UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION




WASHINGTON,
D.C. 20549




FORM
10-Q




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




For the
quarterly period ended September 30, 2010




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




For the
transition period from ____________ to ____________




Commission
File No. 0-21537




Pacific
Biomarkers, Inc.


(Exact
name of registrant as specified in its charter)


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





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





Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes  x  No   ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 or Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).     Yes  x  No   ̈





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





Large
accelerated filer  ̈                                                                        Accelerated
filer  ̈


Non-accelerated
filer  ̈                                                                          Smaller
reporting company x





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 15, 2010, there were 16,909,501 shares of the registrant’s common
stock, $0.01 par value per share, outstanding.








PACIFIC
BIOMARKERS, INC.





INDEX TO
FORM 10-Q





PagePART
      I - FINANCIAL INFORMATIONITEM
      1 - FINANCIAL STATEMENTSConsolidated
      Balance Sheets as of September 30, 2010 (unaudited) and June 30,
      2010
                4Consolidated
      Statements of Operations for the three months ended September 30, 2010 and
      September 30, 2009 (unaudited)
                5Consolidated
      Statements of Cash Flows for the three months ended September 30, 2010 and
      September 30, 2009 (unaudited)
                6Notes
      to Consolidated Financial Statements (unaudited)
                7ITEM
      2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
      RESULTS OF OPERATIONS
                12ITEM
      4 - CONTROLS AND PROCEDURES
                18PART
      II - OTHER INFORMATIONITEM
      6 - EXHIBITS
                18


2





EXPLANATORY
NOTE





Unless
otherwise indicated or the context otherwise requires, all references in this
Report to “we,” “us,” “our,” and the “Company” are to Pacific Biomarkers, Inc.
and our wholly-owned subsidiaries.





CAUTIONARY
NOTE REGARDING FORWARD LOOKING STATEMENTS





This
Quarterly Report on Form 10-Q contains certain forward-looking statements,
including statements about:





·
            our
      working capital and cash flows and our estimates as to how long these
      funds will be sufficient to fund our
operations,


·
            our
      business development efforts and our expectations for future work orders
      for services and revenue
generation,


·
            our
      plans for growing demand for our services and products, including our
      expectations for our novel biomarker
services,


·
            our
      goals for implementing aspects of our business plan and strategies,
      and


·
            our
      financing goals and plans





The
forward-looking statements in this Report reflect management’s current views and
expectations with respect to our business, strategies, services, future results
and financial performance. All statements other than statements of historical
fact, including statements addressing projected results of operations or our
future financial position, made in this Quarterly Report on Form 10-Q are
forward looking. In particular, the words “expect,” “anticipate,” “estimate”,
“desire”, “goal”, “ believe”, “may”, “will”, “should”, “could”, “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
forward-looking statements. The absence of these words does not mean that any
particular statement is not a forward-looking statement.





These
forward-looking statements are subject to risks and uncertainties. Our actual
results, performance or achievements could differ materially from historical
results as well as those expressed in, anticipated or implied by these
forward-looking statements. We expressly disclaim any obligation or undertaking
to release publicly any updates or revisions to any forward-looking statements
contained in this Report 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.





For a
discussion of some of the factors that may affect our business, results and
prospects, see the Risk Factors discussed in our Annual Report on Form 10-K for
the fiscal year ended June 30, 2010. Readers are urged to carefully review and
consider the various disclosures made by us in this Report and in our other
reports previously filed with the Securities and Exchange Commission, including
our periodic reports on Forms 10-K, 10-Q and 8-K, and those described from time
to time in our press releases and other communications, which attempt to advise
interested parties of the risks and factors that may affect our business,
prospects and results of operations.


3





PACIFIC
BIOMARKERS, INC.


CONSOLIDATED
BALANCE SHEETS





September 30,
                        
                        
                        June 30,2010
                        
                        
                        2010(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                        
                        $
                        1,505,736
                        
                        
                        $
                        1,861,155Short-term
      bank deposits
                        
                        
                        461,824
                        
                        
                        
                        468,619Accounts
      receivable, net
                        
                        
                        1,935,243
                        
                        
                        
                        1,852,987Other
      receivable, net
                        
                        
                        6,500
                        
                        
                        
                        6,500Inventory
                        
                        
                        136,204
                        
                        
                        
                        239,863Prepaid
      expenses and other assets
                        
                        
                        263,622
                        
                        
                        
                        229,802Total
      current assets
                        
                        
                        4,309,129
                        
                        
                        
                        4,658,926Property
      and equipment, net
                        
                        
                        1,219,372
                        
                        
                        
                        1,309,764Total
      assets
                        
                        $
                        5,528,501
                        
                        
                        $
                        5,968,690LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                        
                        $
                        799,312
                        
                        
                        $
                        605,944Accrued
      liabilities
                        
                        
                        473,381
                        
                        
                        
                        632,429Advances
      from customers
                        
                        
                        353,620
                        
                        
                        
                        408,455Capital
      lease obligation - current portion
                        
                        
                        205,289
                        
                        
                        
                        200,806Secured
      note - current portion, net of discount
                        
                        
                        1,049,486
                        
                        
                        
                        1,015,603Total
      current liabilities
                        
                        
                        2,881,088
                        
                        
                        
                        2,863,237Capital
      lease obligations - long - term portion
                        
                        
                        337,178
                        
                        
                        
                        389,820Secured
      note - long - term portion, net of discount
                        
                        
                        2,408,983
                        
                        
                        
                        2,676,969Total
      liabilities
                        
                        
                        5,627,249
                        
                        
                        
                        5,930,026Commitments
      and contingencies
                        
                        
                        -
                        
                        
                        
                        -Stockholders'
      equity:Common
      stock, $0.01 par value, 30,000,000 shares authorized, 16,909,501 shares
      issued and outstanding at September 30, 2010, 16,669,856  shares
      issued and outstanding at June 30, 2010
                        
                        
                        166,840
                        
                        
                        
                        166,699Additional
      paid-in-capital
                        
                        
                        27,787,834
                        
                        
                        
                        27,723,024Accumulated
      deficit
                        
                        
                        (28,053,422
                        )
                        
                        
                        (27,851,059
                        )Total
      stockholders' equity (deficit)
                        
                        
                        (98,748
                        )
                        
                        
                        38,664Total
      liabilities and stockholders' equity
                        
                        $
                        5,528,501
                        
                        
                        $
                        5,968,690





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


4





PACIFIC BIOMARKERS, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(unaudited)





Three Months EndedSeptember 30,2010
                    
                    
                    2009Revenues
                    
                    $
                    2,853,533
                    
                    
                    $
                    2,301,375Laboratory
      expenses and cost of sales
                    
                    
                    1,678,809
                    
                    
                    
                    1,393,700Gross
      profit
                    
                    
                    1,174,724
                    
                    
                    
                    907,675Operating
      expenses:Selling,
      general and administrative
                    
                    
                    1,222,248
                    
                    
                    
                    1,121,383Operating
      loss
                    
                    
                    (47,524
                    )
                    
                    
                    (213,708
                    )Other
      expense:Interest
      expense
                    
                    
                    (139,961
                    )
                    
                    
                    (53,100
                    )Amortization
      of discount on debt
                    
                    
                    (18,811
                    )
                    
                    
                    (5,958
                    )Other
      income (expense)
                    
                    
                    3,933
                    
                    
                    
                    (384
                    )Total
      other expense
                    
                    
                    (154,839
                    )
                    
                    
                    (59,442
                    )Net
      loss before tax expense
                    
                    
                    (202,363
                    )
                    
                    
                    (273,150
                    )Tax
      expense
                    
                    
                    -
                    
                    
                    
                    -Net
      loss
                    
                    $
                    (202,363
                    )
                    
                    $
                    (273,150
                    )Net
      loss per share
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.01
                    )Weighted
      average common shares outstanding, basic and diluted:
                    
                    
                    16,909,501
                    
                    
                    
                    18,832,061





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


5





PACIFIC
BIOMARKERS, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(unaudited)





Three
      Months Ended
                                                  September 30,2010
                                                
                                                
                                                2009Cash
      flows from operating activities:Net
      loss
                                                
                                                $
                                                (202,363
                                                )
                                                
                                                $
                                                (273,150
                                                )Reconciliation
      of net loss to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                                                
                                                
                                                98,528
                                                
                                                
                                                
                                                75,609Amortization
      of discount on debt
                                                
                                                
                                                18,811
                                                
                                                
                                                
                                                5,958Income
      on deposits
                                                
                                                
                                                6,795
                                                
                                                
                                                
                                                1,713Compensation
      expense from restricted shares and options
                                                
                                                
                                                64,951
                                                
                                                
                                                
                                                72,774Changes
      in assets and liabilities:Accounts
      receivable
                                                
                                                
                                                (82,256
                                                )
                                                
                                                
                                                550,526Other
      receivable
                                                
                                                
                                                -
                                                
                                                
                                                
                                                2,500Inventory
                                                
                                                
                                                103,659
                                                
                                                
                                                
                                                44,206Prepaid
      expenses and other assets
                                                
                                                
                                                (33,820
                                                )
                                                
                                                
                                                47,661Advances
      from customers
                                                
                                                
                                                (54,835
                                                )
                                                
                                                
                                                19,308Accounts
      payable
                                                
                                                
                                                193,368
                                                
                                                
                                                
                                                (167,736
                                                )Accrued
      liabilities
                                                
                                                
                                                (159,048
                                                )
                                                
                                                
                                                (238,760
                                                )Net
      cash  provided by (used in) operating activities
                                                
                                                
                                                (46,210
                                                )
                                                
                                                
                                                140,609Cash
      flows from investing activities:Purchases
      of capital equipment
                                                
                                                
                                                (8,136
                                                )
                                                
                                                
                                                (76,977
                                                )Purchases
      of investments
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (506,033
                                                )Net
      cash used in investing activities
                                                
                                                
                                                (8,136
                                                )
                                                
                                                
                                                (583,010
                                                )Cash
      flows from financing activities:Payments
      on notes payable
                                                
                                                
                                                (252,913
                                                )
                                                
                                                
                                                -Proceeds
      from loan
                                                
                                                
                                                -
                                                
                                                
                                                
                                                4,000,000Repurchases
      of common stock
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (1,674,334
                                                )Payments
      on capital lease obligations
                                                
                                                
                                                (48,160
                                                )
                                                
                                                
                                                (14,883
                                                )Net
      cash provided by (used in) financing activities
                                                
                                                
                                                (301,073
                                                )
                                                
                                                
                                                2,310,783Net
      increase (decrease) in cash and cash equivalents
                                                
                                                
                                                (355,419
                                                )
                                                
                                                
                                                1,868,382Cash
      and cash equivalents, beginning of period
                                                
                                                
                                                1,861,155
                                                
                                                
                                                
                                                1,365,406Cash
      and cash equivalents, end of period
                                                
                                                $
                                                1,505,736
                                                
                                                
                                                $
                                                3,233,788Supplemental
      Information:Cash
      paid during the period for interest
                                                
                                                $
                                                87,002
                                                
                                                
                                                $
                                                85,846Cash
      paid during the period for income tax
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                -





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


6





PACIFIC
BIOMARKERS, INC.





CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





1.
            Organization
      and Basis of Presentation





We
provide specialty reference laboratory services to the pharmaceutical,
biotechnology, and diagnostics industries. Our company was incorporated in
Delaware in May 1996. We conduct our business primarily through our wholly-owned
subsidiary, Pacific Biomarkers, Inc., a Washington corporation. Our 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
interim financial statements.





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-month period
ended September 30, 2010 are not necessarily indicative of the results that may
be expected for any future period. The accompanying unaudited financial
statements and related condensed notes should be read in conjunction with the
audited financial statements and notes thereto, for our fiscal year ended June
30, 2010, as previously reported in our annual report on Form 10-K.





2.
            Summary
      of Significant Accounting Policies





There
have been no significant changes in our significant accounting policies during
the three-month period ended September 30, 2010 compared to what was
previously disclosed in the our Annual Report on Form 10-K for the fiscal year
ended June 30, 2010.





Principles
of Consolidation





These
consolidated financial statements include our consolidated financial position,
results of operations, and cash flows. All material intercompany balances and
transactions have been eliminated in the accompanying consolidated financial
statements.





Cash
and Cash Equivalents





Cash and
cash equivalents consist of highly liquid investments with an original maturity
of three months or less when purchased.





Short-term
Bank Deposits




Bank
deposits with original maturities of more than three months but less than one
year are presented as part of short-term investments. Deposits are presented at
their cost including accrued interest. Interest on deposits is recorded as
financial income.





Income
Taxes





We
recognize deferred tax assets and liabilities based on differences between the
financial reporting and tax bases of assets and liabilities using the enacted
tax laws and rates that are expected to be in effect when the differences are
expected to be recovered. We provide a valuation allowance for deferred tax
assets due to the uncertainty of realization.


7





Revenue
Recognition





We
recognize revenue in the period when the related services are performed and
collectability is reasonably assured. Currently, we derive substantially all of
our revenues from laboratory services. Service contracts generally take the form
of fixed-price contracts. 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 and/or a contract amendment.
Renegotiated amounts are not included in net revenues until earned, and
realization is assured. Advance payments on service contracts are treated as a
deposit and applied to periodic billing during the contract period. Setup and
administrative fees are billed upon contract approval. Revenues from setup and
administrative fees are amortized over the life of the contract. Historically,
costs are not deferred in anticipation of work on contracts after they are
awarded, but instead are expensed as incurred. All out-of-pocket costs are
included in expenses.





Net
Loss per Share





Basic
loss per share is based upon the weighted average number of our outstanding
common shares. Diluted loss per share is computed on the basis of the weighted
average number of common shares outstanding plus the effect of outstanding stock
options and warrants using the “treasury stock” method, which excludes treasury
shares.





The net
loss per common share for the quarters ended September 30, 2010 and 2009 is
based on the weighted average number of shares of common stock outstanding
during the periods. Potentially dilutive securities include 1,713,484 options
and 2,416,677 warrants; however, such securities have not been included in the
calculation of the net loss per common share as their effect would be
antidilutive.





The
following table is a reconciliation of the numerator (net loss) and the
denominator (number of shares) used in the basic and diluted EPS calculations
and sets forth potential shares of common stock that are not included in the
diluted net loss per share calculation as the effect is
antidilutive:





Three months endedSeptember 30,2010
                    
                    
                    2009Numerator-basic
      and diluted net loss
                    
                    $
                    (202,363
                    )
                    
                    $
                    (273,150
                    )Denominator-basic
      or diluted weighted average number ofcommon
      shares outstanding
                    
                    
                    16,909,501
                    
                    
                    
                    18,832,061Net
      loss per share-basic and diluted
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.01
                    )





The
reduction in shares outstanding for the quarter ended September 30, 2010,
compared to the quarter ended September 30, 2009, primarily reflects the
repurchase of 2,391,906 shares related to our debt financing during September,
2009.





Comprehensive
Income





Comprehensive
income consists of net income and other gains and losses affecting stockholders’
equity that, under generally accepted accounting principles are excluded from
net income. For the quarters ended September 30, 2010 and 2009, our
comprehensive loss equaled our net loss. Accordingly, a statement of
comprehensive loss is not presented.





Use
of Estimates





In
preparing financial statements in conformity with U.S. GAAP, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.


8





Accounting
Changes and Recent Accounting Pronouncements





Initial Application of
Accounting Standards





In the
first quarter of fiscal 2011, we adopted the following accounting standards,
none of which had a material impact on our financial position, results of
operations or cash flows:





·
            The
      amendments to the recognition and measurement guidance for the transfers
      of financial assets. The amendments in this update are the result of FASB
      Statement No. 166, Accounting for Transfers of Financial
      Assets.





·
            The
      amendment to the guidelines for determining the primary beneficiary in a
      variable interest entity and for improvements to financial reporting by
      enterprises involved with variable interest
  entities.





·
            The
      accounting standard improving disclosures about recurring and nonrecurring
      fair value measurements.





·
            The
      amendment to the accounting and reporting guidance for noncontrolling
      interests and changes in ownership interests of a
    subsidiary.





Accounting Standards Issued
But Not Yet Adopted





In July
2010, the Financial Accounting Standards Board (“FASB”) issued an accounting
standard update, Receivables (Topic 310): Disclosures about the Credit Quality
of Financing Receivables and the Allowance for Credit Losses. This Update is
intended to provide additional information to assist financial statement users
in assessing an entity’s credit risk exposures and evaluating the adequacy of
its allowance for credit losses. The disclosures as of the end of a reporting
period are effective for interim and annual reporting periods ending on or after
December 15, 2010 or our second quarter of fiscal 2011. We are currently
evaluating the impact this update will have on our consolidated financial
statements.





3.  Concentration
of Credit Risk





Our
largest client in the quarters ended September 30, 2010 and 2009 accounted for
approximately 21% of our total revenues. These were different clients in each
fiscal period. As of September 30, 2010 and 2009, approximately 46% and 38% of
our accounts receivable balance was from the two largest clients at that time.
These were different clients in each fiscal period. Component clients included
in the largest client calculation may vary from period to period.





The
majority of our clients are pharmaceutical companies, many of which are on the
list of Fortune 500 companies. For our revenue calculations, we aggregate
revenues we receive from several divisions within a pharmaceutical company
client as one single client.  For the quarter ended September 30,
2010, 27% of our revenue was derived from Fortune 500 clients compared to 42%
for the quarter ended September 30, 2009. While the number of our Fortune 500
clients remained the same, we received less revenue from these clients in the
quarter ended September 30, 2010. We believe that our exposure to concentration
of credit risk is very low considering the financial strength of our
clients.





We
maintain cash in three insured commercial accounts and one uninsured investment
account at major financial institutions. Although the financial institutions are
considered creditworthy and have not experienced any losses on client deposits,
our cash balance exceeded Federal Deposit Insurance Corporation (FDIC) limits
by $1,079,598 at September 30, 2010 and by $2,733,288 at
September 30, 2009. FDIC limits were increased from $100,000 per insured account
to $250,000 per insured account effective October 10, 2008. The new FDIC limits
expire on December 31, 2013.


9





4.  Stock
Based Compensation





We
granted 1,439,900 stock options under our stock incentive plan during the
quarter ended September 30, 2010, compared to 105,500 restricted shares and
151,700 stock options during the quarter ended September 30, 2009.





Stock
Options





We use
the Black-Scholes option-pricing model to estimate the calculated fair value of
our share-based payments. Stock options are valued as of the date of grant,
based on the grant date market price of our common stock. The volatility
assumption used in the Black-Scholes formula is based on the volatility of our
common stock. We used the following assumptions to compute the fair value of
option grants for the quarters ended September 30:





2010
                  
                  
                  2009Expected
      volatility
                  
                  
                  117
                  %
                  
                  
                  152
                  %Expected
      dividend yield
                  
                  
                  0.00
                  %
                  
                  
                  0.00
                  %Risk-free
      interest rate
                  
                  
                  2.96
                  %
                  
                  
                  4.00
                  %Expected
      life
                  
                  10
      years
                  
                  
                  10
      years





The
weighted average fair value on the date of the option grant was $460,768 for the
quarter ended September 30, 2010. The total unrecognized share-based
compensation costs related to non-vested stock options outstanding at
September 30, 2010 was $596,166 and is expected to be recognized over
a weighted average period of approximately 1.9 years.





A summary
of option activity from July 1, 2010 through September 30, 2010 is presented
below:





Number of
                    Options
                  
                  
                  Weighted
                    Average Exercise
                    Price per shareOptions
      outstanding at July 1, 2010
                  
                  
                  1,881,656
                  
                  
                  $
                  0.76Granted
                  
                  
                  1,439,900
                  
                  
                  
                  0.34Forfeited
                  
                  
                  (12,022
                  )
                  
                  
                  0.70Exercised
                  
                  
                  -
                  
                  
                  
                  -Options
      outstanding at September 30, 2010
                  
                  
                  3,309,534
                  
                  
                  
                  0.58Exercisable
      outstanding at September 30, 2010
                  
                  
                  1,713,484
                  
                  
                  $
                  0.74





Restricted
Stock





From time
to time we grant shares of Restricted Stock, which we refer to as RS, to certain
officers, directors and employees under our stock incentive plan. All RSs vest
on the three- or five-year anniversary of the date of grant. Our Board of
Directors approved RS agreement amendment extending certain existing and new RS
grants from three-year to five-year vesting effective March 29, 2010. The fair
value of our RS is based on the grant-date fair market value of the common
stock, which equals the grant date market price. We did not grant any RS during
the first quarter of fiscal 2011. As of September 30, 2010, we had $141,930 of
unrecognized compensation cost related to nonvested RS awards, which we expect
to recognize over a weighted average period of approximately 4
years.





A summary
of RS activity from July 1, 2010 through September 30, 2010 is presented
below:





Number of RS
                        awards
                      
                      
                      Weighted
                        Average Grant
                        Date Fair Value
                        per shareRS
      nonvested at July 1, 2010
                      
                      
                      239,645
                      
                      
                      $
                      0.63Granted
                      
                      
                      -
                      
                      
                      
                      -Vested
                      
                      
                      (14,084
                      )
                      
                      
                      0.63Forfeited
                      
                      
                      -
                      
                      
                      
                      -RS
      nonvested at September 30, 2010
                      
                      
                      225,561
                      
                      
                      $
                      0.63


10





Compensation
expense for share-based awards was $64,951 and $72,774 for the three months
ended September 30, 2010 and 2009, respectively. Amounts were included in our
consolidated statements of operations as follows:





Three months endedSeptember 30,
                  2010
                
                
                September 30,
                  2009Cost
      of sales
                
                $
                3,703
                
                
                $
                5,614Selling
      and administrative expenses
                
                
                61,248
                
                
                
                67,160Total
      compensation expense
                
                $
                64,951
                
                
                $
                72,774





5.  Subsequent
Events





Effective
October 1, 2010, we amended the payment terms of our $4 million secured note
reducing monthly payments of principal and interest from $121,822 to $104,645
for the remainder of the original 48-month term of the loan and extending the
residual principal balance for a 19-month term thru March 31, 2015 with required
monthly payments of principal and interest in the amount of $20,000. We are also
required to make a final balloon payment in the amount of $600,000 on April 30,
2015.





On
November 1, 2010 we received notification from the Department of the Treasury,
Internal Revenue Service (IRS) that our application requesting certification for
qualified investments in a qualified therapeutic discovery project, the PBI
Organ Injury Biomarker Initiative, submitted under section 48D of the Internal
Revenue Code in July of 2010 was approved.  The IRS certified $488,958
of qualified investment and approved a grant in the amount of
$244,479.  A portion of these grant funds will be paid to us when we
provide qualified investment substantiation with the filing of our federal tax
return for the fiscal year 2010, ended June 30, 2010, on or before March 31,
2011, the automatic extension due date of our tax return.  The
remaining amount of these approved grant funds will be paid to us after we file
our federal tax return for the fiscal year 2011, ending June 30,
2011.  These monies received will be classified as “other income” on
the Consolidated Statements of Operations when received.


11


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-Q and our
audited financial statements and related notes for the year ended June 30, 2010,
included in our Annual Report on Form 10-K.





Overview





We
provide specialty laboratory services to support pharmaceutical, biotechnology
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, obesity, and rheumatology and bone diseases including
osteoporosis as well as osteoarthirits and rheumatoid arthritis. We also provide
clinical biomarker services for novel biomarkers, as well as custom assay
services, to our pharmaceutical and biotech clients.




Management
continues to monitor developments in the drug development market. These changes
include continued consolidation, cost reductions and the use of adaptive
clinical trial approaches. These changes have impacted past and current
revenues, and have the potential to significantly impact future revenues. We
believe that these changes drive continued uncertainty in our market. In fact,
reduction in revenue is a trend reported by must of the major Contract Research
Organizations (CRO’s) since the economic downturn began in 2008. While our
revenues for the quarter are up substantially aver last year, we continued to
observe a number of studies being postponed, suspended or terminated during this
past quarter, which we believe is due to resource constraints within
pharmaceutical companies. Despite these market challenges, we believe that there
are new compounds coming into the drug development pipeline and outsourcing
opportunities, and that we are well positioned, particularly in the biomarker
testing services and novel biomarker development service market, to take
advantage of this. This is evidenced by the substantial addition of novel
esoteric biomarkers to our test menu, which will have increased by approximately
20% by the end of this calendar year from April 2010.




Our
company is a Delaware corporation, incorporated in May 1996, and we conduct our
operations primarily through our wholly-owned subsidiary, Pacific Biomarkers,
Inc., a Washington corporation.





Critical
Accounting Policies and Estimates





The
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 U.S. GAAP. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate our estimates
including, among others, those affecting revenue, the allowance for doubtful
accounts, and the useful lives of tangible and intangible assets. 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.





There
have been no material changes to our critical accounting policies and estimates
since the end of our 2010 fiscal year.  In our Annual Report on Form
10-K, for the fiscal year ended June 30, 2010, we identified four of our
accounting policies that we consider critical to our business operations and an
understanding of our results of operations:





●
            revenue
      recognition;


●
            fair
      value measurements - debt
financing;


●
            stock-based
      compensation; and


●
            useful
      lives of tangible assets.


12




We
included in our Annual Report on Form 10-K a brief discussion of some of the
judgments, estimates and uncertainties that can impact the application of these
policies and the specific dollar amounts reported on our financial statements.
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,
and there are other accounting policies that are significant to us. For detailed
information and discussion 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-K. 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 and in our Annual
Report.  We do not undertake any obligation to update or revise this
discussion to reflect any future events or circumstances.





Results
of Operations for Three Months Ended September 30, 2010 and 2009





Revenue:





Three Months EndedDollars in thousands, rounded
      to nearest
                                  
                                  September 30,
                                  
                                  
                                  $
                                  
                                  
                                  %thousand
                                  
                                  2010
                                  
                                  
                                  2009
                                  
                                  
                                  Change
                                  
                                  
                                  ChangeRevenue
                                  
                                  $
                                  2,854
                                  
                                  
                                  $
                                  2,301
                                  
                                  
                                  
                                  553
                                  
                                  
                                  
                                  24





We
generate the majority of our revenue from clinical pharmaceutical trials testing
(“traditional biomarker services”) and novel biomarker development
services.  We also provide diagnostic services, which historically
have represented less than 1% of our total revenue.





Our
revenue increased approximately 24% to $2,854,000 from $2,301,000 between the
comparable quarters ended September 30, 2010 and 2009. Our revenue fluctuations
are due to the variability in the volume of testing services we perform, and by
the timing between our work on testing and open work orders, and prior work
orders having been completed or terminated. For the quarter ended September 30,
2010, we benefited from a large contract with one of our clients in
the cardio-vascular therapeutic area. We had no comparable large
contract for the prior period. We also saw strong levels of testing revenue
in osteoporosis, dyslipidimia and rheumatoid arthritis therapeutic areas, as
well as an increase in clinical biomarker services.





The
primary component of our business development efforts has been directed towards
pharmaceutical and biotech companies (“Direct Clinical Services”), which,
including our biomarkers business, showed an 15% (11% for direct trials testing
and 4% for biomarkers) increase in the proportion of revenue for this component
of revenue over the quarter ended September 30, 2009 as a percentage of total
revenue. Biomarker services are a primary focus of our business and we believe
it addresses a rapidly growing sector of laboratory services for clinical drug
development. As a result, we expect to see our biomarker services to continue to
grow and to represent a larger portion of our revenue during fiscal
2011.




The
following table provides a breakdown of the percentage of our total revenue
generated from each of our service areas for the past two fiscal
years:





Direct Clinical ServicesDirect Trials
                          Testing
                        
                        
                        Biomarkers
                        
                        
                        Referral
                          LaboratoriesThree
      months Ended  September 30, 2010
                        
                        
                        60
                        %
                        
                        
                        17
                        %
                        
                        
                        23
                        %Three
      months Ended  September 30, 2009
                        
                        
                        49
                        %
                        
                        
                        13
                        %
                        
                        
                        38
                        %





We
believe that the overall increase in revenue for the quarter ended September 30,
2010 reflects our investments in business development initiatives over several
fiscal years, particularly directed towards Direct Clinical Services. As
discussed in our Annual Report on Form 10-K for the 2010 fiscal year, we are
continuing to monitor and evaluate the shift in the industry to “adaptive
clinical trials” and how this may impact us going forward.


13




We also
continue to experience reductions in revenue sourced from other large clinical
laboratories that refer specialty laboratory testing to us (“Referral Laboratory
Partners”). We had a 15% decrease in the proportion of revenue from our Referral
Laboratory Partners between the comparable quarters. We believe this decrease is
directly attributable to decreases with our Referral Laboratory Partners in
their revenues from central lab services, which affects the amount they refer to
us.





Our
revenues tend to fluctuate from quarter to quarter, and sometimes these
fluctuations are significant. These fluctuations are typically explained by the
timing of entering into new contracts for clinical studies and our work on
testing and open work orders, and the completion of prior work orders or early
cancellation of studies by our clients.  The studies that we bid on
are uncertain until we have a signed contract. Once our work on a study
commences, the client may cancel the study at any time during the testing phase.
Clients may terminate, delay, or change the scope of a project for a variety of
reasons including unexpected or undesirable clinical results or a decision to
forego a particular study.  Accordingly, our revenues may be
significantly affected by the success or failure of the testing phase and other
factors outside of our control, including a large number of pharmaceutical
companies’ cost reduction announcements and continuing consolidation in the
pharmaceutical market.





Laboratory
Expense and Cost of Goods Sold:





Three Months EndedDollars in thousands, rounded to nearest
                                  
                                  September 30,
                                  
                                  
                                  $
                                  
                                  
                                  %thousand
                                  
                                  2010
                                  
                                  
                                  2009
                                  
                                  
                                  Change
                                  
                                  
                                  ChangeLaboratory Expenses and Cost of Goods
      Sold
                                  
                                  $
                                  1,679
                                  
                                  
                                  $
                                  1,394
                                  
                                  
                                  
                                  285
                                  
                                  
                                  
                                  20Percentage of Revenue
                                  
                                  
                                  59
                                  %
                                  
                                  
                                  61
                                  %





We
categorize under “laboratory expense and cost of goods sold” certain operating
expenses that are necessary to complete the revenue and earnings
process.  These expenses consist primarily of direct labor costs and
related benefits of employees performing testing and analysis of clinical trial
samples, and the cost of chemical reagents and supplies for analysis ofclinical trialsamples. Also,
laboratory expenses and cost of goods sold include payments to subcontractors
for laboratory services, an allocation of facility charges and information
technology costs, insurance, business and occupation taxes, shipping and
handling fees and reimbursable out-of-pocket costs.





Generally,
laboratory expense and cost of goods sold include expense items that are highly
variable due to the mix of services we provide in any given period, the overall
volume of tests performed, the use of new and highly complex assays and the
volume of subcontracted laboratory services. The following table illustrates
changes in laboratory expense and cost of goods sold in fixed and variable
expense categories:





Three Months EndedSeptember 30,Dollars in thousands,
                          rounded to nearest thousand
                        
                        2010
                        
                        
                        % of
                          revenue
                        
                        
                        2009
                        
                        
                        % of
                          revenue
                        
                        
                        $
                          Change
                        
                        
                        %
                          ChangeFixed
      Cost DetailRent,
      Utilities, Certain Taxes
                        
                        $
                        177
                        
                        
                        
                        6
                        %
                        
                        $
                        164
                        
                        
                        
                        7
                        %
                        
                        $
                        13
                        
                        
                        
                        8
                        %Variable
      Cost DetailWages,
      Taxes, Benefits
                        
                        
                        694
                        
                        
                        
                        24
                        %
                        
                        
                        628
                        
                        
                        
                        27
                        %
                        
                        
                        66
                        
                        
                        
                        11
                        %Reagent
      Chemicals
                        
                        
                        622
                        
                        
                        
                        22
                        %
                        
                        
                        462
                        
                        
                        
                        20
                        %
                        
                        
                        160
                        
                        
                        
                        35
                        %Other
      Variable Costs
                        
                        
                        186
                        
                        
                        
                        7
                        %
                        
                        
                        140
                        
                        
                        
                        7
                        %
                        
                        
                        46
                        
                        
                        
                        33
                        %Total
                        
                        
                        1,502
                        
                        
                        
                        53
                        %
                        
                        
                        1,230
                        
                        
                        
                        54
                        %
                        
                        
                        272
                        
                        
                        
                        22
                        %Total Cost of Goods Sold
                        
                        $
                        1,679
                        
                        
                        
                        59
                        %
                        
                        $
                        1,394
                        
                        
                        
                        61
                        %
                        
                        $
                        285
                        
                        
                        
                        20
                        %


14




For the
comparable quarters ended September 30, 2010, laboratory expense and cost of
goods sold increased by approximately $285,000, or 20%, to $1,679,000, up from
$1,394,000. Laboratory expense and cost of goods sold as a percentage of revenue
decreased to approximately 59% from 61% for the comparable
quarters.  Our increase in laboratory expense and cost of goods sold
was mainly due to increases in variable costs of salaries and related benefits
and laboratory reagents used to support the increase in revenues. The percentage
decrease was due to the increase in revenues between comparable
periods.





The
largest component of laboratory expense for the quarter ended September 30, 2010
was salaries and related benefits. Laboratory salaries and related benefits
increased 11% to approximately $694,000 from $628,000 for the quarters ended
September 30, 2010 and 2009 as a result of an increase in staff to accommodate
increases in the complexity and volume of tests performed. We added two new
hires in our project management group and one new hire in the laboratory.
Laboratory salaries and related benefits represented approximately 24% and 27%,
respectively, as a percentage of revenue for the comparable
periods.





The other
major component of laboratory expense for the quarter ended September 30, 2010
was the cost of laboratory reagents and supplies for analysis of clinical trial
samples. Over the last three fiscal years, reagent chemicals used in our
laboratory testing have averaged approximately 20% in cost as a percentage of
revenue, but may vary considerably depending on the type and mix of lab testing
we are asked to perform, and constitute a significant expense item for our
business. During the comparable quarters ended September 30, 2010 and 2009,
laboratory reagents and supplies increased by 35% to approximately $622,000 from
$462,000 as a result of an increase in the number of tests performed. We have
also seen increases over the last two fiscal years in both the cost of reagents
and shipping costs. The cost of laboratory reagents and supplies as a percentage
of revenue was approximately 22% and 20% for the comparable quarters ended
September 30, 2010 and 2009.





Other
variable costs increased 33% for the comparable quarters, to $186,000 from
$140,000. The major reason for this increase was an increase in our expenses for
outside services that consists mainly of contracted laboratory
services. These outside service costs were directly related to the large
contract in process during this quarter. Share-based compensation for the
quarter ended September 30, 2010 was not materially different from share-based
compensation for the quarter ended September 30, 2009. See Note 4 to the
unaudited financial statements included in this Report for share-based
compensation details.





Fixed
costs for the quarter ended September 30, 2010 increased 8% compared to the
quarter ended September 30, 2009, to approximately $177,000 from $164,000. This
increase was mainly due to increases in laboratory depreciation.





Selling,
General and Administrative Expense:





Three Months EndedDollars in thousands, rounded to nearest
                            
                            September 30,
                            
                            
                            $
                            
                            
                            %thousand
                            
                            2010
                            
                            
                            2009
                            
                            
                            Change
                            
                            
                            ChangeSelling, General and
      Administrative Expense
                            
                            $
                            1,222
                            
                            
                            $
                            1,121
                            
                            
                            
                            101
                            
                            
                            
                            9Percentage of
      Revenue
                            
                            
                            43
                            %
                            
                            
                            49
                            %





We
categorize under “selling, general and administrative expenses” operating costs
associated with our business development activities, sales and marketing,
laboratory administration and research and development activities through our
science and technology department.  Our selling, general and
administrative expense consists primarily of administrative payroll and related
benefits (including compensation for our executive officers, board members and
administrative personnel in business development, laboratory administration, and
our science and technology department), and secondarily of share-based
compensation, business development expenses, legal, accounting and public
company expenses.


15




For the
comparable quarters ended September 30, 2010 and 2009, our selling, general and
administrative expense increased 9% to approximately $1,222,000, up from
$1,121,000. As a percentage of revenue, selling, general and administrative
expense was 43% and 49%, respectively, for the quarters ended September 30, 2010
and 2009. The decrease in selling, general and administrative expense as a
percentage of revenue was the result of the significant increase in our revenues
between the comparable periods.





The
dollar increase in our selling, general and administrative expenses for the
comparable periods is due in large part to increases in salaries and related
benefits and public company expense. Our salary and benefit expenses
increased due to one new addition in our Science and Technology team and other
promotional salary increases. These increases were offset somewhat by
decreases in legal expense, advertising and marketing expense and our insurance
premiums.  For the first quarter of last year, we had increased legal and
accounting fees due to our $4 million debt financing, whereas we had no similar
transaction-related expenses in the first quarter of fiscal
2011. Share-based compensation for the quarter ended September 30, 2010 was
not materially different from share-based compensation for the quarter ended
September 30, 2009. See Note 4 to the unaudited financial statements included in
this Report for share-based compensation details.





Other
Expense:





Three Months EndedDollars in thousands, rounded to nearest
                                
                                September 30,
                                
                                
                                $
                                
                                
                                %thousand
                                
                                2010
                                
                                
                                2009
                                
                                
                                Change
                                
                                
                                ChangeOther Expense
                                
                                $
                                (155
                                )
                                
                                $
                                (59
                                )
                                
                                
                                (96
                                )
                                
                                
                                (162
                                )Percentage of Revenue
                                
                                
                                (5
                                )%
                                
                                
                                (3
                                )%





We had
other expense of approximately $155,000 for the quarter ended September 30,
2010, compared to other expense of approximately $59,000 for the quarter ended
September 30, 2009. The main component of other expense for the quarter ended
September 30, 2010 was interest expense of approximately $140,000 compared to
approximately $53,000 interest expense in the comparable fiscal period last
year. For the quarters ended September 30, 2010 and 2009, interest expense
included approximately $112,000 and $40,000 of interest related to our debt
financing. We also recorded approximately $19,000 of expense related to the
amortization of the discount on the debt, compared to approximately $6,000
amortization for the comparable fiscal period last year. These increases in
interest and amortization related to our debt financing were due to three
months’ interest and amortization incurred for the quarter ended September 30,
2010 versus one month’s interest and amortization incurred for the quarter ended
September 30, 2009 due to the start of our secured loan in September
2009.





Net
Loss:





Three Months EndedDollars in thousands, rounded to nearest
                          
                          September 30,
                          
                          
                          $
                          
                          
                          %thousand
                          
                          2010
                          
                          
                          2009
                          
                          
                          Change
                          
                          
                          ChangeNet Loss
                          
                          $
                          (202
                          )
                          
                          $
                          (273
                          )
                          
                          
                          71
                          
                          
                          
                          26Percentage of Revenue
                          
                          
                          (7
                          )%
                          
                          
                          (12
                          )%





We had
26% reduction in our net loss, to approximately $(202,000) for the quarter ended
September 30, 2010 from approximately $(273,000) for the quarter ended September
30, 2009. Our gross profit increased 29% to $1,175,000 from $908,000 due to
our substantial revenue increase for the quarter, which also contributed
to the 78% decrease in our operating loss to approximately $(48,000)
from $(214,000) compared to the quarter ended September 30,
2009.


16





Liquidity
and Capital Resources:





At
September 30, 2010, our cash and cash equivalents were approximately $1,506,000,
compared to approximately $1,861,000 at June 30, 2010. We also had approximately
$462,000 invested in short-term investments at September 30, 2010, down from
$469,000 at June 30, 2009. At September 30, 2010, we had approximately
$1,935,000 in accounts receivable, compared to approximately $1,853,000 as of
June 30, 2010, reflecting timing of revenues billed and collected. Our accounts
receivable generally reflect our billings, and may include one or several
individually large customer receivables from time to time. We generally have a
high collectability rate on our accounts receivable, and our allowance for
doubtful trade accounts is approximately $34,000, which we believe is reasonable
based on our past experience.





Total
liabilities recorded on our balance sheet as of September 30, 2010 were
approximately $5,627,000 compared to approximately $5,930,000 as of June 30,
2010. This decrease in liabilities for the quarter ended September 30, 2010 is
primarily attributable to a reduction in our long-term debt balance and lease
obligations. During the quarter ended September 30, 2010, we paid approximately
$253,000 of the principal amount due on our debt financing. The liabilities
recorded on the balance sheet for our debt financing are net of approximately
$124,000 and $143,000, respectively, as of September 30, 2010 and June 30, 2010
as an unamortized discount on the secured note.  This discount is
recorded solely for U.S. GAAP purposes, but it doesn’t actually reduce our total
payment obligations on the note.  As of September 30, 2010, the
principal balance outstanding on the note was approximately
$3,583,000.  Effective October 1, 2010, we amended the payment terms
of our $4 million secured note reducing monthly payments of principal and
interest from $121,822 to $104,645 for the remainder of the original 48-month
term of the loan and extending the residual principal balance for a 19-month
term thru March 31, 2015 with required monthly payments of principal and
interest in the amount of $20,000. We are also required to make a final balloon
payment in the amount of $600,000 on April 30, 2015. Other than this secured
note, we do not have available to us a bank line of credit or other general
borrowing facility.





At
September 30, 2010, we had working capital of approximately $1,428,000, compared
to approximately $1,796,000 at June 30, 2010. The decrease of approximately
$368,000 in our working capital is mainly attributable to our decreased cash and
cash equivalents due to loan payments and capital lease payments, decrease in
inventory, and increase in accounts payable. Changes providing a positive impact
included increases in accounts receivables and prepaid expenses, and decreases
in accrued liabilities and advances from customers.





Net cash
used in operating activities was approximately $46,000 for the quarter ended
September 30, 2010 and included the effect of approximately $99,000 in
depreciation and amortization and approximately $65,000 in expense from
share-based compensation. Our investing activities used cash of approximately
$8,000 for the quarter ended September 30, 2010 for the purchase of capital
equipment. Cash flow used in financing activities included approximately
$253,000 used in payments on our debt and $48,000 used in payments on capital
lease obligations.





We
believe that our cash, current assets and cash flows from operations will be
sufficient to fund current operations through calendar 2011.





During
fiscal 2011, we will continue to actively pursue business development and
marketing activities to broaden our client and revenue base. In particular, we
anticipate making additional capital investments for our clinical biomarker
services. We may also invest from time to time in our technology infrastructure,
operations and other areas of our business. These efforts will use significant
amounts of time, effort and funding.





We will
also continue to explore other strategic alternatives, which may include a
merger, acquisition, asset sale, joint venture or other similar transaction with
one or more strategic partners to provide additional capital resources to fund
operations and growth opportunities.





Off-Balance
Sheet Arrangements





We have
no off-balance sheet financing arrangements.





ITEM
      4.
            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 (a) recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission’s rules and
forms and (b) accumulated and communicated to management, including our
Chief Executive Officer and Vice President and Controller, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure. 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.


17





As of the
end of the period covered by this Report on Form 10-Q, we carried out an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-15. This evaluation
was carried out under the supervision and with the participation of management,
including our Chief Executive Officer and Vice President and Controller. Based
upon that evaluation, our Chief Executive Officer and Vice President and
Controller concluded that our disclosure controls and procedures are effective
at September 30, 2010.





During
the quarterly period covered by this report, there were no 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.





PART
II – OTHER INFORMATION





ITEM
      6.
            EXHIBITS





31.1
            Certification
      of Ronald R. Helm, Chief Executive
Officer


31.2
            Certification
      of John P. Jensen, Vice President and
Controller


32.1
            Certification
      of Ronald R. Helm, Chief Executive Officer and John P. Jensen, Vice
      President and Controller, of Pacific Biomarkers, Inc., pursuant to 18
      U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
      of 2002.




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.





Dated:  November
15, 2010





/s/ Ronald R. HelmRonald
      R. HelmChief
      Executive Officer(principal
      executive officer)/s/ John P. JensenJohn
      P. JensenVice
      President and Controller(principal
      financial and accounting officer)


18