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


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

                                 --------------


                                   FORM 10-QSB



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

                  For the Quarterly Period Ended March 31, 2005


          [_]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                  OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the Transition Period From _________ to _________

                                 --------------


                         Commission File Number 0-21537





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


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


     220 WEST HARRISON STREET
     SEATTLE, WASHINGTON 98119                            (206) 298-0068
---------------------------------------          -------------------------------
(Address of principal executive office)          (Registrant's telephone number,
                                                        including area code)





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

As of May 14, 2005, the issuer had outstanding 13,445,622 shares of common stock

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

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

                              INDEX TO FORM 10-QSB




                                                                            PAGE
PART I - FINANCIAL INFORMATION                                              ----

ITEM 1 - FINANCIAL STATEMENTS

         Consolidated Balance Sheets as of March 31, 2005 (unaudited)
         and June 30, 2004 (audited)........................................   3

         Consolidated Statements of Operations for the three- and
         nine-month periods ended March 31, 2005 and 2004 (unaudited).......   4

         Consolidated Statements of Cash Flows for the nine-month
         periods ended March 31, 2005 and 2004 (unaudited)..................   5

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


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS..........................................  11


ITEM 3 - CONTROLS AND PROCEDURES............................................  21






PART II - OTHER INFORMATION


ITEM 6 - EXHIBITS...........................................................  21


SIGNATURES..................................................................  22







                                       -2-
<PAGE>
                            PACIFIC BIOMETRICS, INC.
                           CONSOLIDATED BALANCE SHEETS
<TABLE><CAPTION>
                                                                      MARCH 31,       JUNE 30,
                                                                        2005            2004
                                                                     (unaudited)      (audited)
                                                                    ----------------------------
<S>                                                                 <C>             <C>
                                     ASSETS
Current assets:
    Cash and cash equivalents                                       $  2,375,848    $  2,941,014
    Accounts receivable, net of allowance for doubtful accounts
      of $22,100 and $22,100, respectively                               649,972         367,449
    Prepaid expenses and other assets                                    325,553          78,999
    Deferred financing cost on secured convertible note -
      current portion                                                    153,833          64,500
                                                                    ------------    ------------
          Total current assets                                         3,505,206       3,451,962

Property and equipment, net                                              402,568         407,548

Other assets:
    Deferred financing cost on secured convertible note -
      net of current portion                                             216,806         123,625
    Restricted cash                                                       71,715          71,395
                                                                    ------------    ------------
          Total assets                                              $  4,196,295    $  4,054,530
                                                                    ============    ============

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
    Accounts payable                                                $    235,798    $    479,446
    Accrued liabilities                                                  750,902         647,986
    Advances from customers                                              626,222         210,922
    Capital lease obligation - current portion                            49,162          48,253
    Note payable to related parties - current portion                         --          22,183
    Secured convertible notes - current portion, net of
      unamortized fair value assigned to beneficial conversion
      feature and warrants of $564,502 and $304,349, respectively        318,830         278,982
    Other notes payable - current portion                                362,082         349,002
                                                                    ------------    ------------
          Total current liabilities                                    2,342,996       2,036,774

Long-term liabilities:
    Capital lease obligations - net of current portion                   123,728         160,487
    Secured convertible notes - net of current portion, net of
      unamortized fair value assigned to beneficial conversion
      feature and warrants of $1,105,505 and $931,133, respectively    1,958,163         985,536
   Other notes payable - net of current portion                           69,035         336,510
                                                                    ------------    ------------
          Total long-term liabilities                                  2,150,926       1,482,533
                                                                    ------------    ------------
          Total liabilities                                            4,493,922       3,519,307
                                                                    ------------    ------------
Stockholders' equity (deficit):
    Preferred stock, $0.01 par value, 5,000,000 shares authorized
      Series A preferred stock, 1,550,000 shares designated,
      1,550,000 shares issued and outstanding, liquidation
      preference of $2.00 per share, aggregating $3,100,000               15,500          15,500
    Common stock, $0.01 par value, 30,000,000 shares authorized
      13,353,550 and 13,048,820 shares issued and outstanding,
      respectively                                                       305,261         302,214
    Additional paid-in capital                                        24,286,761      23,338,016
    Accumulated deficit                                              (24,903,726)    (23,119,084)
    Treasury stock                                                        (1,423)         (1,423)
                                                                    ------------    ------------
          Total stockholders' equity (deficit)                          (297,627)        535,223
                                                                    ------------    ------------
          Total liabilities and stockholders' equity (deficit)      $  4,196,295    $  4,054,530
                                                                    ============    ============
</TABLE>
                The accompanying condensed notes are an integral
                part of these consolidated financial statements.

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

<TABLE><CAPTION>
                                              THREE MONTHS ENDED MARCH 31,    NINE MONTHS ENDED MARCH 31,
                                              ----------------------------    ----------------------------
                                                  2005            2004            2005            2004
                                              ------------    ------------    ------------    ------------
<S>                                           <C>             <C>             <C>             <C>
Revenues                                      $  1,048,030    $    547,676    $  2,491,526    $  3,389,974
                                              ------------    ------------    ------------    ------------

Laboratory expenses and cost of sales              754,354         432,233       1,750,107       2,175,928
                                              ------------    ------------    ------------    ------------
          Gross Profit                             293,676         115,443         741,419       1,214,046

Operating expenses:
    Research and product development                38,505          17,252          81,904          94,605
    Selling, general and administrative            669,988         749,564       1,997,306       2,346,402
                                              ------------    ------------    ------------    ------------

Operating loss                                    (414,817)       (651,373)     (1,337,791)     (1,226,961)
                                              ------------    ------------    ------------    ------------

Other income (expense):
    Interest expense                              (186,548)        (30,378)       (463,702)        (91,326)
    Interest income                                  3,829              81           4,369          16,590
    Other income                                     5,312          42,275          12,482          42,807
    Loss on settlement of note receivable
      from related party                                --              --              --         (72,072)
                                              ------------    ------------    ------------    ------------
                                                  (177,407)         11,978        (446,851)       (104,001)

Net loss before income taxes                      (592,224)       (639,395)     (1,784,642)     (1,330,962)
                                              ------------    ------------    ------------    ------------

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

Net loss                                          (592,224)       (639,395)     (1,784,642)     (1,330,962)
                                              ============    ============    ============    ============

Preferred stock dividend                                --          (2,020)             --          (6,074)
                                              ------------    ------------    ------------    ------------

Net loss applicable to common stockholders    $   (592,224)   $   (641,415)   $ (1,784,642)   $ (1,337,036)
                                              ============    ============    ============    ============

Net loss per share:
    Basic loss per share                      $      (0.05)   $      (0.06)   $      (0.14)   $      (0.14)
                                              ============    ============    ============    ============
    Diluted loss per share                    $      (0.05)   $      (0.06)   $      (0.14)   $      (0.14)
                                              ============    ============    ============    ============

Weighted average common shares outstanding:
    Basic                                       12,700,217      11,022,263      12,532,567       6,901,768
                                              ============    ============    ============    ============
    Diluted                                     12,700,217      11,022,263      12,532,567       6,901,768
                                              ============    ============    ============    ============
</TABLE>



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

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


<TABLE><CAPTION>
                                                                                   NINE MONTHS ENDED MARCH 31,
                                                                                  ----------------------------
                                                                                      2005            2004
                                                                                  ------------    ------------
<S>                                                                               <C>             <C>
Cash flows from operating activities:
    Net loss                                                                      $ (1,784,642)   $ (1,330,962)

    Reconciliation of net loss to net cash provided by (used in) operating
    activities:
      Depreciation and amortization                                                    112,636          85,458
      Amortization of fair value assigned to beneficial conversion feature
        and warrants                                                                   242,102              --
      Amortization of deferred financing costs on secured convertible note             (75,514)             --
      Interest income on note receivable from related party settled by
        common stock                                                                        --         (16,218)
      Board compensation settled by stock options                                           --          24,840
      Loss on settlement of note receivable from related party                              --          72,072
      Compensation expense (income) from fair value adjustment to options                  915         (43,742)
      Changes in assets and liabilities:
         Accounts receivable, net                                                     (282,523)        (14,757)
         Inventories                                                                        --          77,559
         Prepaid expenses and other assets                                             (25,304)        (56,231)
         Advances from customers                                                       415,300         126,663
         Accounts payable                                                             (243,648)       (123,598)
         Accrued liabilities                                                           102,916          82,285
         Deferred compensation                                                              --          21,980
         Stock options granted at less than fair market value                               --           2,584
                                                                                  ------------    ------------
            Net cash used in operating activities                                   (1,536,762)     (1,092,067)
                                                                                  ------------    ------------

Cash flows from investing activities:
      Purchases of capital equipment                                                  (107,656)        (74,047)
                                                                                  ------------    ------------
            Net cash used in investing activities                                     (107,656)        (74,047)
                                                                                  ------------    ------------

Cash flows from financing activities:
    Payments on notes payable                                                         (254,395)       (127,322)
    Payments on notes payable to related parties                                       (22,183)        (84,191)
    Transfer to restricted cash                                                           (320)           (241)
    Net proceeds from loan and security agreement                                           --         250,000
    Payments on capital lease obligations                                              (35,850)        (43,967)
    Payment of cash dividends                                                               --          (5,684)
    Net proceeds from exercise of stock options                                             --           1,564
    Net proceeds from private placement of common stock                                     --       1,711,113
    Net proceeds from secured convertible note payable, net of
      financing cost                                                                 1,392,000              --
                                                                                  ------------    ------------
            Net cash provided by financing activities                                1,079,252       1,701,272
                                                                                  ------------    ------------

Net increase (decrease) in cash and cash equivalents                                  (565,166)        535,158
Cash and cash equivalents, beginning of period                                       2,941,014         440,326
                                                                                  ------------    ------------

Cash and cash equivalents, end of period                                          $  2,375,848    $    975,484
                                                                                  ============    ============

Cash paid during the period for interest                                          $    194,648    $     63,235
                                                                                  ============    ============
Cash paid during the period for income taxes                                      $         --    $         --
                                                                                  ============    ============


Non-Cash Activities
    Common stock issued as compensation of investor relations to IRG              $    101,250              --
    Common stock issued upon conversion of principal on Laurus convertible note   $     53,000              --
    Common stock issued as compensation of R&D costs related to Utek Agreement    $    120,000              --
    Preferred stock dividends accrued                                                       --    $      6,074
    Shares released from escrow under restructure agreement with prior landlord             --    $        833
    Warrants issued in consideration of issuance costs for private placement                --    $    189,487
    Note receivable from related party settled by common stock                              --    $    200,000
</TABLE>



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

                                       -5-
<PAGE>
                            PACIFIC BIOMETRICS, INC.
                                 MARCH 31, 2005
        CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


1.    ORGANIZATION AND BASIS OF PRESENTATION

Pacific Biometrics, Inc., a Delaware corporation ("PBI" or the "Company"),
provides specialty reference laboratory services to the pharmaceutical and
diagnostics industries. The Company was incorporated in Delaware in May 1996.
The Company conducts its business primarily through its wholly owned subsidiary,
Pacific Biometrics, Inc., a Washington corporation ("PBI-WA"). The Company's two
other wholly owned subsidiaries are PBI Technology, Inc., a Washington
corporation ("PBI Tech"), and BioQuant, Inc., a Michigan corporation. All
material intercompany balances and transactions have been eliminated in the
accompanying consolidated 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- and
nine-month periods ended March 31, 2005 are not necessarily indicative of the
results that may be expected for the fiscal year ending June 30, 2005. The
accompanying unaudited financial statements and related condensed notes should
be read in conjunction with the audited financial statements and the Form 10-KSB
of Pacific Biometrics, Inc. and notes thereto, for its fiscal year ended June
30, 2004.


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

STOCK-BASED COMPENSATION

The Company has a stock-based employee compensation plan. For the three- and
nine-month periods ended March 31, 2005, 90,000 stock options were granted under
the employee compensation plan. The Company applies APB Opinion 25, "ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES," and related interpretations in accounting for
its plan. The Company has adopted the disclosure-only provisions of SFAS No.
123, "ACCOUNTING FOR STOCK-BASED COMPENSATION." Had compensation cost been
determined based on the fair value of stock options granted in a manner
consistent with the method promulgated by SFAS No. 123, the Company's net loss
and loss per share would have been changed to the pro forma amounts below for
the three- and nine-month periods ended March 31:

<TABLE><CAPTION>
                                                        THREE MONTHS ENDED MARCH 31,     NINE MONTHS ENDED MARCH 31,
                                                        ----------------------------    ----------------------------
                                                            2005            2004            2005            2004
                                                        ------------    ------------    ------------    ------------
      <S>                                               <C>             <C>             <C>             <C>
      Net loss as reported                              $   (592,224)   $   (641,415)   $ (1,784,642)   $ (1,337,036)
      Deduct: Total stock-based employee compensation
         awards, net of related tax benefits                  86,399          81,436          86,399         257,665
                                                        ------------    ------------    ------------    ------------
         Pro forma net loss                             $   (678,623)   $   (722,851)   $ (1,871,041)   $ (1,594,701)
                                                        ============    ============    ============    ============
      Net loss per share:
         Basic - as reported                            $      (0.05)   $      (0.06)   $      (0.14)   $      (0.14)
                                                        ============    ============    ============    ============

         Diluted - as reported                          $      (0.05)   $      (0.06)   $      (0.14)   $      (0.14)
                                                        ============    ============    ============    ============
         Basic - pro forma                              $      (0.05)   $      (0.07)   $      (0.15)   $      (0.17)
                                                        ============    ============    ============    ============
         Diluted - pro forma                            $      (0.05)   $      (0.07)   $      (0.15)   $      (0.17)
                                                        ============    ============    ============    ============
</TABLE>


VARIABLE ACCOUNTING

On May 3, 2002, the Board of Directors voted to reduce the exercise price of all
then outstanding options to $0.06 per share. No initial expense was recognized
on this repricing, as the new exercise price equaled the market value of the
Company's common stock on that date. As of March 31, 2005 and 2004,
respectively, 7,902 and 41,140 of these options remained outstanding. For the
three-month periods ended March 31, 2005 and 2004, in accordance with accounting
for options under variable pricing rules, the Company recognized approximately
$632 and $2,307, respectively, in compensation expense. For the nine-month
periods ended March 31, 2005 and 2004, in accordance with accounting for options
under variable pricing rules, the Company recognized approximately $(915) and
$43,742, respectively, in compensation income (expense). The Company will
recognize compensation expense in the

                                       -6-
<PAGE>
future for all outstanding repriced stock options if the market value of its
common stock increases, and will recognize compensation income if the market
value of its common stock decreases.

BENEFICIAL CONVERSION FEATURE

In May 2004, the Company issued a $2.5 million secured convertible promissory
note, with an initial maturity date of May 28, 2007, and stock purchase
warrants. In January 2005, the Company issued a $1.5 million secured convertible
promissory note, with an initial maturity date of January 31, 2008, and stock
purchase warrants. In accordance with Financial Accounting Standards Board
(FASB) Emerging Issues Task Force Issue (EITF) No. 98-5 and FASB EITF No. 00-27,
using the relative fair value method of Accounting Principles Board Opinion 14
("APB 14"), the Company recorded a beneficial conversion feature (BCF) related
to the issuance of these convertible debt instruments having conversion features
at fixed rates that were in-the-money when issued, and also recorded the value
allocated to the stock purchase warrants issued with those instruments. The BCF
for the convertible debt instruments and value allocated to the stock purchase
warrants are measured and recognized by allocating a portion of the proceeds to
additional paid-in capital with an offset to the discount on the convertible
instruments.

For these convertible debt instruments and related stock purchase warrants, the
recorded discounts are amortized as interest expense using the effective
interest method over the life of the debt instruments. For the three- and
nine-month periods ended March 31, 2005, the Company amortized $103,095 and
$242,102, respectively, associated with its two secured convertible notes,
leaving an unamortized balance of $1,670,007 at March 31, 2005. There were no
comparable amortization charges during the comparable three- and nine-month
periods ended March 31, 2004.

UTEK AGREEMENT

Effective September 30, 2004, the Company entered into a one-year agreement with
Utek Technologies ("Utek") to assist the Company in locating potential
licensing, royalty or asset sale opportunities for some or all of the technology
assets held in the Company's subsidiary, PBI Tech. The Company issued to Utek
129,730 unregistered shares of common stock as compensation, with 1/12th of the
shares (10,810 shares) vesting each month during the term of the agreement. As
of March 31, 2005, 64,860 shares had vested. In the event the aggregate value of
the shares upon vesting is less than $120,000, the Company is obligated to issue
additional shares upon completion of the agreement. In the event of termination
before the completion of the agreement, all unvested shares of common stock
shall be returned to the Company. In accordance with Financial Accounting
Standards Board Emerging Issues Task Force Issue (EITF) No. 96-18, the Company
recorded a prepaid expense of $120,000 related to the issuance of 129,730 shares
of unregistered common stock over the term of the agreement. During the quarter
and nine-month period ended March 31, 2005, the Company amortized $30,000 and
$60,000 of this prepayment associated with the Utek agreement and applied this
expense to its research and development expenses.

INVESTOR RELATIONS GROUP AGREEMENT

Effective January 30, 2005, the Company entered into a one-year agreement with
Investor Relations Group, Inc. ("IRG") to provide the Company investor relations
and public relations services. The Company issue to IRG as compensation 125,000
unregistered shares of common stock that vested immediately. In addition, the
Company agreed to pay a monthly maintenance fee of $15,500 per month beginning
February 1, 2005. In accordance with Financial Accounting Standards Board
Emerging Issues Task Force Issue (EITF) No. 96-18, the Company recorded a
prepaid expense of $101,250 related to the issuance of 125,000 shares of
unregistered common stock over the 12-month term of the agreement. The Company
will amortize this expense to Selling, General and Accounting expenses at $8,438
per month. During both the quarter and nine-month period ended March 31, 2005,
the Company amortized $16,875 of this prepayment.

LOSS PER SHARE

Basic loss per share is based upon the weighted average number of common shares
outstanding. Diluted earnings per share is computed on the basis of the weighted
average number of common shares outstanding plus the effect of outstanding stock
options that have vested or will vest within 60 days of March 31, 2005 and
warrants using the "treasury stock" method and the effect of preferred stock on
an as-converted basis. Diluted loss per share is

                                       -7-
<PAGE>
computed on the basis of the weighted average number of common shares
outstanding and does not include the effect of dilution from outstanding stock
options that have vested or will vest within 60 days of March 31, 2005 and
warrants using the "treasury stock" method and the effect of preferred stock on
an as-converted basis. All per share calculations exclude treasury shares and
shares held in trust as security for a note payable. Net earnings (loss)
applicable to common stockholders includes cumulative dividends on the Series B
Preferred Stock of $0 for both the three- and nine-month periods ended March 31,
2005 and $2,020 and $6,074 for the three- and nine-month periods ended March 31,
2004, respectively. The shares of Series B Preferred Stock have all been
converted into common stock, and are no longer outstanding and subject to
dividends subsequent to May 31, 2004.

Components of basic and diluted loss per share were as follows for the three-
and nine-month periods ended March 31:
<TABLE><CAPTION>
                                         THREE MONTHS ENDED  MARCH 31,    NINE MONTHS ENDED MARCH 31,
                                         ----------------------------    ----------------------------
                                             2005            2004            2005            2004
                                         ------------    ------------    ------------    ------------
<S>                                      <C>             <C>             <C>             <C>
Net loss (A)                             $   (592,224)   $   (639,395)   $ (1,784,642)   $ (1,330,962)
Preferred stock dividend                           --          (2,020)             --          (6,074)
                                         ------------    ------------    ------------    ------------
Net loss applicable to common
   stockholders (B)                      $   (592,224)   $   (641,415)   $ (1,784,642)   $ (1,337,036)
                                         ============    ============    ============    ============
Weighted average number of outstanding
   shares of common stock (C)              12,700,217      11,022,263      12,532,567       9,420,913
                                         ============    ============    ============    ============
Weighted average number of outstanding
   shares of common stock and common
   stock equivalents (D)                   12,700,217      11,022,263      12,532,567       9,420,913
                                         ============    ============    ============    ============
Loss per share:
   Basic (B/C)                           $      (0.05)   $      (0.06)   $      (0.14)   $      (0.14)
   Diluted (A/D)                         $      (0.05)   $      (0.06)   $      (0.14)   $      (0.14)
</TABLE>
Due to the Company's net losses for the three- and nine-month periods ended
March 31, 2005 and 2004, common stock equivalents related to the Company's a)
in-the-money, vested options, b) in-the-money warrants, and c) convertible
preferred stock were not used in the computation of diluted loss per share
because the effect would be anti-dilutive. As of March 31, 2005 the Company's
common stock equivalents included: a) in-the-money, vested options to purchase
878,830 shares of common stock; b) in-the-money warrants to purchase 590,727
shares of common stock; and c) 1,550,000 shares of Series A Preferred Stock
convertible into 516,667 shares of common stock. As of March 31 2004, the
Company's common stock equivalents included: a) in-the-money, vested options to
purchase 520,212 shares of common stock; b) in-the-money warrants to purchase
570,727 shares of common stock; c) 1,550,000 shares of Series A Preferred Stock
convertible into 516,667 shares of common stock and d) 33,666.66 shares of
Series B Preferred Stock convertible into 33,666 shares of common stock.
Effective May 31, 2004, the holders of the Series B Preferred Stock exchanged
all their Series B Preferred Stock plus accrued dividends for 104,294 shares of
common stock. Prior to that date, the Series B Preferred Stock was convertible
into 33,666 shares of common stock.

DEFERRED FINANCE COSTS

In conjunction with the Company's two secured convertible note transactions in
May 2004 and January 2005 with Laurus Master Fund, Ltd., a New York City based
investment fund ("Laurus"), the Company paid and accrued various fees and
expenses totaling $461,500. These fees and expenses are being amortized to
general and administrative expenses at the rate of $8,153 per month over the
life of the $2.5 million note beginning in June 1, 2004, and at the rate of
$4,667 per month over the life of the January 2005 $1.5 million note beginning
in February 1, 2005. As of March 31, 2005, the combined unamortized balance for
the two notes was $370,639.

3.    GOING CONCERN AND MANAGEMENT'S PLANS

The Company had net losses for the three- and nine-month periods ended March 31,
2005 and for the fiscal year ended June 30, 2004. Although the Company had net
earnings in fiscal 2003, it experienced a net loss from operations. The Company
has historically experienced recurring losses from operations and has had cash

                                       -8-
<PAGE>
flow shortages. While the Company currently has a working capital surplus of
$1,162,210 at March 31, 2005, it had significant amounts of debt, including two
secured convertible notes and other notes payable of $2,708,110 and other
liabilities of $1,785,812, and stockholders' deficit of $297,627. If the
beneficial conversion feature of the two secured convertible notes totaling
$1,670,007 were included, total liabilities at March 31, 2005 would equal
$6,163,929 and stockholders' deficit would be $1,967,634. Historically, the
Company has had deficiencies in working capital and stockholders' equity and has
had significant amounts of current and past due debt and payables. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

Management has taken 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.


4.    CONCENTRATION OF CREDIT RISK

One customer, Pfizer, Inc., individually accounted for approximately 36% and 76%
of the Company's total revenues for the fiscal years ended June 30, 2004 and
2003. For the three- and nine-month periods ended March 31, 2005 Pfizer
accounted for 16% and 25% of the Company's total revenues. This compares to
Pfizer's percentages of total revenues for the three- and nine-month periods
ended March 31, 2004 of 68% and 18%, respectively. For the three- and nine-month
periods ended March 31, 2005, combined revenues from the Company's five largest
customers were approximately 76% and 69%, respectively. This compares to 87% and
85% of total revenues for the Company's top five customers for the three- and
nine-month periods ended March 31, 2004. As a comparison, revenues from the
Company's five largest customers represented approximately 86% and 88% of total
revenues for the fiscal years ended June 30, 2004 and 2003, respectively.

The Company maintains its cash in two commercial accounts at major financial
institutions and one commercial account at another financial institution.
Although the financial institutions are considered creditworthy and have not
experienced any losses on their deposits, at March 31, 2005, the Company's cash
balance at one of the institutions exceeded Federal Deposit Insurance
Corporation (FDIC) limits by $2,275,848.


5.    RELATED PARTY TRANSACTIONS

Effective July 1, 2004, the Company purchased certain computer equipment and
other furniture and equipment from Saigene Corporation, a related party. The
property and equipment was valued at $73,585 and the Company paid $15,000 in
cash and recorded an account payable to Saigene of $58,585. The Company also
entered into an office sharing agreement for Saigene to use some of the
Company's office space. For each month of that office-sharing agreement, the
$58,585 payable to Saigene is being reduced at a (non-cash) rate of $1,540 per
month. At March 31, 2005 the balance due to Saigene was $15,575 (net of
approximately $1,000 in miscellaneous expenses and fees due to the Company from
Saigene).


6.    SUBSEQUENT EVENTS

DEFERRAL & EXTENSION OF SECURED CONVERTIBLE NOTES

On May 6, 2005 Laurus and the Company amended the terms of the two outstanding
secured convertible notes payable to Laurus, to provide for a twelve-month
deferral and extension of both notes. With respect to the $2.5 million secured
convertible note issued in May 2004 (the "2004 Note"), Laurus agreed to (a)
extend the term for an additional year, to be due in full on May 28, 2008, and
(b) defer 12 months of principal payments (originally due June 1, 2005 through
May 1, 2006) to be paid monthly beginning June 1, 2007 through May 1, 2008. With
respect to the $1.5 million secured convertible note issued in January 2005 (the
"2005 Note"), Laurus agreed to (a) extend the term for an additional year, to be
due in full on January 31, 2009, and (b) defer 12 months of principal payments
(originally due August 1, 2005 through July 1, 2006) to be paid monthly
beginning February 1, 2008 through January 1, 2009, with the balance on the 2005
Note to be paid in full on January 31, 2009.

As a result of these amendments, the first repayments of principal owed to
Laurus on the 2004 and 2005 Notes are now June 1, 2006 and August 1, 2006,
respectively and the maturity dates for the 2004 and 2005 Notes are now May 1,

                                       -9-
<PAGE>
2008 and January 1, 2009, respectively. There was no change in the interest rate
charged by Laurus on the unpaid principal. Furthermore, in subsequent quarters
the Company anticipates adjusting the amortization schedules related to the
beneficial conversion feature, stock purchase warrants and deferred finance
costs.

In consideration for the principal payment deferral and the extension of the
2004 and 2005 Notes, the Company issued an additional common stock purchase
warrant to Laurus to purchase up to 1,000,000 shares of Company common stock at
an exercise price of $1.05. The warrant expires on May 6, 2010.









































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

INVESTORS SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH
OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED CONDENSED NOTES IN THIS FORM
10-QSB, OUR FORM 10-QSB FOR THE PERIOD ENDED MARCH 31, 2005 AND OUR AUDITED
FINANCIAL STATEMENTS AND RELATED NOTES FOR THE FISCAL YEAR ENDED JUNE 30, 2004,
INCLUDED IN OUR ANNUAL REPORT ON FORM 10-KSB.

THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS A NUMBER OF FORWARD-LOOKING
STATEMENTS THAT REFLECT MANAGEMENT'S CURRENT VIEWS AND EXPECTATIONS WITH RESPECT
TO OUR BUSINESS, STRATEGIES, PRODUCTS, FUTURE RESULTS AND EVENTS AND FINANCIAL
PERFORMANCE. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACT, INCLUDING
FUTURE RESULTS OF OPERATIONS OR FINANCIAL POSITION, MADE IN THIS QUARTERLY
REPORT ON FORM 10-QSB ARE FORWARD LOOKING. IN PARTICULAR, THE WORDS "EXPECT,"
"ANTICIPATE," "ESTIMATE", "DESIRE", "GOAL", " BELIEVE", "MAY", "WILL", "SHOULD",
"INTEND", "OBJECTIVE", "SEEK", "PLAN", "STRIVE", VARIATIONS OF SUCH WORDS, OR
SIMILAR EXPRESSIONS, OR THE NEGATIVES OF THESE WORDS, ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS, BUT ARE NOT THE EXCLUSIVE MEANS OF IDENTIFYING SUCH
STATEMENTS AND THEIR ABSENCE DOES NOT MEAN THAT THE STATEMENT IS NOT
FORWARD-LOOKING. EXAMPLES OF FORWARD LOOKING STATEMENTS INCLUDE STATEMENTS AS TO
OUR ESTIMATES FOR FUTURE REVENUES AND COST OF REVENUES, OUR EXPECTATIONS
REGARDING FUTURE EXPENSES, INCLUDING RESEARCH AND DEVELOPMENT AND SALES AND
MARKETING EXPENSES, OUR ESTIMATES REGARDING THE ADEQUACY OF OUR CAPITAL
RESOURCES, OUR CAPITAL REQUIREMENTS AND OUR NEEDS FOR ADDITIONAL FINANCING,
PLANNED CAPITAL EXPENDITURES, USE OF OUR WORKING CAPITAL, SOURCES OF REVENUE AND
ANTICIPATED REVENUE, INCLUDING LICENSES OF INTELLECTUAL PROPERTY, TECHNOLOGY
DEVELOPMENT AND SERVICE CONTRACTS, OUR BUSINESS DEVELOPMENT EFFORTS, FUTURE
ACQUISITIONS OR INVESTMENTS, THE IMPACT OF ECONOMIC AND INDUSTRY CONDITIONS ON
US AND OUR CUSTOMERS, THE ANTICIPATED GROWTH OF OUR BUSINESS, OUR ABILITY TO
ATTRACT CLIENTS, EXPECTATIONS REGARDING COMPETITION AND THE IMPACT OF RECENT
ACCOUNTING PRONOUNCEMENTS.

THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS REPORT ARE SUBJECT TO RISKS AND
UNCERTAINTIES, INCLUDING THOSE DISCUSSED BELOW AND IN THE SECTION CAPTIONED
"FACTORS THAT MAY AFFECT OPERATING RESULTS," AND AS DISCUSSED IN OUR ANNUAL
REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED JUNE 30, 2004, THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. THESE RISKS AND
UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, THE CONCENTRATION OF BUSINESS
WITH LARGE CLIENTS, THE ABILITY TO DEVELOP NEW TECHNOLOGY AND INTRODUCE NEW
PRODUCTS, COMPETITION, FLUCTUATIONS IN GENERAL ECONOMIC CONDITIONS, THE RISK OF
BANKRUPTCY, AND CHANGES IN POLICIES BY REGULATORY AGENCIES. FOR ADDITIONAL
FACTORS THAT CAN AFFECT THESE FORWARD-LOOKING STATEMENTS, SEE THE "RISK FACTORS"
SECTION WITHIN OUR ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDING JUNE
30, 2004, AND IN OUR REGISTRATION STATEMENTS ON FORM SB-2. THE FORWARD-LOOKING
STATEMENTS CONTAINED IN THIS REPORT SPEAK ONLY AS OF THE DATE HEREOF. WE CAUTION
READERS NOT TO PLACE UNDUE RELIANCE ON ANY SUCH FORWARD-LOOKING STATEMENTS. WE
EXPRESSLY DISCLAIM ANY OBLIGATION OR UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES
OR REVISIONS TO ANY FORWARD-LOOKING STATEMENTS CONTAINED 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.

OVERVIEW

We provide specialty central laboratory services to support pharmaceutical and
diagnostic manufacturers in the conduct of human clinical research, for use in
their drug discovery and development efforts. Our clients include a number of
the world's largest multi-national pharmaceutical, biotechnology and diagnostic
companies. Our well-recognized specialty areas include cardiovascular disease
(dyslipidemia, atherosclerosis, and coronary heart disease), diabetes (and
obesity), and bone and joint diseases (osteoporosis and arthritis). Coupled with
our specialty testing, we also have central laboratory capability and provide
full-service central laboratory support for multi-center clinical trials,
including routine safety lab tests (general chemistry, hematology, and
urinalysis). Our company is a Delaware corporation, incorporated on May 9, 1996,
and we conduct our operations primarily through our wholly owned subsidiary,
Pacific Biometrics, Inc., a Washington corporation.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no material changes to our critical accounting policies and
estimates since the end of our 2004 fiscal year. For detailed information on our
critical accounting policies and estimates, see our financial statements

                                      -11-
<PAGE>
and condensed notes thereto included in this Report and in our Annual Report on
Form 10-KSB for the fiscal year ended June 30, 2004.

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

We have identified below some of our accounting policies that we consider
critical to our business operations and the understanding of our results of
operations. This is neither a complete list of all of our accounting policies,
nor does it include all the details surrounding the accounting policies we have
identified. There are other accounting policies that are significant to our
company. For a more detailed discussion on the application of these and our
other accounting policies, see "Note 2 to the Condensed Consolidated Financial
Statements" included in this Report and "Note 2 to Consolidated Financial
Statements" included in our Annual Report on Form 10-KSB for the fiscal year
ended June 30, 2004.

      REVENUE RECOGNITION

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

      BENEFICIAL CONVERSION FEATURE

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

                                      -12-
<PAGE>
      OPERATING EXPENSES

Historically, we have segregated our recurring operating expenses among three
categories: 1) laboratory expenses and cost of goods sold; 2) selling, general
and administrative expenses; and 3) research and development expenses.
Laboratory expenses and cost of goods sold consist of amounts necessary to
complete the laboratory tests and other laboratory services, and include direct
labor and related benefits, other direct costs, as well as an allocation of
facility charges, information technology costs, and depreciation and
amortization. Also, laboratory expenses and cost of goods sold include shipping
and handling fees and reimbursable out-of-pocket costs. Laboratory expenses and
cost of goods sold, as a percentage of revenues, tends, and is expected, to
fluctuate from one period to another, as a result of changes in labor
utilization and the mix of service offerings and specific tests conducted during
any period of time.

The primary expense categories that comprise selling, general and administrative
expenses include administrative payroll and related benefit charges, legal,
investor relations and accounting fees, Saigene management fees (through August
31, 2004), advertising and promotional expenses, administrative travel and an
allocation of facility charges, information technology costs, and an allocation
of our total depreciation and amortization. Other components of selling, general
and administrative expenses include business development activities, sales and
marketing expenses and related commissions, and laboratory administration
expenses. Research and development expenses consist primarily of the
amortization of the non-cash compensation paid to Utek, legal fees for patent
applications, supplies, and an allocation of our total depreciation and
amortization, and have also included direct labor and related benefits, and
travel expenses when we have had personnel dedicated to our research and
development efforts.

We generally depreciate equipment and computers over three to five years, while
leasehold improvements are depreciated over the remaining life of the lease or
ten years. These estimated useful lives reflect management's judgment of
reasonable estimates of the lives over which we will use the equipment,
computers and leasehold improvements. However, the amount of depreciation
expense we record in any given period will change if our estimates of the useful
lives of our equipment, computers or leasehold interests were to increase or
decrease.

RESULTS OF OPERATIONS FOR THREE-MONTH AND NINE-MONTH PERIODS ENDED MARCH 31,
2005 AND 2004

REVENUES:
<TABLE><CAPTION>
                       THREE MONTHS ENDED                      NINE MONTHS ENDED
DOLLARS IN THOUSANDS,       MARCH 31,                               MARCH 31,
ROUNDED TO NEAREST     ------------------      $        %      ------------------      $        %
THOUSAND                 2005      2004     Change    Change     2005      2004      Change    Change
---------------------  --------  --------  --------  --------  --------  --------  --------  --------
<S>                    <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
REVENUES               $  1,048  $    548  $    500     91%    $  2,492  $  3,390  $    898    (27)%
---------------------  --------  --------  --------  --------  --------  --------  --------  --------
</TABLE>
Our revenues are generated from clinical trials and diagnostic testing services.
Our revenues increased to $1,048,000 from $548,000 or approximately 91% between
the comparable quarters ended March 31, 2005 and 2004, respectively. This was
the result of an increase in the size and number of clinical trials testing
services we performed. This increase reflects increases in open work order and,
along with the previous quarter ended December 31, 2004, ends the significant
decline in revenues we had been experiencing during calendar 2004. For the
comparable nine months ended March 31, 2005 and 2004, our revenues decreased to
$2,492,000 from $3,390,000 or approximately 27%. This decrease was mostly due to
the significantly reduced revenues during the three-month period ended September
30, 2004 as compared to the three-month period ended September 30, 2003.

Our quarterly fluctuations in total revenues are often explained by changes in
the testing and open work orders from our historically largest customers. This
is the result of prior work orders having been completed, clinical studies
having ended or clinical studies having been terminated early. In particular,
our recent fluctuations in revenues can be partially explained by the testing
requirements and open work orders our top five customers. For the three- and
nine-month periods ended March 31, 2005, our largest customer in each respective
period accounted for approximately 34% and 25% of our total revenues, compared
to approximately 68% and 56%, respectively, for the three- and nine-month
periods ended March 31, 2004. For the foreseeable future, we expect to remain

                                      -13-
<PAGE>
substantially dependent on our top five customers for a significant portion of
our revenues, and as such, a decline or increase in the volume of services
performed for any one or more of these customers will continue to have a
significant impact on our revenues. The concentration of credit risk is
described above in the condensed notes to our consolidated financial statements.

During the quarter and nine months ended March 31, 2005, revenue generated from
clinical trials testing services accounted for approximately 73% and 57%,
respectively, of our total revenues as compared to 76% and 80%, respectively,
during the quarter and nine months ended March 31, 2004. During the quarter and
nine months ended March 31, 2005, revenue generated from the provision of
diagnostic, referral and other services accounted for approximately 27% and 43%,
respectively, of our total revenues as compared to 24% and 20%, respectively,
during the quarter and nine months ended March 31, 2004. In previous fiscal
years, the percentage of revenue generated from clinical trials testing services
had been in excess of 90.

LABORATORY EXPENSE AND COST OF GOODS SOLD:
<TABLE><CAPTION>
                       THREE MONTHS ENDED                      NINE MONTHS ENDED
DOLLARS IN THOUSANDS,       MARCH 31,                               MARCH 31,
ROUNDED TO NEAREST     ------------------      $        %      ------------------      $        %
THOUSAND                 2005      2004     Change    Change     2005      2004      Change    Change
---------------------- --------  --------  --------  --------  --------  --------  --------  --------
<S>                    <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
LABORATORY EXPENSES
AND COST OF GOODS SOLD $    754  $    432  $    322       75%  $  1,750  $  2,176  $   (426)    (20)%
---------------------- --------  --------  --------  --------  --------  --------  --------  --------
PERCENTAGE OF REVENUES      72%       79%                           70%       64%
---------------------- --------  --------                      --------  --------
</TABLE>
Laboratory expense and cost of goods sold consist primarily of payment of
salaries and related benefits to employees performing analysis of clinical trial
samples, the cost of supplies for analysis of clinical trial samples, payments
to subcontractors of laboratory services, and other expenses such as business
and occupation taxes. For the comparable quarters ended March 31, 2005 and 2004,
laboratory expenses and cost of goods sold increased approximately 75% to
$754,000 from $432,000, respectively, and as a percentage of revenue, decreased
to approximately 72% from approximately 79%. The relative decrease in laboratory
expense and cost of goods sold as a percentage of revenue was primarily the
result of the significant increase in revenues over the comparable periods and
the fixed components of laboratory expense and cost of goods sold.

For the comparable nine-month periods ended March 31, 2005 and 2004, laboratory
expense and cost of goods sold decreased to $1,750,000 from $2,176,000 or
approximately 20%, and as a percentage of revenue, increased to approximately
70% from approximately 64%, respectively. The relative increase in laboratory
expense and cost of goods sold as a percentage of revenue was primarily the
result of the significant decline in revenues over the comparable periods and
the fixed components of laboratory expense and cost of goods sold.

The primary factor explaining the increase between the comparable quarters in
laboratory expense and costs of goods sold was the 220% increase in lab supplies
to $294,000 from $92,000 for the quarters ended March 31, 2005 and 2004,
respectively, representing approximately 28% and 17% of total laboratory expense
and cost of goods sold, respectively. The increase in lab supplies between the
comparable quarters is the result of the increase in the clinical and diagnostic
testing services we provided.

Salaries and related benefits rose 43% to $285,000 from $200,000 for the
quarters ended March 31, 2005 and 2004, respectively, accounting for
approximately 38% and 46% of total laboratory expense and cost of goods sold,
respectively. On March 31, 2005 we had 25 FTEs in our laboratory services as
compared to 18 FTEs on March 31, 2004. With a greater number of FTEs, the
relative cost declined as a result of more efficient use of labor and increased
revenue.

For the comparable nine-month periods, the most significant decrease in
laboratory expense and cost of goods sold was the 94% reduction in outside
services to approximately $35,000 from $537,000 for the nine-month periods ended
March 31, 2005 and 2004, respectively. As a percentage of laboratory expense and
costs of goods sold,

                                      -14-
<PAGE>
outside services were approximately 2% and 25% for the nine-month periods ended
March 31, 2005 and 2004, respectively. This reduction was the result of the mix
of tests we provided during the nine-month period ended March 31, 2005, which
did not require any significant amount of outsourcing.

Offsetting a portion of the decrease in laboratory expense and costs of goods
sold for the nine-month periods ended March 31, 2005 and 2004 was the 18%
increase in lab supplies to $551,000 from $471,000, respectively. Lab supplies
represented approximately 31% and 22% of laboratory expense and cost of goods
sold for the nine-month periods ended March 31, 2005 and 2004, respectively. The
increase in lab supplies between the comparable periods is the result of less
outside services costs and relatively greater internal lab supply usage.

Finally, for the comparable nine months ended March 31, 2005 and 2004, salaries
and related benefits fell 2% to $708,000 from $723,000, respectively. Salaries
and related benefits accounted for approximately 41% and 33% of total laboratory
expense and cost of goods sold for the nine-month periods ended March 31, 2005
and 2004, respectively. On March 31, 2005 we had 25 FTEs in our laboratory
services as compared to 18 FTEs on March 31, 2004. Even though we had a greater
number of FTEs at the end of the period, the decrease in salaries and benefits
for the comparable nine-month periods partially reflects actions to reduce and
control employee expenses that we took during fiscal 2004, subsequent to the
nine-month period ended March 31, 2004, and a lower number of FTE's throughout
most of the nine-month period.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE:
<TABLE><CAPTION>
                       THREE MONTHS ENDED                      NINE MONTHS ENDED
DOLLARS IN THOUSANDS,       MARCH 31,                               MARCH 31,
ROUNDED TO NEAREST     ------------------      $        %      ------------------      $        %
THOUSAND                 2005      2004     Change    Change     2005      2004      Change    Change
---------------------- --------  --------  --------  --------  --------  --------  --------  --------
<S>                    <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE $    670  $    750  $    (80)    (11)%  $  1,997  $  2,346  $   (349)    (15)%
---------------------- --------  --------  --------  --------  --------  --------  --------  --------
PERCENTAGE OF REVENUES      64%      137%                           80%       69%
---------------------- --------  --------                      --------  --------
</TABLE>

Our selling, general and administrative expense consists primarily of
compensation for our executive officers, board members and other selling,
general and administrative personnel, compensation expense on our stock options,
legal and accounting fees, and payments under consulting arrangements, and
management fees paid to Saigene (prior to August 31, 2004). Selling, general and
administrative expense decreased 11% to approximately $670,000 from $750,000 for
the quarters ended March 31, 2005 and 2004, respectively. As a percentage of
revenue, selling, general and administrative expenses were 64% and 137%,
respectively, for the quarters ended March 31, 2005 and 2004. For the
comparative nine-month periods ended March 31, 2005 and 2004, selling, general
and administrative expense decreased 15% to approximately $1,997,000 from
$2,346,000, respectively, and represented approximately 80% and 69%,
respectively, as a percentage of revenue.

The reduction in our selling, general and administrative expense for both the
comparable quarters and the comparable nine-month periods is due in large part
to decreased management fees we paid under the terms of our former management
agreement with Saigene Corporation. During fiscal 2004 and 2005, we made several
reductions in the amount of the monthly management fee: effective July 1, 2003,
reduced to $70,000 from $90,000; effective February 1, 2004, reduced to $40,000
per month; and effective June 15, 2004, reduced to $20,000 per month. Finally,
effective August 31, 2004, we terminated the agreement, eliminating further
management fees. For the comparable quarters ended March 31, 2005 and 2004,
management fees decreased 100% to $0 from $150,000, respectively, and for the
comparable nine-month periods ended March 31, 2005 and 2004, management fees
decreased 93% to approximately $40,000 from $570,000, respectively. Excluding
Saigene management fees, selling, general and administrative expenses increased
12% to approximately $670,000 from $600,000 (approximately 64% and 109% as a
percentage of revenue) for the quarters ended March 31, 2005 and 2004,
respectively, and increased 10% to approximately $1,957,000 from $1,776,000
(approximately 79% and 52% as a percentage of revenue) for the nine-month
periods ended March 31, 2005 and 2004, respectively.

                                      -15-
<PAGE>
The increases in selling, general and administrative expenses (net of the
Saigene management fees) between both the comparable three- and nine-month
periods ended March 31, 2005 were significantly impacted by increases in
expenses in three areas: 1) the amortization of deferred finance costs related
to our two secured convertible notes; 2) management expenses associated with
travel, meetings, seminars and recruiting; and 3) salaries and related benefits
for laboratory administration and sales.

In addition, selling, general and administrative expenses also include
compensation expense or income resulting from the May 2002 re-pricing of all
outstanding stock options to the then-current market price of $0.06. To adjust
these options to fair market value, for the comparable nine-month periods ended
March 31, 2005 and 2004, respectively, we recognized an expense of approximately
$915 and income of $44,000. This non-cash item explains $45,000 of the increase
in selling, general and administrative costs between the comparable nine-month
periods. We recognized expenses of $632 and $2,000 for the quarters ended March
31, 2005 and 2004, respectively. As of March 31, 2005, 7,902 re-priced options
remained outstanding, and as long as these options remain outstanding we will
continue to recognize compensation expense (or income) as appropriate in future
periods resulting from the re-pricing. The amount of compensation expense or
income we recognize in the future will fluctuate based on the value of our
common stock and the number of options that are outstanding as of each valuation
date. (See "Note 11 to Notes to Consolidated Financial Statements" in our Report
on Form 10-KSB for the fiscal year ended June 30, 2004).

As mentioned above, selling, general and administrative expenses between
comparable periods increased because of the approximately $293,500 in fees and
expenses we incurred in May 2004 (the fourth quarter of fiscal 2004), related to
the 2004 Note, as well approximately $168,000 in fees and expenses in January
2005, related to the 2005 Note. We are amortizing these fees over the lives of
the two notes. In aggregate, for both of these notes, we recognized $34,000 of
expense in the quarter ended March 31, 2005 (and $83,000 in expense for the nine
months then-ended) leaving an unamortized balance of $378,000 at March 31, 2005.
We had no comparable expense for either the three- or nine-month periods ended
March 31, 2004. Because of the extension and deferral of interest on the 2004
and 2005 Notes, in subsequent quarters we anticipate adjusting the amortization
schedule of deferred finance costs (See SUBSEQUENT EVENTS -- DEFERRAL &
EXTENSION OF SECURED CONVERTIBLE NOTES).

For the comparable quarters ended March 31, 2005 and 2004, selling, general and
administrative expenses increased approximately $23,000 from increased
management travel, seminars and recruiting, in addition to an increase of
approximately $94,000 from salaries and related benefits associated with
laboratory administration and sales. For the comparable nine-month periods ended
March 31, 2005 and 2004, selling, general and administrative expenses increased
approximately $36,000 from increased management travel, seminars and recruiting,
in addition to an increase of approximately $146,000 from salaries and related
benefits associated with laboratory administration and sales.

Offsetting the increase in selling, general and administrative expenses (net of
the Saigene management fees) were our legal fees, accounting expenses, outside
services and printing expenses decreasing by approximately $59,000 between the
comparable quarters ended March 31, 2005 and 2004. Although our legal fees,
accounting expenses, outside services and printing expenses increased by $28,000
between the comparable nine-month periods ended March 31, 2005 and 2004. The
decrease in the comparable three months periods ended March 31, 2005 and 2004,
was because of the private placement we closed in March 2004, while the increase
for the nine-month period ended March 31, 2005 was primarily a result of work on
our two resale registration statements since July 2004.

Although selling, general and administrative expenses increased (net of the
Saigene management fees), management salaries, consulting fees, commissions,
board fees and related benefits and taxes fell 34% to $145,000 from $219,000
between the quarters ended March 31, 2005 and 2004, and fell 26% to $543,000
from $737,000 between the nine-month periods ended March 31, 2005 and 2004,
respectively. These expenses include certain consulting expense, including
certain expenses under the terms of consulting agreements dated August 28, 2002
with two of our directors, Terry Giles and Paul Kanan (the consulting agreement
with Mr. Kanan terminated on August 31, 2004, and thus there are no further
consulting fees due to him). Overall, we recorded aggregate consulting expenses
of $0 in the quarter ended March 31, 2005, and $42,000 in the quarter ended
March 31, 2004 (and $65,000 and $120,000 in the nine-month periods ended March
31, 2005 and 2004, respectively). Overall, board and consulting fees fell 52% to
$114,000 from $240,000 between the nine-month periods ended March 31, 2005 and
2004, respectively.
                                      -16-
<PAGE>
The decrease in salaries, commissions, board fees and related benefits is a
result of 1) decreased headcount and ongoing salary reductions of 15% to 20% for
three management level selling, general and administrative employees, 2)
decreased board fees, and 3) decreased commissions as a result of decreased
revenues in the comparable year over year quarters.

RESEARCH AND PRODUCT DEVELOPMENT:
<TABLE><CAPTION>
                       THREE MONTHS ENDED                      NINE MONTHS ENDED
DOLLARS IN THOUSANDS,       MARCH 31,                               MARCH 31,
ROUNDED TO NEAREST     ------------------      $        %      ------------------      $        %
THOUSAND                 2005      2004     Change    Change     2005      2004      Change    Change
---------------------- --------  --------  --------  --------  --------  --------  --------  --------
<S>                    <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
RESEARCH AND PRODUCT
DEVELOPMENT            $     39  $     17  $     22      129%  $     82  $     95  $    (13)    (14)%
---------------------- --------  --------  --------  --------  --------  --------  --------  --------
PERCENTAGE OF REVENUES       4%        3%                            3%        3%
---------------------- --------  --------                      --------  --------
</TABLE>

Research and product development expenses consist mainly of our expenditures
incurred in connection with development of our LIDA and cell viability
technology held in our subsidiary PBI Technology.

For the comparable quarters ended March 31, 2005 and 2004, research and product
development expenses increased 129% to approximately $39,000 from $17,000. For
the comparable nine-month periods ended March 31, 2005 and 2004, research and
product development expenses decreased 14% to approximately $82,000 from
$95,000. Of these amounts for the three and nine-month periods ended March 31,
2005, $30,000 and $60,000, respectively, represented non-cash compensation to
Utek Technologies. We engaged Utek as of September 30, 2004. (See "Note 2 to
Notes to Condensed Consolidated Financial Statements (Unaudited), Summary of
Significant Accounting Policies - Utek Agreement" for further discussion). Since
we are accounting for our agreement with Utek in accordance with Financial
Accounting Standards Board (FASB) Emerging Issues Task Force Issue (EITF) No.
96-18, we will amortize additional non-cash compensation of $10,000 per month
during the balance of the term of the agreement, and will apply this expense to
our research and development expenses.

Excluding the amortization related to Utek's non-cash compensation, for the
comparable quarters ended March 31, 2005 and 2004, research and product
development expenses decreased 47% to approximately $9,000 from $17,000, and
decreased 77% to approximately $22,000 from $95,000 for the comparable
nine-month periods ended March 31, 2005 and 2004. The decrease was primarily due
to decreased compensation expense as a result of fewer employees in research and
product development for the comparable periods. More specifically, in November
2003, as part of our efforts to reduce expenses, we enrolled our one employee in
research and development in the Shared Work Program, and in February 2004, this
employee was terminated, eliminating employee compensation expense in this area.
The remaining research and development expenses consist primarily of legal fees
for patent applications, supplies, and depreciation and amortization.

We anticipate that we will continue to incur research and development expenses
related to our technology. However, if we are unable to increase revenues or
raise additional funding to continue to fund our existing research and
development efforts, we will seek to further reduce our research and development
efforts and expenses.

OTHER INCOME (EXPENSE):
<TABLE><CAPTION>
                       THREE MONTHS ENDED                      NINE MONTHS ENDED
DOLLARS IN THOUSANDS,       MARCH 31,                               MARCH 31,
ROUNDED TO NEAREST     ------------------      $        %      ------------------      $        %
THOUSAND                 2005      2004     Change    Change     2005      2004      Change    Change
---------------------- --------  --------  --------  --------  --------  --------  --------  --------
<S>                    <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
OTHER EXPENSE          $   (177) $     12  $   (189)  (1,575)% $   (447) $   (104) $   (343)    (330)%
---------------------- --------  --------  --------  --------  --------  --------  --------  --------
PERCENTAGE OF REVENUES     (17)%        2%                         (18)%      (3)%
---------------------- --------  --------                      --------  --------
</TABLE>

                                      -17-
<PAGE>
Total other expense increased 1,575% to expense of $177,000 from income of
$12,000 during the quarters ended March 31, 2005 and 2004, respectively, and
increased 330% to expense of $447,000 from expense of $104,000 during the
nine-month periods ended March 31, 2005 and 2004, respectively. A major
component of other expense in the quarter and nine months ended March 31, 2005
was approximately $175,000 and $452,000, respectively, of interest expense on
the Laurus 2004 and 2005 Notes, other notes payable and lease obligations. Of
this amount, approximately $64,000 and $149,000 was cash interest paid on the
2004 and 2005 Notes, for the three- and nine-month periods ended March 31, 2005,
respectively. In addition, we recorded $103,000 and $242,000 of expense related
to the amortization of the intrinsic value of the beneficial conversion features
of the 2004 and 2005 Notes for the three- and nine-month periods ended March 31,
2005, respectively. As of March 31, 2005, $1,670,000 remained unamortized and
will be amortized, using the effective interest method, over the remaining life
of the 2004 and 2005 Notes or upon their earlier conversion. (See "Note 8 to
Notes to Consolidated Financial Statements" in our Report on Form 10-KSB for the
fiscal year ended June 30, 2004). We entered into the financing arrangements
with Laurus effective May 28, 2004 and January 31, 2005, so we had no such
comparable expenses related to either secured convertible note for the
comparable quarter or nine -month period ended March 31, 2004. Because of the
extension and deferral of interest on the 2004 and 2005 Notes, in subsequent
quarters we anticipate adjusting the amortization schedule of the intrinsic
value of the beneficial conversion (See SUBSEQUENT EVENTS -- DEFERRAL &
EXTENSION OF SECURED CONVERTIBLE NOTES).

Other expense in the quarter ended March 31, 2004 included approximately $42,000
of refunds from review of past years' tax remittances. For the nine months ended
March 31, 2004 we incurred $72,000 in expense resulting from a loss on the
receipt of common stock instead of cash in payment of a $200,000 note receivable
from Saigene. In the quarter and nine-month periods ended March 31, 2005 there
was no comparable income or expense.

NET LOSS:
<TABLE><CAPTION>
                       THREE MONTHS ENDED                      NINE MONTHS ENDED
DOLLARS IN THOUSANDS,       MARCH 31,                               MARCH 31,
ROUNDED TO NEAREST     ------------------      $        %      ------------------      $        %
THOUSAND                 2005      2004     Change    Change     2005      2004      Change    Change
---------------------- --------  --------  --------  --------  --------  --------  --------  --------
<S>                    <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
NET LOSS               $   (592) $   (639) $     47     7%     $ (1,785) $ (1,331) $   (454)    (34)%
---------------------- --------  --------  --------  --------  --------  --------  --------  --------
PERCENTAGE OF REVENUES     (56)%    (117)%                         (72)%     (39)%
---------------------- --------  --------                      --------  --------
</TABLE>

We had a net loss of approximately $592,000 for the quarter ended March 31, 2005
compared to a net loss of approximately $639,000 for the quarter ended March 31,
2004. This slight improvement in net losses for the quarters was primarily
attributable to our significantly increased revenues in the comparable quarters.
The increase in gross margin along with the decrease in selling, general and
administrative expenses was offset partially by the increase in other expense
discussed above.

We had a net loss of approximately $1,785,000 for the nine-month period ended
March 31, 2005 compared to a net loss of approximately $1,331,000 the nine-month
period ended March 31, 2004. This difference between the net losses was
primarily attributable to our significantly decreased revenues in the comparable
nine-month periods and the increased interest expense related to the May 2004
and January 2005 Notes with Laurus. These additional expenses were only
partially offset by decreases in laboratory expenses and cost of goods sold and
selling, general and administrative expenses, and research and product
development expenses discussed above.

LIQUIDITY AND CAPITAL RESOURCES:

We had significant net operating losses for the nine-month period ended March
31, 2005 and the fiscal year ended June 30, 2004. Revenues for the nine-month
period ended March 31, 2005 and our fiscal year ended June 30, 2004 were
significantly lower than those in the comparable prior fiscal year periods,
although we saw improvements in revenues during the second and third quarters of
the current 2005 fiscal year. Unless revenues increase, we will likely continue
to experience significant losses and our cash and working capital positions will
be adversely

                                      -18-
<PAGE>
impacted. Our operations historically have been funded through revenues
generated from operations and from the sale and issuance of our common stock,
preferred stock and debt.

At March 31, 2005, our cash and cash equivalents were approximately $2,376,000,
compared to approximately $2,941,000 at June 30, 2004. The decrease in our cash
and equivalents is primarily attributable to our net operating loss. To a lesser
degree the net decrease in our cash and cash equivalents is the result of 1)
certain payments made on our notes payable 2) our initial payment on our annual
D&O insurance policy (the future obligations are reflected on the balance sheet
as prepaid expenses and accrued liabilities), 3) other prepaid expenses, and 4)
payments we made on our accounts payable. In addition, in connection with
termination of the management agreement with Saigene, effective July 1, 2004 we
purchased from Saigene certain computer equipment and other furniture and
equipment that Saigene used in our laboratory, for approximately $15,000 cash
and a payable of $59,000 (as described in more detail below). We have no
off-balance sheet financing arrangements. As of March 31, 2005, we also had
restricted cash of approximately $71,000 which represents a security deposit in
connection with our office lease in Seattle, Washington that expires in July
2007. We are currently discussing with our landlord the return of this
restricted cash security deposit.

At March 31, 2005, we had approximately $650,000 in accounts receivable,
compared to approximately $367,000 as of June 30, 2004, reflecting the timing of
revenues billed and collected. We generally have a high collectibility rate on
our accounts receivable, and our allowance for doubtful accounts is only $22,100
which we believe is reasonable based on our past experience. Our accounts
receivable generally reflect our billings, and may include one or several
individually large customer receivables from time to time. For example, as of
June 30, 2004, approximately 41% of our receivables balance of approximately
$367,000 was from one clinical service contract, which was subsequently paid in
full in the quarter ended September 30, 2004. We had no such single receivable
that represented a significant portion of our accounts receivable balance as of
March 31, 2005.

Additionally, because of the significant decrease in our revenues for the
nine-month period ended March 31, 2005 as compared to the nine-month period
ended March 31, 2004, in combination with our significant increase in revenues
for the quarter ended March 31, 2005 as compared to the quarter ended March 31,
2004, accounts receivable represented a proportionately larger percentage of
revenues in the current quarter at approximately 26% compared to 11% as of March
31, 2004.

Total liabilities recorded on our balance sheet as of March 31, 2005 were
approximately $4,494,000 compared to approximately $3,519,000 as of June 30,
2004. The increase in liabilities was the result of an increase in customer
advances, an increase in our secured convertible debt net of the beneficial
discount for the May 2004 and January 2005 Notes, and an increase in accrued
liabilities, offsetting our payments against accounts payable and certain notes
and leases payable. A significant component of our liabilities are represented
by the 2004 and 2005 Notes with Laurus, and, to a lesser degree, our prior
borrowings in fiscal 2004 under our $250,000 credit facility with Franklin
Funding. As required by U.S. generally accepted accounting principles, the
liability we recorded for the 2004 and 2005 Notes reflected a discount from the
face value of the notes by approximately $1,670,000, related to the valuation of
the beneficial conversion feature and the warrants. During the nine-month period
ended March 31, 2005, Laurus converted $53,000 of the principal amount due on
the 2004 Note and as of March 31, 2005 the remaining principal balance on the
2004 Note was $2,447,000. No amounts of the 2005 Note have been converted, and
as of March 31, 2005 the remaining principal balance on the 2005 Note was
$1,500,000. Accordingly, if the discount to face value is disregarded, our total
liabilities as of March 31, 2005 and June 30, 2004, respectively, would be
approximately $6,164,000 and $4,755,000.

Included in liabilities at March 31, 2005 was an obligation of approximately
$59,000 payable to Saigene from our purchase of certain computer equipment and
other furniture and equipment from Saigene in July 2004. We also entered into an
office sharing agreement for Saigene to use some of our office space. For each
month of that office-sharing agreement, our $59,000 payable to Saigene is being
reduced at a (non-cash) rate of $1,540 per month. At March 31, 2005 our
obligation to Saigene was approximately $16,000 (net of approximately $1,000 in
miscellaneous expenses and fees owed to us from Saigene).

At March 31, 2005, we had working capital of approximately $1,162,000, compared
to working capital of approximately $1,415,000 at June 30, 2004. The
approximately $253,000 decrease in working capital is attributable

                                      -19-
<PAGE>
to several changes in the components of working capital. Changes providing
favorable impact include increases in accounts receivable, prepaid expenses,
deferred financing costs related to the 2004 and 2005 Notes, along with
decreases in accounts payable, and decreases in our current and long term notes
payable and lease obligations (except for additional borrowings of (and the
additional long-term portions, net of discounts, payable on) $2.5 million and
$1.5 million under our 2004 and 2005 Notes and $250,000 under our loan and
security agreement with Franklin Funding). Changes negatively impacting our
working capital since June 30, 2004 include decreases in our cash, along with
increases in our advances from customers, accrued liabilities, and the long-term
portion of our 2004 and 2005 Notes and $250,000 under our loan and security
agreement with Franklin Funding. In addition, our working capital position at
March 31, 2005 and June 30, 2004, respectively, gives effect to approximately
$565,000 and $304,000 of discounts recorded on the current portions of our 2004
and 2005 Notes, as required by U.S. generally accepted accounting principles. If
this discount were disregarded, we would have working capital surpluses of
approximately $598,000 and $1,111,000, respectively, at March 31, 2005 and June
30, 2004.

Net cash used in operating activities was approximately $1,537,000 for the
nine-month period ended March 31, 2005, primarily to fund our net loss and
changes in our working capital. For the nine-month period ended March 31, 2005,
net cash used in operations included the effect of approximately $113,000 in
depreciation and amortization, approximately $242,000 of amortization related to
the 2004 and 2005 Notes and $915 in expense recognized in accordance with
accounting for stock options under variable pricing rules as it relates to our
May 2002 repricing of stock options. Our investing activities used approximately
$108,000 for the nine-month period ended March 31, 2005 primarily for the
purchase of capital equipment from Saigene discussed above. Cash flows used in
financing activities included approximately $313,000 in payments on notes
payable, notes payable to related parties, and payments on capital lease
obligations.

As described above, although we experienced a significant increase in revenues
for the quarter ended March 31, 2005, we incurred significant net losses. Except
for the proceeds from our 2004 and 2005 Notes with Laurus, we have realized a
degradation of our cash and working capital position from operations, throughout
fiscal 2004 and continuing through the first nine months of fiscal 2005. We
expect these trends will continue during fiscal 2005, although possibly at a
lower rate. In an effort to become more competitive and to increase our
revenues, we have been actively increasing our business development activities,
and are planning to make additional investments in our technology
infrastructure, operations and other areas of our business. These efforts will
use significant amounts of time, effort and funding. Our efforts to control
expenses, generate revenue and raise sufficient capital may not be successful.
Because of the extension and deferral of interest on the 2004 and 2005 Notes, we
expect that our current cash, current assets and any cash flows from operations
will be sufficient to fund operations through July 1, 2006 (See SUBSEQUENT
EVENTS -- DEFERRAL & EXTENSION OF SECURED CONVERTIBLE NOTES). However, any
further decreases in revenue would adversely affect our financial condition, and
we may need to seek additional capital during fiscal 2006. We may not be able to
raise sufficient financing, whether debt or equity. We have no additional
amounts available to us under our Franklin Funding credit facility, and we do
not have any other credit facility in place. In addition, based on the terms of
the Laurus debt financings, raising additional capital may be difficult or
highly dilutive to existing stockholders.

Management continues to contemplate alternatives to enable us to fund continuing
operations, including loans from management or employees, salary deferrals and
reductions and other cost cutting mechanisms, and raising additional capital by
private placements of equity or debt securities or through the establishment of
other funding facilities. In addition, we are exploring strategic alternatives,
which may include a merger, asset sale, joint venture or another comparable
transaction. None of these potential alternatives may be available to us, or may
only be available on unfavorable terms. If we are unable to obtain sufficient
cash to continue to fund operations or if we are unable to locate a strategic
partner, we may be forced to seek protection from creditors under the bankruptcy
laws or cease operations. Any inability to obtain additional cash as needed
could have a material adverse effect on our financial position, results of
operations and our ability to continue in existence. Our auditors added an
explanatory paragraph to their opinion on our fiscal 2004 financial statements
stating that there was substantial doubt about our ability to continue as a
going concern, and we anticipate that we will receive a similar statement on our
2005 financial statements.
                                      -20-
<PAGE>
FACTORS THAT MAY AFFECT OPERATING RESULTS

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

     o    Our business development and marketing efforts and our ability to
          enter into and build relationships with new customers, and obtain
          additional projects from existing customers;
     o    The timing and number of clinical trials by customers, the number of
          samples submitted to us for testing, and the amount of revenues
          generated from these tests;
     o    Our ability to participate in and win bids from RFPs (requests for
          proposals) for clinical tests;
     o    Our ability to manage our cash flow, including by managing or reducing
          our expenses;
     o    Our ability to raise money from debt or equity financing to help fund
          cash flows;
     o    Capital expenditure requirements, including for research and
          development efforts, upgrading or replacing laboratory equipment and
          making investments in information technology;
     o    Our ability to motivate and retain our existing employees; and
     o    Plans to pursue alternative business strategies, which may include
          entering into a joint venture, asset sale or merger.

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


ITEM 3.   CONTROLS AND PROCEDURES

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

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

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


PART II - OTHER INFORMATION

ITEM 6.   EXHIBITS

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


                                      -21-
<PAGE>

                                   SIGNATURES
                                   ----------

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

          Dated:  May 16, 2005






                                    /s/ Ronald R. Helm
                                    -------------------------------------------
                                    Ronald R. Helm
                                    Chief Executive Officer
                                    (principal executive officer)




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
















                                      -22-