---

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

Form 10-QSB

|x | QUARTERLY REPORT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------

For the quarterly
period ended December 31, 2002

|o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|- | ---------------------------------------------------------------

Commission File
Number  0-21537

|PACIFIC BIOMETRICS, INC.                                      
|--------------------------------------------------------------
|                                                              
|(Exact name of small business issuer specified in its charter)
|                                                              
|Delaware                                                      
|                                                              
|(State or other jurisdiction of incorporation or organization)
|                                                              
|220 West Harrison Street, Seattle, Washington 98119           
|                                                              
|(Address of principal executive offices)                      
|                                                              
|206-298-0068                                                  
|                                                              
|(Issuers telephone number)                                   

Check whether the issuer (1) filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days.

|Yes | x | No | o
|--- | - | -- | -



As of January 31, 2003
there were outstanding 25,454,009 shares of common stock.

Transitional Small Business Disclosure Format (check one)

|Yes | o | No | x
|--- | - | -- | -

---



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PACIFIC BIOMETRICS, INC.

INDEX TO FORM 10-QSB

|                                                                   | Page
|------------------------------------------------------------------ | ----
|                                                                   |     
|                                                                   |     
|PART I - FINANCIAL INFORMATION                                     |     
|                                                                   |     
|ITEM 1 - FINANCIAL STATEMENTS                                      |     
|                                                                   |     
|Consolidated Balance Sheet                                         | 3   
|                                                                   |     
|Consolidated Statements of Operations (unaudited)                  | 4   
|                                                                   |     
|Condensed Consolidated Statements of Cash Flows (unaudited)        | 6   
|                                                                   |     
|Notes to Consolidated Financial Statements (unaudited)             | 8   
|                                                                   |     
|ITEM 2 -
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION | 13  
|                                                                   |     
|ITEM 3 -
CONTROLS AND PROCEDURES                                   | 19  
|                                                                   |     
|PART II -
OTHER INFORMATION                                        |     
|                                                                   |     
|ITEM 1 -
LEGAL PROCEEDINGS                                         | 19  
|                                                                   |     
|ITEM 2 -
CHANGES IN SECURITIES AND USE OF PROCEEDS                 | 20  
|                                                                   |     
|ITEM 3 -
DEFAULTS UPON SENIOR SECURITIES                           | 20  
|                                                                   |     
|ITEM 4 -
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS       | 20  
|                                                                   |     
|ITEM 5 -
OTHER INFORMATION                                         | 20  
|                                                                   |     
|ITEM 6 -
EXHIBITS AND REPORTS ON FORM 8-K                          | 20  

2



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PACIFIC BIOMETRICS, INC.CONSOLIDATED BALANCE SHEET December 31, 2002 and June 30, 2002



|                                              |                                                                                                        | 12/31/02    |         | 6/30/02     |  
|--------------------------------------------- | ------------------------------------------------------------------------------------------------------ | ----------- | ------- | ----------- | -
|                                              |                                                                                                        |             |         |             |  
|                                              |                                                                                                        | (unaudited) |         | (audited)   |  
|ASSETS                                        |                                                                                                        |             |         |             |  
|Current assets:                               |                                                                                                        |             |         |             |  
|                                              | Cash and cash equivalents                                                                              |             | $       | 196,730     |  
|                                              | Accounts receivable, net of allowance for doubtful accounts of $25,543                                 |             |         | 722,397     |  
|                                              | Notes receivable from related party                                                                    |             |         | 200,000     |  
|                                              | Prepaid expenses and other                                                                             |             |         | 62,610      |  
|                                              |                                                                                                        |             |         |             |  
|                                              | Total current assets                                                                                   |             |         | 1,181,737   |  
|                                              |                                                                                                        |             |         |             |  
|Property and equipment, net                   |                                                                                                        |             | 195,182 |             |  
|Other assets:                                 |                                                                                                        |             |         |             |  
|                                              | Restricted cash                                                                                        |             |         | 70,696      |  
|                                              | Techology assets                                                                                       |             |         | 476,874     |  
|                                              |                                                                                                        |             |         |             |  
|                                              | Total assets                                                                                           |             | $       | 1,924,489   |  
|                                              |                                                                                                        |             |         |             |  
|LIABILITIES AND STOCKHOLDERS DEFICIT         |                                                                                                        |             |         |             |  
|Current liabilities:                          |                                                                                                        |             |         |             |  
|                                              | Notes payable to related parties                                                                       |             | $       | 187,949     |  
|                                              | Note payable-lease                                                                                     |             |         | 353,976     |  
|                                              | Notes payable other                                                                                    |             |         | 77,110      |  
|                                              | Accounts payable                                                                                       |             |         | 492,451     |  
|                                              | Accrued liabilities                                                                                    |             |         | 357,096     |  
|                                              | Accrued liabilities                                                                                    |             |         |            |  
|                                              | Dividends payable                                                                                      |             |         |            |  
|                                              | Deferred compensation                                                                                  |             |         |            |  
|                                              | Advances from customers                                                                                |             |         | 458,487     |  
|                                              | Technology licenses payable                                                                            |             |         | 2,244,040   |  
|                                              | Capital lease obligations - current portion                                                            |             |         | 33,005      |  
|                                              | Notes payable - current portion                                                                        |             |         | 4,657       |  
|                                              |                                                                                                        |             |         |             |  
|                                              | Total current liabilities                                                                              |             |         | 4,208,771   |  
|Capital lease obligations - long term portion |                                                                                                        |             | 8,124   |             |  
|Notes payable - long term portion             |                                                                                                        |             | 240,343 |             |  
|                                              |                                                                                                        |             |         |             |  
|                                              | Total liabilities                                                                                      |             |         | 4,457,238   |  
|                                              |                                                                                                        |             |         |             |  
|Stockholders deficit:                        |                                                                                                        |             |         |             |  
|                                              | Preferred stock, $0.01 par value, 5,000,000 shares authorized, 1,550,000 shares issued and outstanding |             |         | 15,500      |  
|                                              | Common stock, $0.01 par value, 30,000,000 shares authorized, 25,304,009 shares issued and
outstanding  |             |         | 254,540     |  
|                                              | Additional paid-in capital preferred stock                                                             |             |         | 5,000,966   |  
|                                              | Additional paid-in capital common stock                                                                |             |         | 15,221,923  |  
|                                              | Accumulated deficit                                                                                    |             |         | (23,024,976 | )
|                                              | Treasury stock                                                                                         |             |         | (702        | )
|                                              |                                                                                                        |             |         |             |  
|                                              | Total stockholders deficit                                                                            |             |         | (2,532,749  | )
|                                              |                                                                                                        |             |         |             |  
|                                              | Total liabilities and stockholders deficit                                                            |             | $       | 1,924,489   |  
|                                              |                                                                                                        |             |         |             |  
|                                              |                                                                                                        |             |         |             |  

The accompanying notes are an integral part of this consolidated financial statement.

3



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PACIFIC BIOMETRICS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended December 31, 2002 and 2001 (unaudited)

|                                               |                                           | Three Months Ended December 31 |          
|---------------------------------------------- | ----------------------------------------- | ------------------------------ | ---------
|                                               |                                           |                                |          
|                                               |                                           | 2002                           |          
|                                               |                                           |                                |          
|                                               |                                           |                                |          
|Revenues                                       |                                           | $                              | 1,668,307
|                                               |                                           |                                |          
|Operating expenses:                            |                                           |                                |          
|                                               | Laboratory expense and cost of goods sold |                                |          
|                                               | Research and product development          |                                |          
|                                               | Selling, general and administrative       |                                |          
|                                               |                                           |                                |          
|                                               | Total operating expenses                  |                                |          
|                                               |                                           |                                |          
|Operating income                               |                                           |                                | 97,809   
|                                               |                                           |                                |          
|Other income (expense):                        |                                           |                                |          
|                                               | Interest expense                          |                                |          
|                                               | Interest income                           |                                |          
|                                               | Other income                              |                                |          
|                                               | Gain on troubled debt restructure         |                                |          
|                                               |                                           |                                |          
|                                               |                                           |                                | 208,809  
|                                               |                                           |                                |          
|Net earnings                                   |                                           | $                              | 306,618  
|                                               |                                           |                                |          
|Preferred stock dividend accrued               |                                           |                                |         
|                                               |                                           |                                |          
|Net earnings applicable to common stockholders |                                           | $                              | 306,618  
|                                               |                                           |                                |          
|Net earnings per share:                        |                                           |                                |          
|                                               | Basic earnings per share                  |                                | $        
|                                               | Diluted earnings per share                |                                | $        
|                                               |                                           |                                |          
|Weighted average common shares outstanding:    |                                           |                                |          
|                                               | Basic                                     |                                |          
|                                               | Diluted                                   |                                |          
|                                               |                                           |                                |          
|                                               |                                           |                                |          

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

4



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PACIFIC BIOMETRICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Six Months Ended December 31, 2002 and 2001 (unaudited)

|                                               |                                           | Six Months Ended December 31 |           
|---------------------------------------------- | ----------------------------------------- | ---------------------------- | ----------
|                                               |                                           |                              |           
|                                               |                                           | 2002                         |           
|                                               |                                           |                              |           
|                                               |                                           |                              |           
|Revenues                                       |                                           | $                            | 2,563,043 
|                                               |                                           |                              |           
|Operating expenses:                            |                                           |                              |           
|                                               | Laboratory expense and cost of goods sold |                              |           
|                                               | Research and product development          |                              |           
|                                               | Selling, general and administrative       |                              |           
|                                               |                                           |                              |           
|                                               | Total operating expenses                  |                              |           
|                                               |                                           |                              |           
|Operating loss                                 |                                           |                              | (672,082  
|                                               |                                           |                              |           
|Other income (expense):                        |                                           |                              |           
|                                               | Interest expense                          |                              |           
|                                               | Interest income                           |                              |           
|                                               | Other income                              |                              |           
|                                               | Gain on troubled debt restructure         |                              |           
|                                               |                                           |                              |           
|                                               |                                           |                              | 199,292   
|                                               |                                           |                              |           
|Net earnings (loss)                            |                                           | $                            | (472,790  
|                                               |                                           |                              |           
|Preferred stock dividend accrued               |                                           |                              |          
|                                               |                                           |                              |           
|Net loss applicable to common stockholders     |                                           | $                            | (472,790  
|                                               |                                           |                              |           
|Net loss per share:                            |                                           |                              |           
|                                               | Basic and diluted (loss) per share        |                              |           
|                                               |                                           |                              |           
|Number of shares used in per-share calculation |                                           |                              | 18,382,585
|                                               |                                           |                              |           
|                                               |                                           |                              |           

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

5



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PACIFIC BIOMETRICS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended December 31, 2002 and 2001 (unaudited)

|                                               |  | Three Months Ended December 31 |         
|---------------------------------------------- |  | ------------------------------ | --------
|                                               |  |                                |         
|                                               |  | 2002                           |         
|                                               |  |                                |         
|                                               |  |                                |         
|Cash (used) provided by operating activities   |  | $                              | (258,703
|Cash used by investing activities              |  |                                | (23,017 
|Cash provided (used) by financing activities   |  |                                | (17,811 
|                                               |  |                                |         
|Net change in cash and cash equivalents        |  |                                | (299,531
|Cash and cash equivalents, beginning of period |  |                                | 496,261 
|                                               |  |                                |         
|Cash and cash equivalents, end of period       |  | $                              | 196,730 
|                                               |  |                                |         

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

6



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PACIFIC BIOMETRICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended December 31, 2002 and 2001 (unaudited)

|                                               |  | Six Months Ended December 31 |        
|---------------------------------------------- |  | ---------------------------- | -------
|                                               |  |                              |        
|                                               |  | 2002                         |        
|                                               |  |                              |        
|                                               |  |                              |        
|Cash provided (used) by operating activities   |  | $                            | (2,600 
|Cash used by investing activities              |  |                              | (34,515
|Cash (used) provided by financing activities   |  |                              | (37,106
|                                               |  |                              |        
|Net change in cash and cash equivalents        |  |                              | (74,221
|Cash and cash equivalents, beginning of period |  |                              | 270,951
|                                               |  |                              |        
|Cash and cash equivalents, end of period       |  | $                            | 196,730
|                                               |  |                              |        

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

7



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PACIFIC BIOMETRICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.    Organization and Basis of Presentation

Pacific Biometrics, Inc., a Delaware corporation (PBI or the Company), provides specialty reference laboratory services to the pharmaceutical and diagnostics
industries.  The Company had previously been engaged in the development and commercialization of non-invasive diagnostics to improve the detection and management of chronic diseases.  Due to a lack of significant resources, the Company has
suspended such activities for the foreseeable future.  The Company has developed two patented platform technologies that permit the use of sweat and saliva as diagnostic fluids. Except for the revenues from laboratory services, nominal revenues
have been generated from the Companys products.  In prior years, the Company was considered to be a development stage enterprise, but since the laboratory services now constitute the majority of the Companys commercial efforts, the
Company is no longer considered to be in the development stage effective April 1, 2002.

The Company was incorporated in Delaware in May 1996. The Company conducts its business through its wholly
owned subsidiaries, Pacific Biometrics, Inc., a Washington corporation (PBI-WA) and BioQuant, Inc., a Michigan corporation (BioQuant).  On June 28, 1996, the Company completed two mergers (the Mergers)
whereby BioQuant and PBI-WA became wholly owned subsidiaries of the Company in separate stock-for-stock exchange transactions. 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.  The accompanying unaudited financial statements and related notes should be read in conjunction with the audited financial statement and the Form 10-KSB of Pacific Biometrics, Inc. and notes thereto, for its fiscal year ended
June 30, 2002.

2.    Summary of Significant Accounting Policies

Technology Licenses

The Company has licensed exclusive rights, related to bone resorption in human perspiration, to use patented anti-pyridinium crosslinks antibody technology (this is an exclusive worldwide license excluding Japan). 
Licensing fees with respect to this antibody technology have been fully amortized. However, certain disputes remain related to unpaid balances due under the license agreement.

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

In connection with the Asset Purchase Agreement, on August 28, 2002 (see Note 6),
the Company acquired, from Saigene Corporation (Saigene), a DNA technology platform called LIDA (Logarithmic Isothermal DNA Amplification). LIDA is a chemistry designed to rapidly replicate DNA. The Company also acquired from Saigene
another technology relating to Cell Viability, a chemistry platform that can distinguish a live cell from a dead cell. Applications for this technology could include antibiotic susceptibility testing, sterility testing and environmental monitoring
in the water and beverage industries.  The LIDA and cell viability technologies, once fully developed, will be amortized on a straight-line basis over their estimated useful lives.

Risks and
Uncertainties

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

Additionally, the Companys securities have been delisted from the NASDAQ Stock Market.

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

8



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3.    Going Concern

Although the Company was profitable in the year ended June 30, 2002, it has
experienced recurring losses from operations over the last six months and in prior years and has had cash flow shortages. Additionally, the Company has deficiencies in working capital and stockholders equity. Also, the Company has significant
amounts of past due debt.  These matters raise substantial doubt about the Companys ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this
uncertainty.

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.  These steps include expansion of business development efforts, suspension of research and development projects, and renegotiations of contractual commitments. In addition, the purchase of certain assets (primarily intangible assets)
of Saigene, which concluded on August 28, 2002, includes restructuring of debt and equity that the Company believes will assist them in raising future capital (see Note 6).

The Company has
significant debts and claims that need to be settled.  The Company will attempt to settle outstanding debts with cash generated from its operations, with stock, and/or with technology assets.  There can be no assurance that the Company
will be successful in these negotiations and may have to seek protection from creditors under the bankruptcy laws.

4.    Earnings Per Share

Basic earnings per share is computed on the basis of 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 using the treasury stock method.

The components of basic and diluted earnings (loss) per share were as follows:

EARNINGS (LOSS) PER SHARE

|                                                          |               | Three Months Ended Dec. 31 |            | Six Months Ended Dec. 31 |  
|--------------------------------------------------------- | ------------- | -------------------------- | ---------- | ------------------------ | -
|                                                          |               |                            |            |                          |  
|                                                          |               | 2002                       |            | 2001                     |  
|                                                          |               |                            |            |                          |  
|Net earnings (loss) available for common shareholders (A) |               | $                          | 306,618    |                          | $
|Weighted average outstanding shares of common stock (B)   |               |                            | 25,304,009 |                          |  
|Common stock and common stock equivalents (C)             |               |                            | 25,900,786 |                          |  
|Earnings (loss) per share:                                |               |                            |            |                          |  
|                                                          | Basic (A/B)   |                            | $          | 0.01                     |  
|                                                          | Diluted (A/C) |                            | $          | 0.01                     |  
|                                                          |               |                            |            |                          |  

For the three months ended December 31, 2001 and 2002, 1,084,642 and 1,157,744 shares attributable
to outstanding stock options were excluded from the calculation of diluted earnings per share because the effect was antidilutive.

5.    Commitments and
Contingencies

Legal Proceedings

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

9



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10-QSB for its quarters ended March 31, September 30, and December 31, 2000; and (3) such other periodic reports which may become due prior to the entry of the Final Judgment,
and (b) file timely and in proper form with the SEC accurate and complete information and reports of the Company as are required to be filed under the securities laws. All such reports were filed on June 29, 2001 and since that date has filed all
such subsequent reports by the required due dates.  Accordingly, the Company believes it is currently in compliance with the Final Judgment and it intends to remain so in the future, failing which the Company might be subject to sanctions from
the SEC.

On September 24, 1997, the Company received from the former manufacturer of SPINPRO® a demand for arbitration in connection with alleged breaches of the contract relating to the
manufacture of SPINPRO®.  The former manufacturer is seeking damages of approximately $515,000.  The Company does not believe that the claims have any merit and believes that the ultimate outcome of this proceeding will not have a
material impact on the Company. The Company is vigorously contesting such claims and has filed counterclaims against the former manufacturer. The former manufacturer has subsequently made no effort to prosecute its claim and the Company will move to
dismiss this action. No amounts have been accrued for this potential liability in the accompanying financial statements.

The landlord of the office and laboratory space previously leased by the
Company in Lake Forest, California obtained a judgment against the Company for approximately $150,000 related to the default on the lease. In addition, liabilities continued to accrue at the rate of approximately $13,000 per month until the space
was leased. The total liability to the Company was estimated to be approximately $350,000 and was recorded in 1999.  In March 2000, Saigene purchased from the landlord of the Lake Forest property, in exchange for a convertible promissory note
in the principal amount of $350,000, the rights to all claims and judgments rendered against the Company related to its default on the Lake Forest lease, subject to the sale of the Companys laboratory assets to Saigene. However, due to the
uncertainty surrounding the possible reassignment by Saigene of its obligations to the landlord if the sale of the laboratory assets to Saigene was not completed and the uncertainty of Saigenes obligations to the Company regarding payment of
this debt, the Company did not remove this liability from its balance sheet. On August 28, 2002, pursuant to the Asset Purchase Agreement (Note 6), the Company assumed the promissory note obligations of Saigene.  On September 5, 2002, the
Company was notified of certain defaults under the assumed Saigene obligation as well as a promissory note of the Company in favor of the landlord in the principal amount of $15,000. Although the Company is in active discussions with the landlord
regarding this obligation, no assurance can be given that the Company will be successful in negotiating a favorable arrangement. Accordingly, should the landlord seek to enforce its rights to collect amounts owed, the Company will likely incur
significant legal costs in defending any such action and may not have sufficient funds to pay any adverse judgment should the landlord prevail in any such action. As of December 31, 2002, approximately $437,000 has been accrued relating to this
liability in the accompanying financial statements.  Pending negotiation of a final settlement of this obligation, the Company is reducing the amount remaining under the promissory note by making payments of approximately $50,000 per
quarter.  As of December 2002, the remaining balance owing is approximately $354,000 and has been fully accrued in the accompanying financial statements.

The Company had an exclusive worldwide
license for the use of a transdermal perspiration collection device for all medical diagnostic applications of Sudormeds skin patch technology.  This license allowed for the development of all other potential applications of such
technology, except for those relating to alcohol and drugs of abuse. Pursuant to the license agreement, the Company had agreed to pay Sudormed approximately $3 million over a fifteen-month period plus an ongoing royalty payment based on the amount
of sales of products developed under this license.  Such payments included a lump-sum payment of $1.6 million due in December 1998, which was not paid.  Current maturities under the technology license payable total $2,244,040 as shown in
the accompanying balance sheet.

In May 2000, 3M notified the Company that, in its capacity as a secured party in possession of the Sudormed assets, it demands payment in full of the $1.6 million
plus accrued interest and fees due under the License Agreement between the Company and Sudormed. The Company disputes 3Ms demand. If 3M commences legal action against the Company, the Company may have no alternative but to seek protection from
creditors under the bankruptcy laws.

6.    Saigene Investment Transaction

On June 27, 2002, the Company, and its
wholly-owned subsidiary, Pacific Biometrics, Inc., a Washington corporation  (PBI-WA), entered into an Asset Purchase Agreement, as amended by Amendment Number One to Asset Purchase Agreement, dated as of August 28, 2002
(collectively, the Asset Purchase Agreement) with Saigene, providing for the purchase by PBI-WA of certain technology, intellectual property and equipment assets in connection with certain DNA amplification and cell viability and related
technologies and processes. On August 28, 2002, pursuant to the Asset Purchase Agreement, as consideration for the purchased assets, the Company issued to Saigene 19,624,292 shares, and to certain of Saigenes designees an additional 1,375,708
shares, of PBIs common stock, par value $.01 per share.

10



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Subsequent to the closing of the transactions contemplated by the Asset Purchase Agreement, Saigene proposed a contribution of approximately $600,000 (in the form of cash,
reduction of payments due from the Company to Saigene, or a combination thereof or as otherwise determined by Saigene) to the Company toward the development and commercialization of certain technologies acquired by the Company from Saigene in
connection with the Asset Purchase Agreement.  On December 19, 2002, Saigene entered into an agreement with the Company in which Saigene (i) executed a promissory note in the principal amount of $200,000 in favor of the Company payable on or
before September 30, 2003, either in cash or by the tender of shares of common stock of the Company currently held in Saigenes name at an attributed value of $1.00 per share at Saigenes election, (ii) forgave a creditor obligation
assumed by the Company from Saigene pursuant to the Asset Purchase Agreement in the aggregate amount of approximately $229,000, (iii) settled a credit obligation in the aggregate amount of approximately $150,000, and  (iv) tendered 30,000
shares of common stock of the Company held in Saigenes name. As a result of the December 19, 2002 agreement, an adjustment to decrease the value of the acquired technology assets in the approximate amount of $430,000 was recorded.

7.    Stock Options  Variable Accounting

On May 3, 2002, the Board of Directors voted to reprice all outstanding options to
purchase Common Stock to the then current market price, which was $.02 on that day.  As of December 31, 2002, 555,087 of these options remained outstanding.  For the six months ended December 31, 2002, the Company recognized approximately
$72,000 in expense to adjust these options to fair market value.  In the future, the net income of the Company on a quarterly basis may be affected by fluctuations in the market value of the Companys Common Stock.  If the market
price of the Companys Common Stock increases, the Company will recognize expense for the number of options outstanding times the incremental increase in per share stock value.

8.    Troubled Debt Restructure - Transamerica

In April 1997, the Company entered into a capital equipment leasing facility with Transamerica
Business Credit Corporation (Transamerica) to provide credit for equipment purchases up to $1,500,000. The Company issued warrants to purchase 51,429 shares of Common Stock to Transamerica as part of this agreement. The Company
negotiated forbearance agreements with Transamerica Business Credit related to payments due on capital leases. In exchange for the first forbearance agreement, the warrants to purchase 51,429 shares of Common Stock were repriced to $0.50 per share
in December 1998.  No discount was recorded for the value of the warrants because the amount was not material. In exchange for the most recent Forbearance Agreement, dated August 1999, the Company had repriced warrants previously issued to
Transamerica to $0.0625, and had granted Transamerica a lien position on the assets of the Company.  This Forbearance Agreement expired on September 30, 1999, and was extended again through December 31, 1999, in exchange for 150,508 additional
warrants.  Although the Forbearance Agreement had expired, Transamerica has not taken action to collect the debt, which approximated $470,000 as of December 2002. In December 2002, the Company and Transamerica restructured the Companys
debt obligation of approximately $470,000.  In settlement of its prior obligations, the Company issued 150,000 shares of restricted common stock with a market price of $0.15 to Transamerica and entered into a promissory note payable to
Transamerica in the principal amount of $245,000.  The Promissory Note carries an interest rate of approximately 10% and is payable over a 36-month period with final payment due on October 1, 2005. Title to the previously leased assets, subject
to security interest retained by Transamerica, was conveyed to the Company as part of the Restructure Agreement.  A gain of approximately $165,500 on the troubled debt restructure was recognized in December 2002 and is reflected in other income
on the accompanying Statement of Operations.

9.    Makena Properties Notes
Payable

The landlord of the office and laboratory space previously leased by the Company in Lake Forest, California obtained a judgment against the Company for approximately $150,000 related to
the default on the lease. In addition, liabilities continued to accrue at the rate of approximately $13,000 per month until the space was leased. The total liability to the Company was estimated to be approximately $350,000 and was recorded in
1999.  In March 2000, Saigene purchased from the landlord of the Lake Forest property, in exchange for a convertible promissory note in the principal amount of $350,000, the rights to all claims and judgments rendered against the Company
related to its default on the Lake Forest lease, subject to the sale of the Companys laboratory assets to Saigene. However, due to the uncertainty surrounding the possible reassignment by Saigene of its obligations to the landlord if the sale
of the laboratory assets to Saigene was not completed and the uncertainty of Saigenes obligations to the Company regarding payment of this debt, the Company did not remove this liability from its balance sheet.

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On August 28, 2002, pursuant to the Asset Purchase Agreement (Note 6), the Company assumed the promissory note obligations of Saigene.  On September 5, 2002, the Company
was notified of certain defaults under the assumed Saigene obligation as well as a promissory note of the Company in favor of the landlord in the principal amount of $15,000.  As of December 31, 2002, approximately $437,000 has been accrued
relating to this liability in the accompanying financial statements.  Pending negotiation of a final settlement of this obligation, the Company is reducing the amount remaining under the promissory note related to the judgment by making
payments of approximately $50,000 per quarter.  As of December 2002, the remaining balance owing is approximately $354,000 and has been fully accrued in the accompanying financial statements.

Interest accrues monthly on the promissory note with a principal amount of $15,000.  The principal and interest balance for this note as of December 2002, is approximately $24,000 and is reflected in the accompanying
financial statements.

10.    Recently Issued Accounting Standards

The FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections, on April 30, 2002. Statement No. 145 rescinds Statement No.4, which required all gains and losses from extinguishments of debt to be aggregated and,
if material, classified as an extraordinary item, net of related income tax effect. Upon adoption of Statement No. 145, companies will be required to apply the criteria in APB Opinion No. 30, Reporting the Results of Operations - reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions in determining the classification of gains and losses resulting from the extinguishments of debt. Statement No. 145
is effective for fiscal years beginning after May 15, 2002. The initial application of SFAS 145 is not expected to have an impact on the Companys financial statements.

In June 2002, the FASB
issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or
disposal activity. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The initial application of SFAS 146 is not expected to have an impact on the Companys financial
statements.

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ITEM 2.     Managements Discussion and Analysis or Plan of Operation.

The following discussion and
analysis should be read in conjunction with the preceding consolidated financial statements and notes in this Form 10-QSB and in conjunction with the financial statements and notes thereto for the year ended June 30, 2002, included in the
Companys Annual Report on Form 10-KSB.

When used in this Form 10-QSB, the words expects, anticipates, estimates, believe, may,
will, should, anticipate, estimate, expect, intend, objective, seek, plan, strive, or similar words, or the negatives of these
words, are intended to identify forward-looking statements.  These statements, which include statements as to our critical accounting policies, 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, the features and benefits of our products, 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, are
subject to risks and uncertainties that could cause actual results to differ materially from those projected.  These risks and uncertainties include, but are not limited to, fluctuations in general economic conditions, the concentration of
business with large clients, changes in policies by regulatory agencies, the ability to develop new technology and introduce new products, the risk of bankruptcy and competition.  These forward-looking statements speak only as of the date
hereof. The Company cautions readers not to place undue reliance on any such forward-looking statements.  The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Companys expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.  For additional factors that can affect these
forward-looking statements, see Risk Factors on page 9 of the Companys Annual Report on Form 10-KSB for the period ending June 30, 2002.

Overview

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

PBI provides specialty reference laboratory services to the pharmaceutical and diagnostics industries.  The Company had previously been engaged in the development and
commercialization of non-invasive diagnostics to improve the detection and management of chronic diseases, which commercialization efforts have been terminated due to the Companys inability to obtain FDA approval for its OsteoPatch®
product and lack of necessary funding.

Expenses consist, and are expected to continue to consist, primarily of operating expenses necessary for the laboratory operations and corporate
overhead.

On June 27, 2002, the Company, and its wholly-owned subsidiary, Pacific Biometrics, Inc., a Washington corporation  (PBI-WA), entered into an Asset Purchase Agreement, as
amended by Amendment Number One to Asset Purchase Agreement, dated as of August 28, 2002 (collectively, the Asset Purchase Agreement) with Saigene Corporation (Saigene), providing for the purchase by PBI-WA of certain
technology, intellectual property and equipment assets in connection with certain DNA amplification and cell viability and related technologies and processes, and the assumption of certain liabilities. On August 28, 2002, pursuant to the Asset
Purchase Agreement, as consideration for the purchased assets, the Company issued to Saigene 19,624,292 shares, and to certain of Saigenes designees an additional 1,375,708 shares, of PBIs common stock, par value $.01 per share.

Subsequent to the closing of the transactions contemplated by the Asset Purchase Agreement, Saigene proposed a contribution of approximately $600,000 (in the form of cash, reduction of payments due
from the Company to Saigene, or a combination thereof or as otherwise determined by Saigene) to the Company toward the development and commercialization of certain technologies acquired by the Company from Saigene in connection with the Asset
Purchase Agreement.  On December 19, 2002, Saigene entered into an agreement with the Company in which Saigene (i) executed a promissory note in the principal amount of $200,000 in favor of the Company payable on or before September 30, 2003,
either in cash or by the tender of shares of common stock of the Company currently held in Saigenes name at an attributed value of $1.00 per share at Saigenes election, (ii) forgave a creditor obligation assumed by the Company from
Saigene pursuant to the Asset Purchase Agreement in the aggregate amount of approximately

13



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$229,000, (iii) settled a credit obligation in the aggregate amount of approximately $150,000, and  (iv) tendered 30,000 shares of common stock of the Company held in
Saigenes name.

On September 5, 2002, the Company was notified of certain defaults under an assumed Saigene obligation as well as a promissory note of the Company in favor of the landlord in
the principal amount of $15,000. Although the Company is in active discussions with the landlord regarding this obligation, no assurance can be given that the Company will be successful in negotiating a favorable arrangement. Accordingly, should the
landlord seek to enforce its rights to collect amounts owed, the Company will likely incur significant legal costs in defending any such action and may not have sufficient funds to pay any adverse judgment should the landlord prevail in any such
action. As of December 31, 2002, approximately $437,000 has been accrued relating to this liability in the accompanying financial statements.  Pending negotiation of a final settlement of this obligation, the Company is reducing the amount
remaining under the promissory note by making payments of approximately $50,000 per quarter.  As of December 2002, the remaining balance owing is approximately $354,000.

In connection with the
asset purchase transaction, PBI-WA and Saigene executed an Option Agreement whereby PBI-WA may purchase certain additional assets of Saigene in exchange for, at PBI-WAs election, either $5,147,118 in cash, the issuance by PBI of an additional
5,147,118 shares of Common Stock, or a combination of cash and shares, and the assumption of additional liabilities associated with such transferred assets.

Further, in connection with the
consummation of the transactions contemplated by the Asset Purchase Agreement: (1) the parties executed an amendment to the Management Agreement whereby Saigene will continue to operate the PBI-WA laboratory in exchange for monthly payments by PBI
to Saigene equal to $90,000, which arrangement may be terminated by either PBI or Saigene upon 30 days prior written notice; (2) the Purchase Agreement dated June 22, 2000, relating to the purchase by Saigene of the laboratory operations of PBI-WA
was terminated; (3) the holders of PBIs Preferred Stock consented to an amendment of the Certificate of Designation with respect to the rights and preferences of the Preferred Stock and converted all accrued dividends thereon into an aggregate
of 450,000 shares of Common Stock; (4) PBI entered into consulting arrangements with Paul Kanan and Terry Giles; (5) PBI converted $904,626 of deferred compensation and notes payable to warrants and options to purchase an aggregate of 904,626 shares
of Common Stock; and (6) each of Saigene, Paul Kanan, Terry Giles and Burkhalter, Michaels, Kessler & George, LLP, agreed, for a period of one year, not to sell any PBI securities, except at a price per share equal to or greater than $1.00, in a
private transaction, in a transaction solely for estate planning, or, in the event PBI completes a private financing, at a per share price equal to or greater than the per share price set forth in such private financing.

In February 2002, PBI-WA entered into a master services agreement with a large pharmaceutical company to provide laboratory research services based on specifications to be included in one or more work orders submitted by such
pharmaceutical company from time to time.  For the six months ending December 31, 2002, the Company provided services under this arrangement aggregating approximately $1,860,000.  The Company has received additional work orders for
services to be rendered during fiscal 2003 anticipated to aggregate approximately $4 million during the Companys fiscal year.  Services provided for this client accounted for approximately 84% of the companys outstanding Accounts
Receivable balance of $722,397 at December 31, 2002.

On May 3, 2002, the Board of Directors voted to reprice all outstanding options to purchase Common Stock to the then current market price, which
was $.02 on that day.  As of December 31, 2002, 555,087 of these options remained outstanding.  For the six months ended December 31, 2002, the Company recognized approximately $72,000 in expense to adjust these options to fair market
value.  In the future, the net income of the Company on a quarterly basis may be affected by fluctuations in the market value of the Companys Common Stock.  If the market price of the Companys Common Stock increases, the
Company will recognize expense for the number of options outstanding times the incremental increase in per share stock value.  In addition, the earnings per share on a fully diluted basis may be affected by the inclusion of the options in such
calculation.

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Results of Operations:

Comparison of the three and six month periods ended December 31, 2002, to the three and six month
periods ended December 31, 2001:

|Rounded to Nearest Thousand Dollars    |  |   | Three Months |   |   | Six Months |    | Comments on increase or decrease from prior period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-------------------------------------- |  | - | ------------ | - | - | ---------- | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                       |  |   |              |   |   |            |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                       |  |   |              |   |   |            |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Revenues:                              |  |  
|Ended 12/31/2002                       |  | $ | 1,668        |   | $ | 2,563      |    | Laboratory revenues increased primarily due to an increase in the size and number of clinical trials. One customer accounted for approximately 73% and 56% of the
revenues for the six months ended December 31, 2002 and 2001, respectively.  The Company has no long-term contracts or agreements with its customers. Each contract is negotiated separately with the pharmaceutical manufacturer or research
organization and is usually limited to a specific project with limited duration. The cancellation of any contracts with existing customers or the failure to replace such contracts upon expiration or termination could have a material adverse effect
on the Companys laboratory operations.
|Ended 12/31/2001                       |  | $ | 744          |   | $ | 1,117      |   
|$ variance                             |  | $ | 924          |   | $ | 1,446      |   
|% variance                             |  |   | 124          | % |   | 129        | % 
|                                       |  |   |              |   |   |            |   
|                                       |  |   |              |   |   |            |   
|                                       |  |   |              |   |   |            |   
|                                       |  |   |              |   |   |            |   
|                                       |  |   |              |   |   |            |   
|                                       |  |   |              |   |   |            |   
|                                       |  |   |              |   |   |            |   
|                                       |  |   |              |   |   |            |   
|                                       |  |  
|Laboratory expenses and cost of sales: |  |  
|Ended 12/31/2002                       |  | $ | 629          |   | $ | 1,196      |    | Laboratory expenses and cost of goods sold, including salaries, supplies and outside services have increased as a result of the increase in laboratory testing and
consulting activity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Ended 12/31/2001                       |  | $ | 365          |   | $ | 624        |   
|$ variance                             |  | $ | 264          |   | $ | 572        |   
|% variance                             |  |   | 72           | % |   | 92         | % 
|                                       |  |   |              |   |   |            |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Research and product development:      |  |  
|Ended 12/31/2002                       |  | $ | 37           |   | $ | 70         |    | Research and development operations have been curtailed and no longer constitute a significant portion of the Companys operations. However, in connection with
the acquisition of the Saigene assets and technologies, the Company did add personnel and salaries expense in this area and will incur significant research and development costs in the future assuming funding is available.                                                                                                                                                                                                                                                                                                                 
|Ended 12/31/2001                       |  | $ | 4            |   | $ | 8          |   
|$ variance                             |  | $ | 33           |   | $ | 62         |   
|% variance                             |  |   | 825          | % |   | 775        | % 
|                                       |  |   |              |   |   |            |   
|                                       |  |   |              |   |   |            |   
|                                       |  |   |              |   |   |            |   
|                                       |  |   |              |   |   |            |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Selling, general and administrative:   |  |  
|Ended 12/31/2002                       |  | $ | 905          |   | $ | 1,970      |    | Selling, general and administrative expenses reflect non-recurring recruiting expenses for two upper management hires, increased legal and administrative costs
relating to the Saigene asset acquisition, higher commissions and bonus expenses, and a non-cash adjustment of approximately $72,000 to adjust certain stock options to fair market value.                                                                                                                                                                                                                                                                                                                                                     
|Ended 12/31/2001                       |  | $ | 305          |   | $ | 579        |   
|$ variance                             |  | $ | 600          |   | $ | 1,391      |   
|% variance                             |  |   | 197          | % |   | 240        | % 
|                                       |  |   |              |   |   |            |   
|                                       |  |   |              |   |   |            |   
|                                       |  |   |              |   |   |            |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Total other income (expense):          |  |  
|Ended 12/31/2002                       |  | $ | 209          |   | $ | 199        |    | Other income has increased primarily due to a gain realized from the  restructure of certain debt and reassessment of other accrued costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Ended 12/31/2001                       |  | $ | 70           |   | $ | 113        |   
|$ variance                             |  | $ | 139          |   | $ | 86         |   
|% variance                             |  |   | 199          | % |   | 76         | % 
|                                       |  |   |              |   |   |            |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Net income (loss):                     |  |  
|                                       |  |  
|Ended 12/31/2002                       |  | $ | 307          |   | $ | (473       | )  | Despite increased revenue for the six month 2002 period, as compared to 2001, net income decreased due to the increase in management fees payable to Saigene relating
to the Seattle lab.  For the three month 2002 period the net income increase is due in part to the gain realized from the restructure of certain debt.                                                                                                                                                                                                                                                                                                                                                                                   
|Ended 12/31/2001                       |  | $ | 140          |   | $ | 18         |   
|$ variance                             |  | $ | 167          |   | $ | (491       | ) 
|% variance                             |  |   | 119          | % |   | (273       | )%
|                                       |  |   |              |   |   |            |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

Liquidity and Capital Resources:

Financing Activities

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

On February 20, 1998, the Company
consummated the sale of 925,000 shares of Preferred Stock to two institutional investors for an aggregate purchase price of $1,850,000.  In addition, the Company granted such institutional investors an option (the Option) to
purchase an additional 625,000 shares of Preferred Stock until May 20, 1998, for an exercise price of $1,250,000.  The Option was exercised in full during May 1998.  Terry Giles, a former director of the Company, purchased 950,000 shares
of the Preferred Stock from the original institutional investors. The Preferred Stock is convertible into shares of the Companys Common Stock at the option of the holder at any time on a one-for-one basis, subject to adjustment for stock
splits, dividends and similar events. The cumulative cash dividend on the Preferred Stock was eliminated in connection with an amendment to the Companys Certificate of Designation pursuant to the Asset Purchase Agreement and all accrued
dividends in the approximate amount of $910,000 were converted into an

15



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aggregate of 450,000 shares of Common Stock.  The Company has the right to force conversion of the Preferred Stock in the event the price per share of the Common Stock is
$8.00 or more for twenty consecutive trading days.  The amendment to the Certificate of Designation also modified certain mandatory conversion rights and eliminated the right of the holders of the Preferred Stock to designate a director to
PBIs Board.

In April 1997, the Company entered into a capital equipment leasing facility with Transamerica Business Credit Corporation (Transamerica) to provide credit for
equipment purchases up to $1,500,000. The Company issued warrants to purchase 51,429 shares of Common Stock to Transamerica as part of this agreement. The Company negotiated forbearance agreements with Transamerica Business Credit related to
payments due on capital leases. In exchange for the first forbearance agreement, the warrants to purchase 51,429 shares of Common Stock were repriced to $0.50 per share in December 1998.  No discount was recorded for the value of the warrants
because the amount was not material. In exchange for the most recent Forbearance Agreement, dated August 1999, the Company had repriced warrants previously issued to Transamerica to $0.0625, and had granted Transamerica a lien position on the assets
of the Company.  This Forbearance Agreement expired on September 30, 1999, and was extended again through December 31, 1999, in exchange for 150,508 additional warrants.  Although the Forbearance Agreement had expired, Transamerica has not
taken action to collect the debt, which approximated $470,000 as of December 2002. In December 2002, the Company and Transamerica restructured the Companys debt obligation of approximately $470,000.  In settlement of its prior
obligations, the Company issued 150,000 shares of restricted common stock with a market price of $0.15 to Transamerica and entered into a promissory note payable to Transamerica in the principal amount of $245,000.  The Promissory Note carries
an interest rate of approximately 10% and is payable over a 36-month period with final payment due on October 1, 2005. Title to the previously leased assets, subject to security interest retained by Transamerica, was conveyed to the Company as part
of the Restructure Agreement.

Operations

As of December 31, 2002, the Company had cash and cash equivalents of $196,730. 
In addition, the Companys current liabilities exceeded its current assets.  The decrease in the Companys cash and cash equivalents from the prior period is a result of the Companys effort to reduce its liabilities, including
payment of approximately $82,000 during the period to Makena Properties.

Products and Services

In December 1997, the Company
executed a License Agreement (the License Agreement) with Sudormed, Inc. (Sudormed), which provided the Company an exclusive worldwide license to all medical diagnostic applications of Sudormeds skin patch technology.
This License Agreement replaced the Companys previous license agreement with Sudormed for the skin patch technology for the application of measuring bone loss markers in sweat, which is the basis for the Companys OsteoPatch®
system.  In addition, the License Agreement allowed for the development of all other potential applications of such technology, except for those relating to alcohol and drugs of abuse.

In May 1998, the Company received a letter from the FDA in response to its 510(k) application for the OsteoPatch® device notifying the Company that the agency did not find the device to be substantially equivalent to the
predicate device, a urine test marketed by Metra Biosystems.  Despite numerous discussions and a meeting with the FDA in July 1998, the Company was unable to reverse the agencys decision or negotiate requirements for additional data that
were within the Companys financial ability to perform.  Due to lack of funds, the Company ceased development activities on the OsteoPatch® device in August 1998.

In December
1998, the Company failed to make a payment of $1.6 million to Sudormed, the licensor of the patch technology relating to the SweatPatch® and OsteoPatch®, resulting in a default under both the License Agreement and the Supply Agreement with
Sudormed.  Sudormed terminated the License Agreement in May 1999 for failure to make required payments.  The License Agreement permits the Company to retain full license rights as long as the Company has inventory of patches.

The SalivaSac, developed by the Company, collects a non-invasive saliva sample that the Company had hoped would be able to replace blood and urine testing in various applications.  The
Company had been awarded two SBIR Phase I grants to research this technology for non-invasive glucose monitoring.  As a result of this research the Company had used its SalivaSactechnology to research the development of a screening
product to detect diabetes in the general population and a monitoring product to produce detailed quantitative measurements of glucose levels to enable diabetics to monitor glucose levels throughout the day. While previous attempts by others to
correlate saliva glucose with blood glucose have been unsuccessful, the Company has had encouraging preliminary results using the SalivaSac® device, as it appears to exclude substances that interfere with accurate glucose measurements. 
However, almost all development of

16



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the SalivaSac® has been suspended as of December 1998 due to a lack of funding and without additional funding the Company will not be able to successfully develop the
SalivaSac® for such use.  On August 15, 2000, the Company was issued United States Patent No. 6,102,872 for Glucose Detector and Method as a result of the SalivaSac® research conducted earlier.  In September 1999, the Company
received a SBIR Phase I grant to research the use of the SalivaSac® technology for the collection and measurement of homocysteine, a newly discovered marker with potential application for use as a risk factor in heart disease.  The Company
was not able to make any useful discoveries with this Phase I grant and has no plans to file for a Phase II grant for the homocysteine application.

On August 28, 2002, the Company acquired
certain technology from Saigene, including a DNA technology platform called LIDA (Logarithmic Isothermal DNA Amplification), a novel chemistry designed to rapidly replicate DNA, and technology related to Cell Viability, a broad-based and novel
chemistry platform that may be the first molecular method of its kind to rapidly distinguish a live cell from a dead cell.  The Company believes that the acquisition of these technology assets and associated intellectual property will provide
its stockholders with potential future value to the extent the technologies acquired can be successfully developed and exploited.  However, there can be no assurance that this will be the case or that any proposed products will be approved by
the Food and Drug Administration or other government agencies, as applicable, or will not be the subject of litigation or other claims from competitors or others with respect to such products or the patents and methodologies upon which they are
based.

The Companys laboratory in Seattle, Washington has established itself as a technical leader due to its strong expertise in research related to cardiovascular disease (lipids). 
The laboratory services include development of laboratory reference methods, development of clinical trial protocols, and contract research and development.  The Companys laboratory has also developed an expertise in the emerging field of
osteoporosis laboratory assessments through its work with diagnostic manufacturers of assays for bone markers such as Ostex International, Inc. and Metra, in addition to pharmaceutical manufacturers of drugs that prevent bone loss such as Merck
& Co., Inc. and The Procter & Gamble Company.  This work has helped to establish the Companys laboratory as a leader in the understanding of biochemical markers for bone formation and bone resorption.  The laboratory provides
general and specialty biomarker (efficacy) analysis services, as well as full central laboratory services. Special areas of expertise include testing for biomarkers of lipid status and cardiovascular disease risk, osteoporosis and bone metabolism,
and diabetes mellitus. The Companys expertise is concentrated on the measurement of cardiovascular disease markers, especially cholesterol and lipoproteins, including HDL, LDL and, HDL and LDL subfractions, remnant cholesterol,
apolipoproteins, Lp, and lipoprotein fraction compositions.  Diabetes testing includes markers such as glucose, hemoglobin A1c, fructosamine, insulin, C-peptide, glucagon, advanced glycation end-products (AGEs), microalbumin,
non-esterified fatty acid (NEFA), in addition to the lipid markers.  In the areas of bone metabolism, (primarily osteoporosis), and womens health, the Company specializes in the measurement of hormones and biochemical markers of bone
metabolism including pyridinolines, various C- and N- terminal telopeptides, procollagens, osteocalcin and bone specific alkaline phosphatase.  PBI also has an established genetic testing group.  In addition, the Companys laboratory
manages the routine safety profiles: hematology, coagulation, urinalysis and general chemistry.

Future Operating Results

Pursuant to
the License Agreement with Sudormed, the Company was obligated to pay Sudormed approximately $3 million over a fifteen-month period plus an ongoing royalty payment based on the amount of sales of products developed under this license.  Such
payments included a lump-sum payment of $1.6 million due in December 1998.  The Company failed to make the required license payments, resulting in defaults under both the License Agreement (relating to the patch technology) and the Supply
Agreement (relating to production of patches).

The Minnesota Mining and Manufacturing Company (3M) manufactures the patch for PBI pursuant to the Supply Agreement with Sudormed. 
The License Agreement and the Supply Agreement between the Company and Sudormed were both terminated by Sudormed in May 1999 due to the failure of the Company to make required payments.  3M, as a party in possession of secured property of
Sudormed, has not informed the Company of its plans for the Sudormed assets. This includes the SkinPatch® technology rights, which are part of the Companys OsteoPatch® product. The Company had sought to reestablish certain rights to
this technology in order to create additional value for the Companys other intellectual property related to the OsteoPatch®. Without an agreement with 3M, the Companys OsteoPatch® assets may not have any value.  The Company
expensed all of these assets in 1999.  In May 2000, 3M notified the Company that, in its capacity as a secured party in possession of the Sudormed assets, it demands payment in full of the $1.6 million plus accrued interest and fees due under
the License Agreement between the Company and Sudormed.  The Company disputes 3Ms demand.  If 3M commences a legal action against the Company, the Company may have no alternative than to seek protection from creditors under the
bankruptcy laws.  In that event the Company would consider suing 3M for damages to shareholders and creditors as a result of this action.

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On August 29, 2002, in connection with the Asset Purchase Agreement, the Company terminated the Purchase Agreement with Saigene relating to the proposed purchase by Saigene of
the Companys laboratory. Also in connection with the Asset Purchase Agreement, the Management Agreement, giving Saigene operational control of the Companys laboratory, was amended whereby Saigene will continue to operate the PBI-WA
laboratory in exchange for monthly payments by PBI to Saigene equal to $90,000, which arrangement may be terminated by either PBI or Saigene upon 30 days prior written notice.

In May 1999, the
landlord of the office and laboratory space previously leased by the Company in Lake Forest, California, obtained a judgment against the Company for approximately $150,000 related to the default on the lease. In addition, liabilities continued to
accrue at the rate of approximately $13,000 per month until the space was leased. In March 2000, Saigene purchased from the landlord of the Lake Forest property, in exchange for a convertible promissory note in the principal amount of $350,000, the
rights to all claims and judgments rendered against the Company related to its default on the Lake Forest lease, subject to the sale of the Companys laboratory assets to Saigene pursuant to the Purchase Agreement. However, pursuant to the
Asset Purchase Agreement, the Company assumed the payment obligations of Saigene. Due to the uncertainty surrounding the possible reassignment by Saigene of its obligations to the landlord if the sale of the laboratory assets to Saigene was not
completed and the uncertainty of Saigenes obligations to the Company regarding payment of this debt, the Company did not delete this liability from its balance sheet.  On September 5, 2002, the Company was notified of certain defaults
under an assumed Saigene obligation as well as a promissory note of the Company in favor of the landlord in the principal amount of $15,000. Although the Company is in active discussions with the landlord regarding this obligation, no assurance can
be given that the Company will be successful in negotiating a favorable arrangement. Accordingly, should the landlord seek to enforce its rights to collect amounts owed, the Company will likely incur significant legal costs in defending any such
action and may not have sufficient funds to pay any adverse judgment should the landlord prevail in any such action. As of December 31, 2002, approximately $437,000 has been accrued relating to this liability in the accompanying financial
statements.  Pending negotiation of a final settlement of this obligation, the Company is reducing the amount remaining under the promissory note by making payments of approximately $50,000 per quarter.  As of December 2002, the remaining
balance owing is approximately $354,000.

Subsequent to the closing of the transactions contemplated by the Asset Purchase Agreement, Saigene proposed a contribution of approximately $600,000 (in the
form of cash, reduction of payments due from the Company to Saigene, or a combination thereof or as otherwise determined by Saigene) to the Company toward the development and commercialization of certain technologies acquired by the Company from
Saigene in connection with the Asset Purchase Agreement.  On December 19, 2002, Saigene entered into an agreement with the Company in which Saigene (i) executed a promissory note in the principal amount of $200,000 in favor of the Company
payable on or before September 30, 2003, either in cash or by the tender of shares of common stock of the Company currently held in Saigenes name at an attributed value of $1.00 per share at Saigenes election, (ii) forgave a creditor
obligation assumed by the Company from Saigene pursuant to the Asset Purchase Agreement in the aggregate amount of approximately $229,000, (iii) settled a credit obligation in the aggregate amount of approximately $150,000, and  (iv) tendered
30,000 shares of common stock of the Company held in Saigenes name.  Saigene has informed PBI that such contributed amounts combined with currently available cash of PBI will be insufficient to complete either the development or the
commercialization of any products using the acquired technologies. Accordingly, PBI will require additional financing in connection with such development and commercialization efforts.  PBI has been informed by Saigene that such efforts to
complete the validation of the technologies and develop target applications, together with funds needed to support the continued growth of laboratory operations, are likely to require a near term capital infusion in excess of $5,000,000. Moreover,
it is likely that an additional $15,000,000 over the next two years will be required to achieve full regulatory approval and commercialization of both the Saigene technologies acquired under the Asset Purchase Agreement and the technologies to be
acquired under the Option Agreement. The Company intends to seek suitable financing to complete the regulatory approval process and commercialization of the technologies, but there can be no assurance that PBI will be able to obtain such financing
on favorable terms or at all.

In addition to the anticipated capital needs as set forth above, the Company still has various debts and claims that need to be settled.  The Company will attempt
to settle these outstanding debts with cash generated from operations, with stock, and/or with technology assets, if possible. There can be no assurance that the Company will be successful in these negotiations and may have to seek protection from
creditors under the bankruptcy laws.  As a consequence, it is unlikely that investors will receive any return on their investment in PBI.

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ITEM 3.      Controls and Procedures.

The Company maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and that
such information is accumulated and communicated to our management, including our Chief Executive Officer and Treasurer, who is both our principal executive officer and principal financial officer, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired
control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Within 90 days prior to the
date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Treasurer, of the effectiveness of the design and operation of our disclosure controls
and procedures. Based on the foregoing, our Chief Executive Officer and Treasurer concluded that our disclosure controls and procedures were effective.

There have been no significant changes in our
internal controls or in other factors that could significantly affect the internal controls subsequent to the date we completed our evaluation.

PART II  - OTHER INFORMATION

ITEM 1 - Legal Proceedings

On May 10, 2001, a Final Judgment of Permanent Injunction was issued by the United States District Court
for the District of Columbia ordering the Company to (a) file with the SEC, on or before June 29, 2001: (1) the Companys Annual Report on Form 10-KSB for its fiscal year ended June 30, 2000; (2) the Companys Quarterly Reports on Form
10-QSB for its quarters ended March 31, September 30, and December 31, 2000; and (3) such other periodic reports which may become due prior to the entry of the Final Judgment, and (b) file timely and in proper form with the SEC accurate and complete
information and reports of the Company as are required to be filed under the securities laws. All such reports were filed on June 29, 2001 and since that date has filed all such subsequent reports by the required due dates.  Accordingly, the
Company believes it is currently in compliance with the Final Judgment and it intends to remain so in the future, failing which the Company might be subject to sanctions from the SEC.

On September
24, 1997, the Company received from the former manufacturer of SPINPRO® a demand for arbitration in connection with alleged breaches of the contract relating to the manufacture of SPINPRO®.  The former manufacturer is seeking damages
of approximately $515,000.  The Company does not believe that the claims have any merit and believes that the ultimate outcome of this proceeding will not have a material impact on the Company. The Company is vigorously contesting such claims
and has filed counterclaims against the former manufacturer. The former manufacturer has subsequently made no effort to prosecute its claim and the Company will move to dismiss this action. No amounts have been accrued for this potential liability
in the accompanying financial statements.

The landlord of the office and laboratory space previously leased by the Company in Lake Forest, California obtained a judgment against the Company for
approximately $150,000 related to the default on the lease. In addition, liabilities continued to accrue at the rate of approximately $13,000 per month until the space was leased. The total liability to the Company was estimated to be approximately
$350,000 and was recorded in 1999.  In March 2000, Saigene purchased from the landlord of the Lake Forest property, in exchange for a convertible promissory note in the principal amount of $350,000, the rights to all claims and judgments
rendered against the Company related to its default on the Lake Forest lease, subject to the sale of the Companys laboratory assets to Saigene. However, due to the uncertainty surrounding the possible reassignment by Saigene of its obligations
to the landlord if the sale of the laboratory assets to Saigene was not completed and the uncertainty of Saigenes obligations to the Company regarding payment of this debt, the Company did not remove this liability from its balance sheet. On
August 28, 2002, pursuant to the Asset Purchase Agreement (Note 6), the Company assumed the promissory note obligations of Saigene.  On September 5, 2002, the Company was notified of certain defaults under an assumed Saigene obligation as well
as a promissory note of the Company in favor of the landlord in the principal amount of $15,000. Although the Company is in active discussions with the landlord regarding this obligation, no assurance can be given that the Company will be successful
in negotiating a favorable arrangement. Accordingly, should the landlord seek to enforce its rights to collect amounts owed, the Company will likely incur significant legal costs in defending any such action and may not have sufficient funds to pay
any adverse judgment should the landlord prevail in any such action. As of December 31, 2002, approximately $437,000 has been accrued relating to this liability in the accompanying financial statements.  Pending negotiation of a final
settlement of this obligation, the Company is reducing the amount remaining under the promissory note by making payments of approximately $50,000 per quarter.  As of December 2002, the remaining balance owing is approximately
$354,000.

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As previously disclosed, the Company has continued to negotiate forbearance agreements with Transamerica Business Credit related to payments due on capital leases.  In
exchange for the most recent Forbearance Agreement, dated August 1999, the Company had repriced warrants previously issued to Transamerica to $0.0625, and had granted Transamerica a lien position on the assets of the Company.  This Forbearance
Agreement expired on September 30, 1999, and was extended again through December 31, 1999, in exchange for 150,508 additional warrants.  Although the Forbearance Agreement had expired, Transamerica has not taken action to collect the debt,
which approximated $470,000 as of December 2002. In December 2002, the Company and Transamerica restructured the Companys debt obligation of approximately $470,000. In settlement of its prior obligations, the Company issued 150,000 shares of
restricted common stock with a market price of $0.15 to Transamerica and entered into a promissory note payable to Transamerica in the principal amount of $245,000.  The Promissory Note carries an interest rate of approximately 10% and is
payable over a 36-month period with final payment due on October 1, 2005. Title to the previously leased assets, subject to security interest retained by Transamerica, was conveyed to the Company as part of the Restructure Agreement.

The Company had an exclusive worldwide license for the use of a transdermal perspiration collection device for all medical diagnostic applications of Sudormeds skin patch technology.  This license
allowed for the development of all other potential applications of such technology, except for those relating to alcohol and drugs of abuse. Pursuant to the license agreement, the Company had agreed to pay Sudormed approximately $3 million over a
fifteen-month period plus an ongoing royalty payment based on the amount of sales of products developed under this license.  Such payments included a lump-sum payment of $1.6 million due in December 1998, which was not paid.  Current
maturities under the technology license payable total $2,244,040 as shown in the accompanying balance sheet.

In May 2000, 3M notified the Company that, in its capacity as a secured party in
possession of the Sudormed assets, it demands payment in full of the $1.6 million plus accrued interest and fees due under the License Agreement between the Company and Sudormed. The Company disputes 3Ms demand.  If 3M commences legal
action against the Company, the Company may have no alternative but to seek protection from creditors under the bankruptcy laws.

ITEM 2 - Changes in Securities and Use of Proceeds  Not Applicable.

ITEM 3 - Defaults Upon Senior Securities  Not Applicable.

ITEM 4 - Submission of Matters to a Vote of Security Holders Not Applicable.

ITEM 5 - Other Information  Not Applicable.

ITEM 6 - Exhibits and Reports on Form 8-K

| | (a) | Exhibits:  The Exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index, which is attached hereto and incorporated by reference
herein.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                           
| | (b) | No current reports on Form 8-K were filed during the quarter ended December 31, 2002.                                                                                     

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Signatures

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

Dated:     February 13,
2003

|                   |  |                                                              
|------------------ |  | -------------------------------------------------------------
|/s/  RONALDR. HELM |  | Chief Executive Officer                                      
|                   |  | (principal executive officer and principal financial officer)
|Ronald R. Helm     |  |                                                              
|                   |  |                                                              

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CERTIFICATIONS

I, Ronald R. Helm, Chief Executive Officer, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Pacific Biometrics, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrants other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons
performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrants internal controls; and

6. The registrants other certifying officers and I have indicated in this quarterly
report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date:  February 13, 2003

| |  | /s/  RONALDR. HELM                    
| |  | --------------------------------------
| |  |                                       
| |  | Ronald R. Helm Chief Executive Officer
| |  |                                       

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CERTIFICATIONS

I, Ronald R. Helm, Treasurer, certify that:

1.
I have reviewed this quarterly report on Form 10-QSB of Pacific Biometrics, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this quarterly report;

4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons
performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrants internal controls; and

6. The registrants other certifying officers and I have indicated in this quarterly
report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date:  February 13, 2003

| |  | /s/  RONALDR. HELM                                    
| |  | ------------------------------------------------------
| |  |                                                       
| |  | Ronald R. Helm Treasurer (principal financial officer)
| |  |                                                       

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Index of Exhibits

|10.43 |  | Amended and Restated Financing Agreement, dated as of October 1, 2002, by and among Transamerica Technology Finance Corporation, successor in interest to Transamerica Business
Credit Corporation, Pacific Biometrics, Inc., and Saigene Corporation.
|----- | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.44 |  | Restructure Agreement, dated as of October 1, 2002, by and among Transamerica Technology Finance Corporation, successor in interest to Transamerica Business Credit Corporation,
Pacific Biometrics, Inc., and Saigene Corporation.                   
|10.45 |  | Amendment to Warrant Agreements, dated as of October 1, 2002, by and among Transamerica Technology Finance Corporation, successor in interest to Transamerica Business Credit
Corporation, Pacific Biometrics, Inc., and Saigene Corporation.         
|10.46 |  | Promissory Note, dated as of October 1, 2002, in the principal amount of $245,000 in favor of Transamerica Technology Finance Corporation.                                                                                                            
|10.47 |  | Investment Agreement, dated as of December 19, 2002, by and between Saigene Corporation and Pacific Biometrics, Inc.                                                                                                                                  
|99.1  |  | Certification of Ronald 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.                                                                  
|99.2  |  | Certification of Ronald Helm, Treasurer (principal 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.                                                  

________________________________________

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