Results of operations

Sales and cost of sales

In the quarter ended December 31, 2008, the company recorded revenues of $8,294 representing a decrease of $1,115 or 12% from $9,409 during the quarter ended December 31, 2007. The Cost of Sales during the quarter ended December 31, 2008, were $8,549 representing an increase of $4,016 or 89% from $4,533 during the quarter ended December 31, 2007. The revenue of $8,294 and cost of sales of $8,549 is from the sale of parts and service kits to one of our distributors.

Revenues for the six months ended December 31, 2008, were $8,294 representing a decrease of $28,658 or 78% from $36,952 in the corresponding period in 2007. The cost of sales during the six months ended December 31, 2008, were $8,549 representing a decrease of $9,700 or 53% from $18,249 in the corresponding period in 2007.

Other Income for the three and six months ended December 31, 2008, were $1,416 and $3,104, respectively, representing the use of our facilities and consulting with our engineers pursuant to the Bioscan Agreement

General and administrative

General and administrative expenses during the three and six months ended December 31, 2008, were $626,744 and $1,402,918, respectively, representing decreases of $133,186 or 18% and $70,562 or 5%, from $759,930 and $1,473,480 in the corresponding periods in 2007. Of the $626,744, compensation and related benefits comprised $364,941 (60%) compared to $481,019 (63%), during the three months ended December 31, 2007. Of the $364,941 and $481,019 compensation and related benefits, $4,447 (1%) and $36,642 (8%), respectively, were due to non-cash compensation related to expensing stock options.

Of the $1,402,918, compensation and related benefits comprised $743,371 (60%), compared to $945,565 (59%), during the six months ended December 31, 2007. Of the $743,371 and $945,565 compensation and related benefits,$32,098 (5%) and $85,046 (9%), respectively, were due to non-cash compensation related to expensing stock options.

Research and development

Research and development expenses during the three and six months ended December 31, 2008, were $303,429 and $817,785, respectively, representing decreases of $155,229 or 34% and $109,087 or 13%, from $458,658 and $926,872 in the corresponding periods in 2007. Of the $303,429, compensation and related benefits comprised $216,206 (71%), compared to $260,649 (57%) during the three months ended December 31, 2007. Of the $216,206 and $260,649 compensation and related benefits, $(889.50) (0%) and $7,295 (3%), respectively, were due to non-cash compensation related to expensing stock options.

Sales and marketing

Sales and marketing expenses during the three and six months ended December 31, 2008, were $268,063 and $367,187, respectfully, representing decreases of $125,634 or 32% and $278,306 or 43%, from $393,697 and $645,493 in the corresponding periods in 2007.

Aggregated operating expenses

In comparing our total operating expenses (general and administrative, research and development, sales and marketing, inventory valuation adjustments and depreciation and amortization) in the three months ended December 31, 2008 and 2007, which were $1,258,958 and $1,688,521 respectively, we had a decrease of $429,563 or 25%.

In comparing our total operating expenses (general and administrative, research and development, sales and marketing, inventory valuation adjustments and depreciation and amortization) in the six months ended December 31, 2008 and 2007, which were $2,706,168 and $3,184,188 respectively, we had a decrease of $478,020 or 15%.

The decrease of $429,563 in the three-month comparative period was primarily due to decreases of $133,186 in general and administrative expenses; $155,229 in research and development expenses; and $125,634 in sales and marketing expenses.

The decrease of $478,020 in the six-month comparative period was primarily due to decreases of $70,562 in general and administrative expenses; $109,087 in research and development expenses; and $278,306 in sales and marketing expenses.