase price will be credited against the escrow payment
required at the time of closing. All payments made according to the Second
Amendment will be forfeited by Saigene if they fail to make any of the required
payments, including the closing payments. Saigene and the Company have further
agreed that Saigene may extend the January 20, 2001 Closing Date on a
month-by-month basis by increasing the monthly payments to $30,000 beginning
January 20, 2001. One-half of each such payment would be credited to the
purchase price and one-half would be consideration for the additional time
extension. The Company has the right to terminate the Purchase Agreement at the
end of any extension period by giving 20 days prior written notice.

Saigene failed to complete the Purchase Agreement on January 20, 2001 but has
elected to extend the Closing Date on a month-by-month basis having made all
required payments due through December 20, 2000 and all payments due from
January 20, 2001 through May 20, 2001.

There can be no assurance that Saigene will be able to complete the Purchase
Agreement as amended or consummate the transactions contemplated therein.
Failure to complete this transaction would likely return operational control of
the laboratory to the Company. While the laboratory would have less debt as a
result of the Second Amendment, the Company will not be financially capable of
maintaining the laboratory operation and there can be no assurance that another
buyer could be found in a timely manner. This could force the Company to seek
protection from creditors under the bankruptcy laws.

Even upon completion of the transaction with Saigene, the Company will still
have significant debts and claims that need to be settled. These include amounts
owed to various consultants, vendors and suppliers of the Company not related to
the Seattle laboratory operation (approximately $400,000); deferred pay to
current and former employees (approximately $800,000); and a potential liability
of approximately $2.0 million related to the OsteoPatch(TM) technology. The
Company will attempt to settle these debts with cash, stock, and technology
assets. There can be no assurance that the Company will be successful in these
negotiations and may have to seek protection from creditors under the bankruptcy

<PAGE>

laws. If the Company is successful in settling the remaining debts, then the
Company plans to pursue a merger with another company as a means of providing
some value to common stockholders. There can be no assurance that the Company
will be successful in finding and negotiating a successful merger or that any
such merger would create value for the stockholders.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion and analysis should be read in conjunction with
the preceding consolidated financial statements and notes in this Form 10-QSB
and in conjunction with the financial statements and notes thereto for the year
ended June 30, 1999 included in the Company's Annual Report on Form 10-KSB.

OVERVIEW

Pacific Biometrics, Inc. ("PBI" or the "Company") was incorporated in Delaware
in May 1996 in connection with the acquisition of BioQuant, Inc. ("BioQuant"), a
Michigan corporation, and Pacific Biometrics, Inc. ("PBI-WA"), a Washington
corporation. On June 28, 1996, the Company completed the mergers whereby
BioQuant and PBI-WA became wholly owned subsidiaries of the Company in separate
stock-for-stock exchange transactions.

PBI is a development stage company that provides specialty reference laboratory
services to the pharmaceutical and diagnostics industries. The Company's
specialty reference laboratory is under contract to be sold to Saigene
Corporation for a total consideration of $4,000,000. PBI and Saigene have also
entered into a Management Agreement in which Saigene provides day-to-day
management of the laboratory. The Company had previously been engaged in the
development and commercialization of non-invasive diagnostics to improve the
detection and management of chronic diseases, which commercialization efforts
have been terminated due to the Company's inability to obtain FDA approval for
its OsteoPatch(TM) product and lack of necessary funding. The Company has
developed two patented technologies that permit the use of sweat and saliva as
diagnostic fluids.

Expenses consist, and are expected to continue to consist, primarily of
operating expenses necessary for the laboratory operations. In addition, the
Company maintains a small corporate office in Mission Viejo, California.

As of March 31, 2000, the Company had an accumulated deficit since inception of
$22,994,139 which included a one-time charge of $6,373,884 for the value of
purchased research and development expenses relating to the Company's merger
with BioQuant and a one-time charge of $428,368 relating to a prior merger
involving PBI-WA in 1995.

As previously reported, the Company executed an Agreement of Purchase and Sale
of Assets dated April 18, 2000 and a First Amendment to Agreement of Purchase
and Sale of Assets dated June 22, 2000 (together, the "Purchase Agreement") with
Saigene. The Purchase Agreement, which is subject to stockholder approval, will
transfer the business and all assets of the Company's Seattle laboratory
operation to Saigene for a total consideration of $4,000,000. Saigene failed to
satisfy certain

<PAGE>

conditions relating to payments as required and defaulted on the Purchase
Agreement. Saigene requested a further extension to January 20, 2001 to complete
the Purchase Agreement and the Company and Saigene signed a Second Amendment to
Agreement of Purchase and Sale of Assets, dated August 4, 2000 (the "Second
Amendment").

In exchange for this extension, Saigene agreed to the following additional
terms. Saigene paid the Company $50,000 on May 22, 2000 and $75,000 on July 19,
2000 as part of the purchase price. Saigene paid $20,000 on each of August 28th,
September 20th, October 20th, November 20th and December 20, 2000. One half of
each $20,000 payment will be credited toward the purchase price and one-half of
each payment will be consideration paid for the additional time extension.
Payments toward the purchase price will be credited against the escrow payment
required at the time of closing. All payments made according to the Second
Amendment will be forfeited by Saigene if they fail to make any of the required
payments, including the closing payments. Saigene and the Company have further
agreed that Saigene may extend the January 20, 2001 Closing Date on a
month-by-month basis by increasing the monthly payments to $30,000 beginning
January 20, 2001. One-half of each such payment would be credited to the
purchase price and one-half would be consideration for the additional time
extension. The Company has the right to terminate the Purchase Agreement at the
end of any extension period by giving 20 days prior written notice.

Saigene failed to complete the Purchase Agreement on January 20, 2001 but has
elected to extend the Closing Date on a month-by-month basis having made all
required payments due through December 20, 2000 and all payments due from
January 20, 2001 through May 20, 2001.

There can be no assurance that Saigene will be able to complete the Purchase
Agreement as amended or consummate the transactions contemplated therein.
Failure to complete this transaction would likely return operational control of
the laboratory to the Company. While the laboratory would have less debt as a
result of the Second Amendment, the Company will not be financially capable of
maintaining the laboratory operation and there can be no assurance that another
buyer could be found in a timely manner. This could force the Company to seek
protection from creditors under the bankruptcy laws.

Even upon completion of the transaction with Saigene, the Company will still
have significant debts and claims that need to be settled. These include amounts
owed to various consultants, vendors and suppliers of the Company not related to
the Seattle laboratory operation (approximately $400,000); deferred pay to
current and former employees (approximately $800,000); and a potential liability
of approximately $2.0 million related to the OsteoPatch(TM) technology. The
Company will attempt to settle these debts with cash, stock, and technology
assets. There can be no assurance that the Company will be successful in these
negotiations and may have to seek protection from creditors under the bankruptcy
laws. If the Company is successful in settling the remaining debts, then the
Company plans to pursue a merger with another company as a means of providing
some value to common stockholders. There can be no assurance that the Company
will be successful in finding and negotiating a successful merger or that any
such merger would create value for the stockholders.

On May 10, 2001 a Final Judgment of Permanent Injunction was issued by the
United States District Court for the District of Columbia ordering the Company
to (a) file with the SEC, on or before June 29, 2001: (1) the Company's Annual
Report on Form 10-KSB for its fiscal year ended June 30, 2000; (2) the Company's
Quarterly Reports on Form 10-QSB for its quarters ended March 31,

<PAGE>

September 30, and December 31, 2000; and (3) such other periodic reports which
may become due prior to the entry of the Final Judgment, and (b) file timely and
in proper form with the SEC accurate and complete information and reports of the
Company as are required to be filed under the securities laws.

RESULTS OF OPERATIONS:

Comparison of the three and nine month periods ended March 31, 2000 and 1999:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Rounded to Nearest          Three       Nine         Comments on increase or decrease from
 Thousand Dollars           Months      Months                     Prior period
-------------------------------------------------------------------------------------------------
<S>                       <C>          <C>         <C>

Revenues:
------------------------------------------------------
Ended 3/31/2000             $561      $1,072            Revenue has increased due to a higher
------------------------------------------------------  level of contract research work performed
Ended 3/31/1999             $411      $1,048            by the laboratory.
------------------------------------------------------
$ variance                  $150         $24
------------------------------------------------------
% variance                    36%          2%
------------------------------------------------------

Laboratory expenses and cost of sales:
------------------------------------------------------
Ended 3/31/2000             $303        $715            Laboratory  expenses have declined due to
------------------------------------------------------  cost reductions and due to the gross
Ended 3/31/1999             $328        $912            margin on the different mix of contract
------------------------------------------------------  work performed.
$ variance                  ($25)      ($197)
------------------------------------------------------
% variance                    -8%        -22%
------------------------------------------------------

Research and product development:
------------------------------------------------------
Ended 3/31/2000              $25         $52            Research and development has declined due
------------------------------------------------------  to termination of certain projects due to
Ended 3/31/1999             $121        $873            lack of funding.
------------------------------------------------------
$ variance                  ($96)      ($821)
------------------------------------------------------
% variance                   -79%        -94%
------------------------------------------------------

Selling, general and administration expenses:
------------------------------------------------------
Ended 3/31/2000             $177        $791            Selling, general and administrative
------------------------------------------------------  expenses have declined due to cost
Ended 3/31/1999             $427      $1,541            reductions in both ongoing operations and
------------------------------------------------------  expenditures for costs accrued for in the
$ variance                 ($250)      ($750)           prior year.
------------------------------------------------------
% variance                   -59%        -49%
------------------------------------------------------

Amortization of intangible assets:
------------------------------------------------------
Ended 3/31/2000               $0          $0            Amortization  of intangibles was reduced
------------------------------------------------------  to $0 for both periods due to the write-
Ended 3/31/1999             $200        $601            off of intangible assets.
------------------------------------------------------
$ variance                 ($200)      ($601)
------------------------------------------------------
% variance                  -100%       -100%
------------------------------------------------------

</TABLE>


<PAGE>

<TABLE>
<S>                       <C>          <C>         <C>
Total other income (expense):

------------------------------------------------------
Ended 3/31/2000             ($72)       ($92)           The change in total other income is due
------------------------------------------------------  to the  write-off  of intangible assets
Ended 3/31/1999          ($2,100)    ($2,208)           being included in the 1999 periods.
------------------------------------------------------
$ variance                $2,028      $2,116
------------------------------------------------------
% variance                   -97%        -96%
------------------------------------------------------

Net loss:
------------------------------------------------------
Ended 3/31/2000             ($16)      ($572)           The  reduction in the net loss is
------------------------------------------------------  attributed to the reduction in the scope
Ended 3/31/1999          ($2,765)    ($5,088)           of operations  and the write-off of
------------------------------------------------------  intangible  assets being included in the
$ variance                $2,749      $4,509            1999 periods.
------------------------------------------------------
% variance                   -99%        -89%
------------------------------------------------------
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES:

FINANCING ACTIVITIES
--------------------

The registration statement pertaining to the initial public offering ("IPO") of
the Company was declared effective by the Securities and Exchange Commission on
October 29, 1996. Gross proceeds from the public offering were $8,075,000. The
Company has used the net proceeds from the offering (approximately $6.3 million)
for product development activities relating to the OsteoPatch(TM), for funding
the growth of its central reference laboratory operations, working capital, and
approximately $1.2 million to repay debt.

On February 20, 1998, the Company consummated the sale of 925,000 shares of
Series A Convertible Preferred Stock (the "Preferred Stock") with an
institutional investor for an aggregate purchase price of $1,850,000. In
addition, the Company granted such institutional investor an option (the
"Option") to purchase an additional 625,000 shares of Preferred Stock until May
20, 1998 for an exercise price of $1,250,000. The Option was exercised in full
during May 1998. The Preferred Stock is convertible into shares of the Company's
Common Stock at the option of the holder at any time on a one-for-one basis,
subject to adjustment for stock splits, dividends and similar events. The
Preferred Stock provides for a cumulative cash dividend payable quarterly in
arrears at an annual rate of 8%. The Company has the right to force conversion
of the Preferred Stock in the event the price per share of the Common Stock is
$8.00 or more for twenty consecutive trading days. The Company has agreed to use
commercially reasonable efforts to effect the registration of the Common Stock
into which the Preferred Stock is convertible. To date, no such efforts have
been undertaken. The Company is not current on dividend payments and as of March
31, 2000 approximately $350,000 in dividends have been accrued, and
approximately $600,000 in dividends have been accrued through March 31, 2001.

In April 1997, the Company entered into a capital equipment leasing facility
with Transamerica Business Credit Corporation to provide credit for equipment
purchases up to $1,500,000. The Company issued 51,429 warrants to Transamerica
as part of this agreement. The Company received gross proceeds of $376,808 under
the agreement during

<PAGE>

fiscal 1997 and received gross proceeds of $329,154 during fiscal 1998. The
Company is required to raise additional capital in order to draw additional
funding from this arrangement.

The Company has continued to negotiate forbearance agreements with Transamerica
Business Credit related to payments due on capital leases. In exchange for the
first forbearance agreement the 51,429 warrants were repriced to $0.50 per share
in March 1999. No discount was recorded for the value of the warrants because
the amount was not material.

In exchange for the most recent Forbearance Agreement, dated August 1999, the
Company had repriced warrants previously issued to Transamerica from $.50 per
share to $.09 per share, granted Transamerica additional warrants and granted
Transamerica a priority lien position on assets of the Company. This Forbearance
Agreement expired on September 30, 1999 and was extended again through December
31, 1999 in exchange for 150,508 additional warrants with an exercise price of
$.09 per share. All warrants issued to Transamerica were again repriced on
February 12, 2000 to $.06 per share. Although the Forbearance Agreement has
expired, Transamerica has not taken action to collect the debt, which
approximates $450,000. Most of this debt will be assumed by Saigene upon sale of
the laboratory. The expense associated with the warrant re-pricing was not
material. The Company recorded a discount of approximately $38,000 in connection
with issuance of the 150,508 warrants as of December 1999.

In April of 1999 the Company and its subsidiaries entered into a Accounts
Receivable Factoring Agreement (the "Factoring Agreement") with Silicon Valley
Bank (the "Bank"). The Company issued 93,024 warrants to the Bank as part of
this agreement. The Company has been factoring the majority of the accounts
receivable from laboratory operations to provide the Company with working
capital to meet laboratory operations obligations and to maintain minimal
corporate operations. Under the terms of this agreement, the Bank will advance
80% of accepted receivables and charge the Company an administrative fee of .75%
and an annualized rate of 21% on outstanding balances. Amounts outstanding as of
March 31, 2000 were $40,827.

OPERATIONS
----------

As of March 31, 2000, the Company had cash and cash equivalents of $37,022. In
addition, the Company's current liabilities exceeded its current assets. During
the quarter ended March 31, 2000, the Company's cash and cash equivalents
declined by approximately $6,677 from the prior quarter.

PRODUCTS AND SERVICES
---------------------

In May 1998, the Company received a letter from the FDA in response to its
510(k) application for the OsteoPatch(TM) device notifying the Company that the
agency did not find

<PAGE>

the device to be substantially equivalent to the predicate device, a urine test
marketed by Metra Biosystems. Despite numerous discussions and a meeting with
the FDA in July 1998, the Company was unable to reverse the agency's decision or
negotiate requirements for additional data that were within the Company's
financial ability to perform. Due to lack of funds, the Company ceased
development activities on the OsteoPatch(TM) device in August 1998.

In December 1998, the Company failed to make a payment of $1.6 million to
Sudormed, the licensor of the patch technology relating to the SweatPatch(TM)
and OsteoPatch(TM), resulting in a default under the License Agreement and the
Supply Agreement with Sudormed Inc. ("Sudormed"). Sudormed terminated the
License Agreement in May 1999 for failure to make required payments. The
Agreement permits the Company to retain full license rights as long as the
Company has inventory of patches. As of March 31, 2001 the Company had
approximately 80,000 patches in inventory. All investments in SweatPatch(TM)
technology, including the OsteoPatch(TM) and inventory, were expensed in March
1999.

In May 2000, the Company executed the Purchase Agreement with Saigene, a
privately held company located in Redmond, Washington. The Purchase Agreement,
which is subject to stockholder approval, will transfer the business and assets
of the Company's Seattle laboratory operation to Saigene for a total
consideration of $4,000,000, including cash, cash advances, notes to Preferred
Stockholders, and assumption of debt. In August 2000, the Company announced a
further extension to the closing date from August 15, 2000 to January 20, 2001.
The closing date has been further extended on a month-by-month basis by Saigene
through May 20, 2001. Saigene is able to extend the closing date by making
monthly payments of $30,000, in which half of such payments may be credited to
the purchase price upon consummation of the sale transaction. The Company can
terminate the Purchase Agreement at the end of any extension period by providing
20 days written notice.

The SalivaSac(R), developed by the Company, collects a non-invasive saliva
sample that the Company had hoped would be able to replace blood and urine
testing in various applications. The Company had been awarded two SBIR Phase I
grants to research this technology for non-invasive glucose monitoring. As a
result of this research the Company had used its SalivaSac(R) technology to
research the development Of a screening product to detect diabetes in the
general population and a monitoring product to produce detailed quantitative
measurements of glucose levels to enable diabetics to monitor glucose levels
throughout the day. While previous attempts by others to correlate saliva
glucose with blood glucose have been unsuccessful, the Company has had
encouraging preliminary results using the SalivaSac(R) device, as it appears to
exclude substances that interfere with accurate glucose measurements. However,
almost all development of the SalivaSac(R) has been suspended as of December,
1998 due to a lack of funding and without additional funding the Company will
not be able to successfully develop the SalivaSac(R) for such use. On August 15,
2000 the Company was issued United States Patent No. 6,102,872 for Glucose
Detector and Method as a result of the SalivaSac(R) research conducted earlier.
In September, 1999

<PAGE>

the Company received a SBIR Phase I grant to research the use of the
SalivaSac(R) technology for the collection and measurement of homocysteine, a
newly discovered marker with potential application for use as a risk factor in
heart disease. The Company was not able to make any useful discoveries with this
Phase I grant and has no plans to file for a Phase II grant for the homocysteine
application.

FUTURE OPERATING RESULTS
------------------------

As previously reported, the Company executed the Purchase Agreement with
Saigene. The Purchase Agreement, which is subject to stockholder approval, will
transfer the business and all assets of the Company's Seattle laboratory
operation to Saigene for a total consideration of $4,000,000. Saigene failed to
satisfy certain conditions relating to payments as required and defaulted on the
Purchase Agreement. Saigene requested a further extension to January 20, 2001 to
complete the Purchase Agreement.

In exchange for this extension, Saigene agreed to the following additional
terms. Saigene paid the Company $50,000 on May 22, 2000 and $75,000 on July 19,
2000 as part of the purchase price. Saigene paid $20,000 on each of August 28th,
September 20th, October 20th, November 20th and December 20, 2000. One half of
each $20,000 payment will be credited toward the purchase price and one-half of
each payment will be consideration paid for the additional time extension.
Payments toward the purchase price will be credited against the escrow payment
required at the time of closing. All payments made according to the Second
Amendment will be forfeited by Saigene if they fail to make any of the required
payments, including the closing payments. Saigene and the Company have further
agreed that Saigene may extend the January 20, 2001 Closing Date on a
month-by-month basis by increasing the monthly payments to $30,000 beginning
January 20, 2001. One-half of each such payment would be credited to the
purchase price and one-half would be consideration for the additional time
extension. The Company has the right to terminate the Purchase Agreement at the
end of any extension period by giving 20 days prior written notice.

Saigene failed to complete the Purchase Agreement on January 20, 2001 but has
elected to extend the Closing Date on a month-by-month basis having made all
required payments due through December 20, 2000 and all payments due from
January 20, 2001 through May 20, 2001.

There can be no assurance that Saigene will be able to complete the Purchase
Agreement as amended or consummate the transactions contemplated therein.
Failure to complete this transaction would likely return operational control of
the laboratory to the Company. While the laboratory would have less debt as a
result of the Second Amendment, the Company will not be financially capable of
maintaining the laboratory operation and there can be no assurance that another
buyer could be found in a timely manner. This could force the Company to seek
protection from creditors under the bankruptcy laws.

<PAGE>

Even upon completion of the transaction with Saigene, the Company will still
have significant debts and claims that need to be settled. These include amounts
owed to various consultants, vendors and suppliers of the Company not related to
the Seattle laboratory operation (approximately $400,000); deferred pay to
current and former employees (approximately $800,000); and a potential liability
of approximately $2.0 million related to the OsteoPatch(TM) technology. The
Company will attempt to settle these debts with cash, stock, and technology
assets. There can be no assurance that the Company will be successful in these
negotiations and may have to seek protection from creditors under the bankruptcy
laws. If the Company is successful in settling the remaining debts, then the
Company plans to pursue a merger with another company as a means of providing
some value to common stockholders. There can be no assurance that the Company
will be successful in finding and negotiating a successful merger or that any
such merger would create value for the stockholders.

The landlord of the Company's previous office and laboratory space in Lake
Forest, California cancelled the lease. The landlord also obtained a judgment
against the Company from Orange County Superior Court for approximately $150,000
related to the default on the lease. In addition, liabilities continued to
accrue at about $13,000 per month until the space is leased. The total liability
to the Company is estimated to be approximately $350,000. The Company has been
advised by Saigene that Saigene has purchased from the landlord of the Lake
Forest property, for the sum of $350,000, the rights to all claims and judgments
rendered against the Company related to its default on the Lake Forest lease,
subject to the sale of the Company's laboratory assets to Saigene. However, it
is unclear whether or not Saigene may re-assign such rights to the landlord if
the sale of the laboratory assets to Saigene is not completed. In any event,
Saigene, under the terms of the First Amendment, has agreed that Saigene will be
responsible for satisfaction of such judgment and, therefore, the Company
believes it would be entitled to seek recovery from Saigene for any costs or
liabilities as a result of Saigene's failure to satisfy such claim. While the
laboratory would have less debt as a result of the Purchase Agreement, the
Company will not be financially capable of maintaining the laboratory operations
and there can be no assurance that another buyer could be found in a timely
manner. This could force the Company to seek protection from creditors under the
bankruptcy laws.

The Minnesota Mining and Manufacturing Company (3M), as a party in possession of
secured property, has not informed the Company of its plans for the Sudormed
assets. This includes the SkinPatch(TM) technology rights, which are part of the
Company's OsteoPatch(TM) product. The Company had sought to reestablish certain
rights to this technology in order to create additional value for the Company's
other intellectual property related to the OsteoPatch(TM). Without an agreement
with 3M, the Company's OsteoPatch(TM) assets may not have any value. The Company
expensed all of these assets in March 1999. In May 2000, 3M notified the Company
that, in its capacity as a secured party in possession of the Sudormed assets,
it demands payment in full of the $1.6 million plus accrued interest and fees
due under the License Agreement between the Company and Sudormed. The Company

<PAGE>

and 3M are seeking to settle this claim. 3M has objected to the laboratory sale
transaction that is proceeding with Saigene. Although the Company disputes 3M's
claim, 3M may seek to enforce its rights through legal process. The Company is
not certain of the impact of 3M's demand on the proposed transaction with
Saigene or what legal rights may be asserted by 3M to protect its claim. If 3M
should be successful in blocking the proposed sale of the laboratory, or
commences a legal action against the Company, the Company may have no
alternative than to seek protection from creditors under the bankruptcy laws.

PART II  - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

On May 10, 2001 a Final Judgment of Permanent Injunction was issued by the
United States District Court for the District of Columbia ordering the Company
to (a) file with the SEC, on or before June 29, 2001: (1) the Company's Annual
Report on Form 10-KSB for its fiscal year ended June 30, 2000; (2) the Company's
Quarterly Reports on Form 10-QSB for its quarters ended March 31, September 30,
and December 31, 2000; and (3) such other periodic reports which may become due
prior to the entry of the Final Judgment, and (b) file timely and in proper form
with the SEC accurate and complete information and reports of the Company as are
required to be filed under the securities laws.

On September 24, 1997 the Company received from the former manufacturer of
SPINPRO(R) a demand for arbitration in connection with alleged breaches of the
contract relating to the manufacture of SPINPRO(R). The former manufacturer is
seeking damages of approximately $515,000. The Company does not believe that the
claims have any merit and believes that the ultimate outcome of this proceeding
will not have a material impact on the Company. The Company is vigorously
contesting such claims and has filed counterclaims against the former
manufacturer. The Company has also filed for arbitration against a former vendor
relating to SPINPRO(R), seeking damages for alleged breach of contract with
respect to the manufacture of molds for SPINPRO(R) parts.

As previously reported, the landlord of the Company's office and laboratory
space in Lake Forest, California was proceeding against the Company to cancel
the lease. The landlord has obtained a judgment against the Company from Orange
County Superior Court for approximately $150,000 related to the default on the
lease. In addition, liabilities continue to accrue at about $13,000 per month
until the space is leased. The total liability to the Company is estimated to be
approximately $350,000. The Company has been advised by Saigene that Saigene has
purchased from the landlord of the Lake Forest property, for the sum of
$350,000, the rights to all claims and judgments rendered against the Company
related to its default on the Lake Forest lease, subject to the sale of the
Company's laboratory assets to Saigene. However, it is unclear whether or not
Saigene may re-assign such rights to the landlord if the sale of the laboratory
assets to Saigene is not completed. In any event, Saigene, under the terms of
the Purchase Agreement, has agreed that Saigene will


<PAGE>

be responsible for satisfaction of such judgment and, therefore, the Company
would be entitled to seek recovery from Saigene for any costs or liabilities as
a result of Saigene's failure to satisfy such claim.

ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS - Not Applicable

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - Not Applicable.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - Not Applicable.

ITEM 5 - OTHER INFORMATION - Not Applicable.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

     (a)       Exhibits:

               None.

     (b) The following current reports on Form 8-K were filed during and
subsequent to the quarter ended March 31, 2000:

         (i) Current Report on Form 8-K filed with the Commission on May 15,
2000 under Item 5 disclosing failure to file Form 10-QSB for the periods ended
September 30, 1999, December 31, 1999 and March 31, 2000 and disclosing the
execution and terms of the Purchase Agreement with Saigene.

         (ii) Current Report on Form 8-K filed with the Commission on June 26,
2000 under Item 5 disclosing an amendment to the Purchase Agreement with
Saigene.

         (iii) Current Report on Form 8-K filed with the Commission on August 9,
2000 under Item 5 disclosing a second amendment to the Purchase Agreement with
Saigene.

         (iv) Current Report on Form 8-K filed with the Commission on
October 10, 2000 under Item 5 disclosing failure to file Form 10-QSB for the
period ended March 31, 2000 and Form 10-KSB for the year ended June 30, 2000.

SIGNATURES

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


<PAGE>

DATED: June 29, 2001




 \s\ Paul G. Kanan                    President, Chief Executive Officer,
--------------------------------      Acting Principal Financial and Accounting
Paul G. Kanan                         Officer