Three months ended September 30                              Nine Months ended September 30
                        2008           2007          Change        % Change         2008           2007          Change        % Change
                                                          (In $ millions, except per share amounts)

Revenue                   7.1            2.7            4.4            163 %         23.0            9.9           13.1            132 %
Gross profit
(loss)                   (0.6 )         (0.6 )          0.0             -2 %          2.9            1.1            1.8            160 %
Operating
expenses                  8.9            4.6            4.3             94 %         21.3           13.2            8.1             61 %
Operating loss           (9.5 )         (5.2 )         (4.3 )           83 %        (18.4 )        (12.1 )         (6.3 )           52 %
Non-operating
income (expense)         (1.3 )         (0.1 )         (1.2 )         NA             (7.2 )          0.1           (7.3 )         NA
Net loss                (10.8 )         (5.3 )         (5.5 )          105 %        (25.6 )        (12.0 )        (13.6 )          113 %
Net loss per
share                   (0.22 )        (0.11 )        (0.11 )                       (0.52 )        (0.25 )        (0.27 )

Gross profit
(loss) as % of
revenue                    -8 %          -22 %           14 %                          13 %           11 %            2 %
Operating
expense as % of
revenue                   125 %          170 %          -45 %                          92 %          133 %          -41 %
Operating loss
as % of revenue           134 %          192 %           58 %                          80 %          122 %           42 %
Net loss as % of
revenue                   152 %          195 %           43 %                         111 %          121 %           10 %

Revenue:
Shipments for the third quarter, 2008 increased by $6.7 million, a 247% increase versus the third quarter, 2007. Shipments for the nine months ended September 30, 2008 grew $15.4 million or 155% versus the comparable period in 2007. Revenue growth for the third quarter, 2008 was $4.4 million, and includes a $2.3 million revenue reduction for product that was obtained from our U.S. distributor, consumed into the manufacture of new product and subsequently shipped to International customers.
The following table contains geographic revenue for the three-month and the nine-month period ended September 30, 2008 and 2007:

             ($ Millions)                  Three months ended September 30
             Region                 2008          2007      Change       % Change
             United States            (1.8 )        1.3        (3.1 )        -240 %
             Europe                    3.4          0.1         3.3          3579 %
             Western Hemisphere        3.9          0.9         3.0           326 %
             Pacific Rim               1.6          0.4         1.2           295 %

             Total revenue             7.1          2.7         4.4           163 %

             ($ Millions)                  Nine months ended September 30
             Region                 2008          2007      Change       % Change
             United States             6.5          2.9         3.6          125 %
             Europe                    5.5          0.6         4.9          802 %
             Western Hemisphere        6.3          5.2         1.1           21 %
             Pacific Rim               4.7          1.2         3.5          296 %

             Total revenue            23.0          9.9        13.1          132 %

Revenue increased significantly in the third quarter, 2008 versus the same period in 2007 in all geographies except the United States. New registrations as well as tenders won in key geographies drove the increases in International revenue. There were no sales to our U.S. distributor in the third quarter, 2008 and U.S. revenue was further reduced by the $2.3 million purchase as discussed previously.
For the nine-month period ended September 30, 2008, growth was strong and represents positive sequential growth in all international regions.
The following table summarizes the Company's revenue by product line for the three-month and the nine-month period ended September 30, 2008 and 2007:

       ($ Millions)                              Three months ended September 30
       Product Line                      2008          2007        Change       % Change
       Sevoflurane                          5.0           1.4          3.6          252 %
       Other Inhalants                      2.1           1.1          1.0           86 %

       Total Anesthesia and Analgesia       7.1           2.5          4.6          179 %
       Image Guidance                       0.0           0.2         (0.2 )        -82 %

       Total revenue                        7.1           2.7          4.4          163 %




       ($ Millions)                              Nine months ended September 30
       Product Line                       2008          2007      Change       % Change
       Sevoflurane                          16.7          6.2        10.5          170 %
       Other Inhalants                       5.9          3.4         2.5           74 %

       Total Anesthesia and Analgesia       22.6          9.6        13.0          135 %
       Image Guidance                        0.4          0.3         0.1           34 %

       Total revenue                        23.0          9.9        13.1          132 %

The 163% growth in third quarter, 2008 revenue versus the same period in 2007 was driven by increases in sevoflurane revenue and, to a lesser extent, increases in isoflurane. Sevoflurane revenue included a $2.3 million reduction for product that was purchased from our U.S. distributor, as discussed previously. Growth in both product lines was made possible by the completion of the dedicated sevoflurane production line in December, 2007. Prior to that date, productive capacity was limited to one line shared between the sevoflurane and isoflurane product lines. Year to date revenue growth of 132% was also due to significant increases in sevoflurane revenue, net of the purchase, which was driven by the plant expansion. Revenue was especially strong in the first quarter of 2008 immediately following the start-up of the new sevoflurane line. Gross Profit (Loss):
Gross profit (loss) was essentially flat in the third quarter, 2008 versus third quarter, 2007, despite revenue growth of 163%. Gross margin was a loss of $0.6 million in both years, resulting in a gross margin rate of negative 8% in 2008 versus negative 22% in the same period last year. Contributing factors to the negative gross margin in third quarter, 2008 were the return and reprocessing of the distributor material, unfavorable customer and product mix, and increased inventory write-downs versus the prior year. Included in the inventory write-downs in third quarter, 2008 were increases in the Image Guidance inventory reserve of $0.5 million and revaluations of anesthesia inventory of $0.9 million.

For the nine months ended September 30, 2008, gross profit grew $1.8 million versus the same period last year. While the gross profit rate improved to 13% compared to last year's rate of 11%, the expected improvements from the new sevoflurane line have not been achieved in the first nine months of 2008 due to start-up shakedown periods, other production interruptions and the inability to obtain raw materials on a consistent basis. Operating Expenses:
Operating expenses for the quarter ended September 30, 2008 increased by $4.3 million, or 94%, versus third quarter, 2007. Included in third quarter, 2008 operating expense is a $4.5 million non-cash charge for potentially uncollectible accounts receivable due from the Company's U.S. distributor, as discussed in Note 3 to the financial statements. Excluding the non-cash charge, operating expenses declined from the same period in 2007 by $0.2 million, or 4%. Sales and Marketing expenses in the third quarter, 2008 declined from 2007 by $0.4 million or 20%, driven by lower compensation costs. Research and development costs were down $0.9 million or 54%, also due to $0.3 million lower compensation costs, with the remaining reductions in out-of-pocket expenditures. The completion of several projects, reductions in spending in non-core areas and transfer of resources to address other priorities within the Company drove decreased spending. Finance and administrative costs increased $1.1 million or 126% in third quarter, 2008 versus the same period in 2007 due to $0.3 million of prepaid loan fee amortization, higher insurance costs due to coverage increases, increased compensation due to management structure changes, and higher legal and accounting fees.
For the first nine months of 2008, operating expenses increased $8.1 million, or 61%, versus the comparable period of 2007. The increase includes $5.8 million due to the non-cash reserve for potentially uncollectible receivables, as previously discussed. Sales and marketing expense growth of $1.2 million or 20% was driven by a $1.5 million expenditure for the World Congress of Anesthesia meeting in the first quarter, 2008, a once every four year event, partially offset by lower compensation expense. Finance and administration expenses grew $2.4 million in 2008 versus the same period last year due to $0.5 million of prepaid loan fee amortization, higher compensation costs and increased insurance, legal and accounting fees as discussed above. Lower compensation and out-of-pocket expenditures drove reduced research and development costs of $1.3 million in the first nine months of 2008 versus 2007, as discussed previously.
Operating Loss:
Loss from operations was $9.5 million for the third quarter, 2008 versus $5.2 million in 2007 for the same period, with the increase driven largely by the provision for potentially uncollectible receivables. The loss from operations for the nine-month period ended September 30, 2008 was $18.4 million versus $12.1 million loss in the comparable period last year. Non-operating income/expense:
Non-operating expense was $1.3 million for the third quarter, 2008 compared to $0.1 expense in the same period last year. The non-operating expense includes $0.9 million interest expense, of which $0.8 million was interest on the senior secured convertible notes entered into on May 5, 2008. The senior convertible notes agreement contains a registration rights provision that if the registration of additional shares is not declared effective by the SEC before August 20, 2008, a penalty will be assessed. Non-operating expense in the third quarter, 2008 also includes a $0.2 million penalty, as the registration was not effective until September 3, 2008 due to a full review by the Securities and Exchange Commission. Also included in the net non-operating expense for the quarter is a $0.5 million reclassification of unrealized loss on the valuation of securities previously reported within comprehensive income, to a realized loss due to a determination that it is now an other-than-temporary decline in value.
Non-operating expense for the nine-month period ending September 30, 2008 was $7.2 million compared to minimal non-operating income or loss in the comparable 2007 period. Of the expense increase of $7.2 million, a loss on early extinguishment of debt accounted for $4.6 million. The loss on early extinguishment of debt was due to the retirement of a Laminar Direct Capital L.P. term loan, which was entered into in February, 2008 and was extinguished on May 9, 2008, prior to maturity. Included in this charge is a 5% redemption fee of $0.8 million, a write-off of the unamortized balance of warrant expense of $3.2 million and unamortized loan fees of $0.6 million. In addition to the early extinguishment charge, non-operating expense includes interest expense of $2.6 million, of which $0.9 million is interest paid on the Laminar debt, $1.3 million paid on the senior secured notes, with the balance interest paid on the Commonwealth of Pennsylvania development loans, a demand facility with First Niagara Bank extinguished early in 2008, customer discounts and interest paid to vendors.

Liquidity and Capital:
   Cash and cash equivalents were $2.7 million at September 30, 2008, compared
to the balance at December 31, 2007 of $0.2 million, resulting in an increase in
cash and equivalents of $2.5 million in the nine-month period ended September,
2008. The current ratio, which was 0.9: 1 at December 31, 2007, improved to
3.5:1 on September 30, 2008.
   The following table contains information on our cash flow for nine months
ended September 30, 2008 and 2007:

                                                                          Nine months ended September 30
($ Millions)                                                            2008                  2007
Net Cash used by Operating Activities                                     (20.3 )               (10.0 )
Net Cash used by Investing Activities                                      (7.4 )                (2.3 )
Net cash provided by Financing Activities                                  30.2                   7.7

Net Increase (Decrease) in cash and cash equivalents                        2.5                  (4.6 )

Net cash used by operating activities was $20.3 million for the first nine months of 2008 compared to $10.0 million in the first nine months of 2007. In 2008, cash was used to fund the $25.6 million loss, offset by non-cash items of $14.4 million. Included are the non-cash loss on debt extinguishment of $4.1 million and the reserve for a potentially uncollectible receivable from a U.S. distributor of $5.8 million, as discussed in Note 3 to the financial statements. Cash was also used to fund working capital of $9.0 million. The net increase in working capital reflects $10.6 million increase in gross accounts receivables and a $4.1 million decrease in inventory. It includes the conversion of high year end levels of raw materials into finished goods, and ultimately into accounts receivable. Accounts payable decreased by $4.2 million, as available cash was used to pay down amounts owed to vendors. Changes in other assets and liabilities resulted in a $1.7 million increase in cash.
Net cash used by investing activities was $7.4 million in the first nine months of 2008, as compared to net cash used by investing activities of $2.3 million in the equivalent period last year. In the first nine months of 2008, cash was used primarily to pay vendors and contractors for the expansion of our Bethlehem, Pennsylvania sevoflurane capacity and construction of a tank farm at the facility that took place primarily in 2007.
Net cash provided by financing activities was $30.2 million for the nine months ended September 30, 2008, as compared to $7.7 million for the same period last year. For the nine-month period ended September 30, 2008, the net activity was the issuance of $40.0 million of senior secured notes on May 5, 2008, providing $36.7 million of new funding after fees associated with the issuance. The company repaid $6 million owed under a demand note with First Niagara Bank, which was outstanding at December 31, 2007. Additionally in the first nine months of 2008, the company entered into a $15 million three-year note early in the first quarter with Laminar Direct Capital, L.P., which was subsequently extinguished on May 9, 2008, after the issuance of the senior secured notes.
The Company has generated substantial operating losses since inception. Additionally, the Company has unable to generate positive cash flow from operating activities. We cannot provide assurances that it shall be able to do so in the future. The Company has been seeking and is continuing to explore alternatives to secure funds from external sources to continue operations, but cannot provide assurances that such funds will be available. Without the infusion of funds from external sources or introduction and completion of a strategic alternative, the Company will not be able to continue operations beyond the end of calendar year 2008.
The Board of Directors retained the services of Barclays Capital as of May 28, 2008 on an exclusive basis for the purpose of advising the Company with respect to strategic alternatives. Management provides no assurance that the conduct of this process will result in a transaction. The Company does not currently intend to disclose developments regarding the exploration of strategic alternatives unless and until it's Board of Directors have approved a specific transaction.

Forward-Looking Statements
This quarterly report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements, other than statements of historical fact, contained in this quarterly report on Form 10-Q constitute forward-looking statements. In some cases you can identify forward-looking statements by terms such as "may," "intend," "might," "will," "should," "could," "would," "expect," "believe," "estimate," "anticipate," "predict," "project," "potential," or the negative of these terms and similar expressions intended to identify forward-looking statements.
Forward-looking statements are based on assumptions and estimates and are subject to risks and uncertainties. Reference is made to the information appearing under the heading "Risk Factors" in Item 1 of our annual report on Form 10-KSB/A for the year ended December 31, 2007 filed with the SEC on April 21, 2008 ("Risk Factors"), which is incorporated herein by reference. We have identified in the Risk Factors and elsewhere in this Form 10-Q some of the factors that may cause actual results to differ materially from those expressed or assumed in any of our forward-looking statements. There may be other factors not so identified. You should not place undue reliance on our forward-looking statements. As you read this quarterly report on Form 10-Q you should understand that these statements are not guarantees of performance or results. Further, any forward-looking statement speaks only as of the date on which it is made and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time that may cause our business not to develop as we expect and it is not possible for us to predict all of them. Factors that may cause actual results to differ materially from those expressed or implied by our forward-looking statements include those described in the Risk Factors.
Item 3. Quantitative and Qualitative Disclosure about Market Risk.
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item. Item 4T. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures.
Management is responsible for establishing and maintaining effective disclosure controls and procedures. As of September 30, 2008, our Chief Executive Officer and Chief Financial Officer participated with our management in evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the Securities and Exchange Commission ("SEC") reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified by the SEC's rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. In light of the discussion of material weaknesses set forth below, these officers have concluded that our disclosure controls and procedures were not effective. To address the material weaknesses described below, we performed additional analyses and other post-closing procedures to ensure our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Accordingly, management believes that the financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, result of operations and cash flows for the periods presented.
Management's Report on Internal Control over Financial Reporting A company's internal control over financial reporting is a process designed by, or under the supervision of, a public company's principal executive and principal financial officers, or persons performing similar functions, and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles ("GAAP") including those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the company, and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has assessed the effectiveness of our internal control over financial reporting as of December 31, 2007 (the last annual Management's Assessment of Internal Control over Financial Reporting). In making this assessment, our management used the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. In connection with management's assessment of our internal control over financial reporting described above, management has identified the following material weaknesses in the Company's internal control over financial reporting as of December 31, 2007:
• We were ineffective in maintaining a sufficient complement of qualified accounting personnel and controls associated with segregation of duties. Currently, all aspects of our financial reporting process, are performed by a single individual with limited segregation of duties and limited secondary review, including but not limited to access to the underlying accounting records and systems, the ability to post and record journal entries and responsibility for the preparation of the financial statements. This creates certain incompatible duties and a lack of review over the financial reporting process that would likely fail to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures with the SEC. Specifically, we determined that because of the latter situation, our controls over the preparation, review and monitoring of the financial statements were ineffective to provide reasonable assurance that financial disclosures agreed to appropriate supporting detail, calculations or other documents.

• Our documentation of accounting policies and procedures is incomplete to the level necessary to ensure accounting for transactions are accounted by the limited accounting staff in accordance with generally accepted accounting principles properly each reporting period.

• We installed a new enterprise wide information system during 2007 that is utilized to plan and execute the business. However the accounting modules and functionality of the new system are not fully implemented or utilized by Company personnel to process transactions which have contributed to weaknesses in internal control over financial reporting.

• We have a complex chemical production process which was not properly reflected in the accounting records captured in our enterprise wide information system at the end of 2007 and at interim reporting dates during 2007. In this regard, audit adjustments were made relating to both the quantity and value of inventory at December 31, 2007. Additional management time has been required to ensure that inventory has been properly accounted for during and at the end of each financial reporting period.

As a result of the material weaknesses described above, our management concluded that as of December 31, 2007, we did not maintain effective internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework issued by the COSO. . . .