5.                                      LIQUIDITY

At September 30, 2012, our working capital increased by $349,251 to $3,993,889 from $3,644,638 at June 30, 2012, and concurrently, our current ratio (current assets divided by current liabilities) decreased slightly from 4.16 to 1 at June 30, 2012 to 4.07 to 1 at September 30, 2012. This increase in working capital is primarily attributable to the $500,000 third tranche investment by ELITech in addition to the substantial reduction in short term borrowings as evidenced by the revolving line of credit.

At September 30, 2012, trade receivables were $1,781,552 versus $1,396,938 at June 30, 2012. Accounts payable, accrued payroll and other accrued expenses increased by a combined $154,100 to $1,159,406 from $1,005,306 at June 30, 2012. At September 30, 2012, inventories increased $101,703 to $2,220,372 versus $2,118,669 at June 30, 2012.

For the three months ended September 30, 2012, cash used by operating activities amounted to $130,410, versus cash provided by operating activities of $19,553 for the three months ended September 30, 2011. The decrease in the cash provided by operations for the current quarter resulted primarily from the increases in accounts receivable and inventories, which more than offset the net income realized for current period.

Net cash used by investing activities, the purchase of laboratory equipment, leasehold improvements and computer equipment, was $14,265 for the three months ended September 30, 2012, compared to net cash used by investing activities for the three months ended September 30, 2011 totaling $13,788.

Net cash provided by financing activities amounted to $93,591 for the three months ended September 30, 2012 compared to net cash provided by financing activities for the three months ended September 30, 2011 totaling $328,716. This decrease versus the comparable prior year was primarily due to the significantly lower amount of proceeds from the issuance of common stock to ELITech in the current three month period versus the proceeds received in the prior period.

We have incurred operating losses and negative cash flow from operations for most of our history. Losses incurred since our inception, net of accreted dividends on redeemable common and redeemable preferred stock, have aggregated $14,006,898 and there can be no assurance that we will be able to generate positive cash flows to fund our operations in the future or to pursue our strategic objectives. Historically, we have financed our operations primarily through long-term debt, factoring of accounts receivables, and the sales of common stock, redeemable common stock, and preferred stock. We have also financed operations through sales of diagnostic products and agreements with strategic partners. We have developed and are continuing to modify an operating plan intended to eventually achieve sustainable profitability, positive cash flow from operations, and an adequate level of financial liquidity. Key components of this plan include consistent revenue growth and the cash to be derived from such growth, as well as the expansion of our strategic alliances with other biotechnology and diagnostic companies, securing diagnostic-related government contracts and grants, improving operating efficiencies to reduce our cost of sales as a percentage of sales, thereby improving gross margins, and lowering our overall operating expenses. If our sales were to decline, are flat, or achieve very slow growth, we would undoubtedly incur operating losses and a decreasing level of liquidity for that period of time. In view of this, and in order to further improve our liquidity and operating results, we entered into the ELITech collaboration and investment.

In summary, the cash provided by financing activities was more than offset by the net cash used in operating and investing activities, resulting in a net decrease in cash of $51,084 for the current three month period.

The $2,000,000 ELITech common stock investment in addition to the LSQ $1,500,000 July 14, 2011 credit facility, in conjunction with our current revised forecasts indicating profitability for the current fiscal year, should provide adequate resources to continue operations for longer than 12 months.