Second Quarter Revenue Increases 96% to $3.2 Million at Pacific Biometrics

SEATTLE, WA--(Marketwire - February 17, 2009) - Pacific Biometrics, Inc. (OTCBB: PBME), a leading provider of specialized central laboratory and contract research services, today announced significant improvements in its operating results for the second quarter and first half of FY2009.

For the three months ended December 31, 2008 (the second quarter of FY2009), revenue increased 96% to $3,230,913, compared with $1,647,535 in the second quarter of FY2008, and increased 79% when compared with $1,805,042 in the first quarter of FY2009. Operating income improved to $554,505 in the second quarter of FY2009, versus an operating loss of $729,183 in the prior-year period. The Company reported net income of $976,671, or $0.05 per share for the three months ended December 31, 2008, compared with a net loss of $818,219, or $0.04 per share, in the three months ended December 31, 2007.

Revenue for the six months ended December 31, 2008 increased 35% to $5,035,955, compared with $3,729,197 during the corresponding period of the previous fiscal year. Operating income improved to $341,133 in the first half of FY2009, versus an operating loss of $784,636 in the same period last year. Net income for the six months ended December 31, 2008 totaled $970,934, or $0.05 per share, compared with a net loss of $966,784, or $0.05 per share, for the comparable six-month period in FY2008.

“We are very pleased to report one of the strongest quarters in the Company’s history for the three months ended December 31, 2008, with revenue almost doubling that of the prior-year period,” commented Ron Helm, Chief Executive Officer of Pacific Biometrics. Characterizing the present as “an exciting time” for Pacific Biometrics, Mr. Helm continued, “The Company recorded an exceptional 176% improvement in operating income, when compared with last year’s second fiscal quarter, and a 143% increase for the comparable six-month periods. Additionally, we repaid all principal and interest due under our Laurus Master Fund note during December 2008 and ended the quarter with a strong balance sheet. Cash and cash equivalents totaled $1,279,633 as of December 31, 2008, and we are essentially debt-free, aside from a few equipment leases. This better positions the Company to execute its strategic plan for continued growth in the specialty laboratory business and to allocate increased resources to support the growth of our Pacific Biomarkers subsidiary.”

“Our significantly improved operating performance was primarily due to an increase in the volume of clinical-trial testing services we performed during the second quarter. The success of our business development activities over the past few years has expanded and diversified our client base and has increased requests for our services, translating into improved revenues. Supported by the $987,868 in net cash generated by operating activities during the first half of Fiscal 2009, we plan to continue our on-going business development activities for our services.”

“We believe PBI’s financial performance for the second half of Fiscal 2009 will continue to show improvement compared with the second half of Fiscal 2008, despite the vagaries in the clinical trials testing market. During the past several quarters, we have signed large clinical study contracts with some of the biggest pharmaceutical and biotech companies in the world. These contracts, which have added to our backlog, involve our core areas of technological expertise, including cardiovascular disease, diabetes, metabolic syndrome, osteoporosis, and arthritis. Further, with our entry into the biomarker services business, we have added a growth driver in a market segment where demand is strong and there are presently no dominant players,” concluded Helm.

For additional information, see Pacific Biometrics’ annual report filed with the SEC on Form 10-K for the fiscal year ended June 30, 2008 and the quarterly report filed with the SEC on Form 10-Q for the fiscal quarter ended December 31, 2008.

Investor Conference Call

Pacific Biometrics, Inc. has scheduled an investor conference call to discuss its operating results for the second quarter and first half of FY2009, along with other relevant subjects.

Shareholders and other interested parties may listen to the conference call by dialing 800-860-2442 (international/local participants dial 412-858-4600) and requesting the “Pacific Biometrics, Inc. Conference Call” a few minutes before 11:00 a.m. EST on February 18, 2009. A replay of the conference call will be available one hour after the call through February 25, 2009 at 5:00 p.m. EST by dialing 877-344-7529 (international/local participants dial 412-317-0088) and entering the Conference ID 427864.

About Pacific Biometrics, Inc. (PBI)

Established in 1989, PBI provides specialized central laboratory and contract research services to support pharmaceutical and diagnostic manufacturers conducting human clinical trial research, including expert services in the areas of cardiovascular disease, diabetes, osteoporosis, arthritis, and nutrition. The PBI laboratory is accredited by the College of American Pathologists, New York State, and the Lipid Standardization Program. PBI’s clients include many of the world’s largest pharmaceutical, biotech, and diagnostic companies.

Pacific Biomarkers, a wholly owned subsidiary of PBI, focuses specifically on the emerging field of biomarker assay development and testing. Services include validating and performing ligand-binding assays for novel clinical biomarkers, immunogenicity testing, and multiplex testing.

PBI is headquartered in Seattle, Washington, and its common stock trades on the OTC Bulletin Board under the symbol “PBME.” For more information about PBI, visit the company’s web site at www.pacbio.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This press release includes forward-looking statements including, but not limited to, the following: growth in revenues and backlog; results of business development activities; financial results; future growth; and the viability and acceptance of its established and new services, including the Company’s biomarker services. These forward-looking statements are subject to a number of risks and uncertainties that may cause actual results to differ materially from those described in the forward-looking statements. These risks include, but are not limited to, the following: the Company’s ability to enter into contracts for its laboratory testing or biomarker services; client changes or early terminations of studies; variability in backlog; the success of marketing and business development efforts, and competitive factors; the Company’s ability to manage growth; and other risks and uncertainties set forth in periodic filings with the U.S. Securities and Exchange Commission (including Form 10-K for the year ended June 30, 2008).

 PACIFIC BIOMETRICS, INC. CONSOLIDATED BALANCE SHEETS December June 30, ASSETS 31, 2008 2008 (unaudited) (audited) ----------- ----------- Current assets: Cash and cash equivalents $ 1,279,633 $ 1,196,310 Accounts receivable, net 2,022,388 2,146,080 Other receivable, net - 451,291 Inventory 246,049 197,456 Prepaid expenses and other assets 174,770 100,869 Deferred financing cost on secured convertible note - current portion - 18,447 ----------- ----------- Total current assets 3,722,840 4,110,453 Property and equipment, net 885,681 884,521 Total assets $ 4,608,521 $ 4,994,974 =========== =========== LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 713,292 $ 818,224 Accrued liabilities 392,484 450,788 Advances from customers 723,717 643,291 Capital lease obligation - current portion 47,204 32,530 Secured convertible note, net of unaccreted fair value assigned to conversion feature and warrants of $0 and $214,771, respectively - 678,535 Embedded derivative liability - 642,470 Freestanding derivative liability - 411,545 Other notes payable - current portion - 102,467 ----------- ----------- Total current liabilities 1,876,697 3,779,850 Capital lease obligations - long-term portion 164,126 91,109 ----------- ----------- Total liabilities 2,040,823 3,870,959 ----------- ----------- Commitments and contingencies - - Stockholders’ equity: Preferred stock, Series A convertible $0.01 par value, 5,000,000 shares authorized, 0 shares issued and outstanding for 2009 and 2008 - - Common stock, $0.01 par value, 30,000,000 shares authorized, 19,099,539 and 18,720,147 shares issued and outstanding, respectively 190,995 187,201 Additional paid-in capital 29,110,233 28,641,278 Accumulated deficit (26,733,530) (27,704,464) ----------- ----------- Total stockholders’ equity 2,567,698 1,124,015 Total liabilities and stockholders’ equity $ 4,608,521 $ 4,994,974 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. PACIFIC BIOMETRICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended Six Months Ended December 31, December 31, ---------------------- ---------------------- 2008 2007 2008 2007 ---------- ---------- ---------- ---------- Revenues $3,230,913 $1,647,535 $5,035,955 $3,729,197 ---------- ---------- ---------- ---------- Laboratory expenses and cost of sales 1,570,235 1,145,003 2,673,604 2,367,683 ---------- ---------- ---------- ---------- Gross profit 1,660,678 502,532 2,362,351 1,361,514 ---------- ---------- ---------- ---------- Operating expenses: Selling, general and administrative 1,106,173 1,231,715 2,021,218 2,146,150 ---------- ---------- ---------- ---------- Operating income (loss) 554,505 (729,183) 341,133 (784,636) ---------- ---------- ---------- ---------- Other income (expense): Interest expense (8,868) (59,843) (50,882) (136,377) Interest expense from accretion of conversion feature and warrants - secured convertible debt (19,760) (183,952) (88,804) (386,935) Gain on adjustment of embedded and freestanding derivatives to fair value 343,121 151,632 675,691 332,860 Amortization of deferred financing costs - secured convertible debt - (26,792) (18,447) (53,585) Other income 107,673 29,919 112,243 61,889 ---------- ---------- ---------- ---------- Total other income (expense) 422,166 (89,036) 629,801 (182,148) Net income (loss) before tax expense 976,671 (818,219) 970,934 (966,784) ---------- ---------- ---------- ---------- Tax expense - - - - Net income (loss) $ 976,671 $ (818,219) $ 970,934 $ (966,784) ========== ========== ========== ========== Net income (loss) per share $ 0.05 $ (0.04) $ 0.05 $ (0.05) ========== ========== ========== ========== Weighted average common shares outstanding, basic and diluted: 19,039,524 18,920,147 18,964,873 18,713,240 ========== ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements. PACIFIC BIOMETRICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Six Months Ended December 31, ------------------------ 2008 2007 ----------- ----------- Cash flows from operating activities: Net income (loss) $ 970,934 $ (966,784) Reconciliation of net loss to net cash provided by operating activities: Depreciation and amortization 121,940 137,345 Accretion of fair value assigned to conversion feature and warrants 88,134 386,935 Amortization of deferred financing costs on secured convertible note 18,447 53,585 Gain from embedded and freestanding derivative liabilities relating to secured convertible note (675,691) (332,860) Warrant expense for equipment lease and financing 3,943 5,911 Compensation expense from restricted shares and options 90,485 158,402 Changes in assets and liabilities: Accounts receivable 123,692 331,173 Other receivable 451,291 - Inventory (48,593) (38,586) Prepaid expenses and other assets (73,901) (105,248) Advances from customers 80,425 (74,382) Accounts payable (104,933) 48,119 Accrued liabilities (58,305) (41,406) ----------- ----------- Net cash provided by (used in) operating activities 987,868 (437,796) ----------- ----------- Cash flows from investing activities: Purchases of capital equipment (14,783) (20,609) ----------- ----------- Net cash used in investing activities (14,783) (20,609) ----------- ----------- Cash flows from financing activities: Payments on notes payable (869,136) (854,190) Payments on capital lease obligations (20,626) (38,655) ----------- ----------- Net cash used in financing activities (889,762) (892,845) ----------- ----------- Net increase (decrease) in cash and cash equivalents 83,323 (1,351,251) Cash and cash equivalents, beginning of period 1,196,310 4,219,926 ----------- ----------- Cash and cash equivalents, end of period $ 1,279,633 $ 2,868,675 =========== =========== Supplemental Information: Cash paid during the period for interest $ 59,505 $ 116,659 Non-cash investing and financing activities: Capital expenditures funded by capital lease borrowings $ 108,316 $ - The accompanying notes are an integral part of these consolidated financial statements.