The following management's discussion and analysis of financial condition and results of operations ("MD&A") should be read in conjunction with our consolidated financial statements and notes thereto which appear elsewhere in this Annual Report on Form 10-K. This MD&A should also be read in conjunction with Item 1.A. "Risk Factors."

This MD&A contains forward-looking statements regarding our business development plans, the characteristics and growth of our markets and customers; our objectives and plans for future operations and products and our liquidity and capital resources. These forward-looking statements express our current intentions, beliefs, expectations, strategies or predictions and are based on a number of assumptions and currently available information. Our forward-looking statements are subject to a number of risks and uncertainties, including, without limitation, our ability to obtain an increased market share in the diagnostic test market; market acceptance of our products by governmental and other public health agencies, health care providers and consumers; the success of our future marketing and brand-building efforts; FDA and international regulatory actions; our ability to protect our proprietary technologies; the further development of our technologies and products; our ability to compete successfully against existing and new competitors; our future financial and operating results; our liquidity and capital resources; our ability to obtain additional financing as necessary to fund both our short- and long-term business plans; our ability to terminate or reduce our debt obligations; changes in domestic or international conditions beyond our control that may disrupt our or our customers' or distributors' ability to meet contractual obligations; changes in health care policy in the United States or abroad; fluctuations in market demand for and supply of our products; public concern as to the safety of products that we or others develop and public concern regarding HIV and AIDS; availability of reimbursement for use of our products from private health insurers; governmental health administration authorities and other third-party payors; our ability to attract or retain key personnel and various other matters (including contingent liabilities and obligations and changes in accounting policies, standards and interpretations).

Forward-looking statements are generally identifiable by the use of terms such as "anticipate," "will," "expect," "believe," "should" or similar expressions. Although we believe that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate given the inherent uncertainties as to the occurrence or nonoccurrence of future events. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including the potential risks and uncertainties set forth in Item 1A of this Form 10-K and relate to our business plan, our business strategy, development of our proprietary technology platform and our products, timing of such development, timing and results of clinical trials, level and timing of FDA regulatory clearance or review, market acceptance of our products, protection of our intellectual property, implementation of our strategic, operating and people initiatives, benefits to be derived from personnel and directors, ability to commercialize our products, our assumptions regarding cash flow from operations and cash on-hand, the amount and timing of operating costs and capital expenditures relating to the expansion of our business, operations and infrastructure, implementation of marketing programs, our key agreements and strategic alliances, our ability to terminate or reduce our debt obligations, our ability to obtain additional capital as, and when, needed, and on acceptable terms and general economic conditions specific to our industry, any of which could impact sales, costs and expenses and/or planned strategies and timing. If we are not able to generate sufficient liquidity from operations or raise sufficient additional capital, this could have a material adverse affect on our business, results of operations, liquidity and financial condition. We assume no obligation to, and do not currently intend to, update these forward-looking statements.

Overview of Critical Events in 2008

Throughout 2008, we focused on marketing and selling our AwareTM HIV-1/2 Rapid Tests in countries where we have regulatory approval and where we soon expected to have regulatory approval, primarily concentrating on South Africa, Cote d'Ivoire, Kenya, Uganda, U.A.E., India and Russia. Most of our AwareTM HIV-1/2 Rapid Tests sales were in Africa, through our South African distributor, however in the fourth quarter of 2008, we also completed a sale to our new distributor in the U.A.E. that represented 48% of our rapid test sales revenue for 2008. After receiving registration and marketing approval in April 2008, Beijing Marr began actively marketing AwareTM HIV-1/2 OMT in China. Local sales of our rapid test in China were insignificant during 2008 as our financial constraints limited our marketing opportunities.

Sales of our BED Incidence Test accounted for 56% of our sales in 2008 and posted a 4% revenue increase compared with 2007. Such sales tend to be irregular as public health and research institutions begin or conclude various studies to monitor the incidence of HIV infection within their subject populations. Our new Aware MessengerTM oral fluid sample collection device and our Life Sciences reagents, both introduced during early 2008, accounted for 2% of our 2008 sales.

We also continued our clinical trial and regulatory approval process through 2008, primarily focusing on countries which have been selected for funding by PEPFAR, the President's Emergency Plan for AIDS Relief. Both our AwareTM HIV-1/2 BSP (blood, serum and plasma) rapid test and our AwareTM HIV-1/2 OMT (oral fluid) rapid test have been evaluated and are now included in the USAID waiver list.

We spent considerable time and effort developing a complementary oral fluid test using an alternative antigen that will enable us to market a non-invasive screening and confirmation testing system for HIV-1/2. We also began preclinical development and evaluation activities for a second oral fluid test using a synthetic peptide antigen , which would provide us with a full non-invasive testing protocol in accordance with the WHO rapid testing guideline algorithm, which we believe will benefit current diagnostic and treatment efforts and help us achieve sales in regions that adhere to the WHO testing algorithm, and for a lateral flow platform design suitable for over-the-counter applications of our Aware TM HIV-1/2 Rapid Tests, which would permit our entry into the HIV rapid test market in the United States and to expand our product line beyond HIV to a broader set of non-invasive diagnostic tests for other sexually transmitted diseases or diseases such as tuberculosis, malaria and hepatitis.

Our operations and business plans were severely impacted by our inability to secure additional capital in the fourth quarter of 2008. We had to curtail our marketing, sales and development efforts to continue our business while attempting to restructure our operations and seek additional financing. In the fourth quarter of 2008, we substantially reduced our workforce in order to conserve cash and continue our day-to-day operations at a minimal level. Since then, we have been focused on restructuring our operations, looking for financing and reducing our debt, with the hope that we will be able to continue as a going concern and once again focus on commercializing our current products and resuming the research and development of our other products. We have maintained a minimum staff in order to continue sales of our products to our existing and new clients so that we do not lose the momentum we have gained over the last few years. While most of our marketing efforts have ceased, we have continued our market efforts in certain places where to cease such efforts would almost certainly cause us to lose ground.

Business Environment

Although we have received regulatory approval in a number of countries, there is a long lag time between regulatory approval and sales. In our target markets, government ministries of health or similar government and nongovernmental agencies are the primary purchasers of our products, typically through a "lowest-cost" tender process. These purchasers have historically purchased blood-based HIV tests. We have had to overcome the obstacle of changing these purchasers' mindsets from preferring tests that use the current blood standard of care. We have expended much time, money and effort to try to convince government bodies and non-government organizations to try our oral fluid tests, both for its ease of use, efficiency and lower-cost benefits.

We have directed considerable money and effort, including product donations to key user agencies and lobbying for changes in tender regulations, to encourage the consideration and inclusion of our oral fluid tests in purchase tenders. We consider these efforts to be part of a strategy in which the "standard of care" for HIV diagnosis evolves from the exclusive use of blood tests to more widespread use of non-invasive oral fluid-based tests. If we can successfully change the standard of care, we expect to reach a point at which time our revenue growth will increase significantly. We are not forecasting the timing of this point as it is largely governed by factors that we can only partially influence

We believe the demand for fast, easy-to-use HIV tests is strong and growing. By many accounts, governments are requiring more testing for HIV and allocating more funds to such testing, non-governmental organizations and charities have increased their funding for HIV testing too. Although we face barriers to market acceptance, we have started making inroads. For instance, according to the National Aids/STD Control Programme. Kenya will soon roll out a national campaign to increase the testing of Kenyans for HIV and will use our AwareTM HIV-1/2 OMT in this campaign. We are unable to predict future demand for our products, however, we believe that we will be able to increase market acceptance of our products and our market position.

Outlook

As of April 3, 2009, we are in default under our Credit Facility and Convertible Notes. We are currently discussing termination, reduction or restructuring of the Credit Facility and Convertible Notes with each of the secured creditors. There can be no assurance that acceptable terms, or any terms, will be reached between us and any of the creditors. Our ability to terminate, reduce or restructure our debt will impact whether or not we are able to raise additional capital. If we are unable to terminate, reduce or restructure the debt, it is unlikely that we will be able to raise capital. As our cash flows from our operating and investing activities are currently not adequate to sustain our operations, if we are unable to raise capital, we will likely be unable to continue our operations.

In light of our existing operations and financial challenges, we are exploring strategic and financing options in conjunction with our ongoing discussions with these secured creditors to terminate, reduce or restructure our debt obligations. Failure to obtain additional financing and to resolve the existing defaults with respect to the Credit Facility and the Convertible Notes will likely cause us to seek bankruptcy protection under Chapter 7 of Title 11 of the United States Code, 11 U.S.C. § 101 et seq., which would have a material adverse effect on our business, on our ability to continue our operations and on the value of our equity.

Management believes that we have the ability to sustain our operations, at least for the near-term, through the termination, reduction or restructuring of our debt obligations, effective management of our operations and the ability to raise additional capital through private placements of equity. However, if we are unable to terminate, reduce or restructure our debt obligations or if we are unable to raise sufficient additional capital, we will be unable to meet our operating and debt obligations and will likely be unable to continue our operations.

We believe that certain factors are critical to our success, including having sufficient financial liquidity to fund our operations; raising additional funds through the private placement of equity; terminating, reducing or restructuring our debt obligations; reducing certain fixed costs; continuing to expand our marketing and increasing sales of our products; and developing a larger international market presence.

Since 2003 we have developed and brought to market our AwareTM Rapid Test Product Line and Aware MessengerTM Oral Fluid Sample Collection Device and have either developed or have the technology to develop next generation HIV test products and additional diagnostic test products based on our technology and test platform. These critical additions to our product base over the past few years have positioned us to grow our business and to achieve better margins as we move into the market for HIV tests. These products are the core of our business and the key to our future success.

In order to accomplish our business plan and meet our financial obligations, we must:

- Negotiate a termination, reduction or restructuring of our secured debt obligations.
- Raise additional capital to fund working capital requirements.
- Reduce accounts payable and other debt and associated fixed costs.
- Increase marketing and sales of our products through our current and new distribution network.

We have been actively pursuing potential opportunities to address the above matters, the ultimate resolution of which is beyond our control and will have a significant impact on our financial condition and ability to continue our operations. As a result, no assurances can be given that these transactions will be completed as contemplated or at all, which could have a detrimental effect on our ability to continue our operations. For more information regarding our business plan and these transactions, see "Item 1. Business - General, Requirements of Additional Capital and Business Plan" and for the related risks, see "Risk Factors" below.

As 2009 begins, we remain focused on our strategy of increasing marketing and sales in the countries where our products are registered, seeking additional product registrations in countries where we have a high likelihood of making sales and keeping our operations costs low.

Aware TM BED Incidence Test

We began selling the BED Incidence Test in the fourth quarter of 2004. It accounted for approximately 56% and 66% of our sales in calendar years 2008 and 2007, respectively. In absolute terms, revenue from the sale of the Incidence Test increased by approximately 4% between 2007 and 2008.

Aware TM HIV 1/2 Rapid Tests

Sales of our HIV-1/2 rapid diagnostic tests accounted for approximately 43% of our revenues in 2008 compared with 34% in 2007. We expect that our future near- and medium-term revenues will be derived primarily from selling our HIV-1/2 rapid tests in both the professional and over-the-counter (OTC) markets, and potentially from selling diagnostic tests for other STDs or synergistic tests, such as tuberculosis or malaria, in the longer term.

AwareTM MessengerTM Sampling Device

Our new Aware MessengerTM oral fluid sample collection device and our Life Sciences reagents, both introduced during early 2008, accounted for 2% of our 2008 sales.

Financial Condition and Results of Operations

During 2008 and 2007, we used cash of $4.6 million and $6.1 million, respectively, in our operations. In both periods, the cash used in operations was primarily for development and commercialization of our rapid tests, as well as for our selling, general and administrative expenses, including those of our Chinese joint ventures.

The following summarizes the results of our operations for the years ended December 31, 2008 and 2007 (in thousands):

                                                                   Year Ended December 31,
                                                                  2008                2007

 Product sales revenue                                        $         725       $         589
 Cost of product sales                                                  685                 559

Gross margin                                                             40                  30

 Operating costs and expenses:
Research and development expenses                                     1,405               1,260
Selling, general and administrative expenses                          5,862               6,409
Impairment of assets                                                      -               1,528

Total operating expenses                                              7,267               9,197

 Loss from operations                                                (7,227 )            (9,167 )

 Interest expense, net                                               (2,520 )              (235 )

 Minority interest in losses of consolidated joint ventures             313               1,206
 Other income (expense), net                                            257                 (72 )

Loss before income taxes                                             (9,177 )            (8,268 )

 Income taxes                                                             -                  (2 )

 Net loss                                                     $      (9,177 )     $      (8,270 )

Years Ended December 31, 2008 and 2007

Our revenue for 2008 totaled $725,000 compared with $589,000 for 2007, an increase of $136,000 or 23%. Sales of our BED Incidence Test accounted for 56% of our sales in 2008, compared with 66% in 2007. Revenue from the sales of the BED Incidence Test increased by 4% in 2008 compared with 2007. Such sales tend to be irregular as public health and research institutions begin or conclude various studies to monitor the incidence of HIV infection within their subject populations. Sales of our AwareTM HIV-1/2 rapid tests accounted for 43% and 34% of our revenues for 2008 and 2007, respectively. Revenues from the sale of our HIV-1/2 rapid tests increased by 56% in 2008 compared with revenues in 2007, primarily due to the impact of a $150,000 fourth quarter sale to our new distributor in the UAE. Sales of our HIV-1/2 rapid tests continue to be irregular during our commercialization period as we gain approvals for and begin distribution of those tests in various parts of the world. Our new Aware MessengerTM oral fluid sample collection device and our Life Sciences reagents, both introduced during early 2008, accounted for the remaining 2% of our 2008 sales.

Three customers accounted for approximately 56% of our revenue for 2008. Our South African distributor purchased both BED Incidence Tests and our AwareTM HIV-1/2 oral fluid rapid tests representing 24% of our 2008 revenue. During the fourth quarter of 2008, our new distributor in the U.A.E. purchased AwareTM HIV-1/2 oral fluid rapid tests representing 21% of our total 2008 revenue. BED Incidence Test purchases by the CDC's contract testing labs in New York accounted for 11% of our revenue for 2008. Three customers accounted for approximately 51% of our revenue for 2007. Our South African distributor purchased both BED Incidence Tests and our AwareTM HIV-1/2 oral fluid rapid tests representing 27% of our 2007 revenue. A second quarter purchase of our AwareTM HIV-1/2 oral fluid rapid tests by a Russian distributor accounted for 13% of our revenue for 2007. BED Incidence Test purchases by the CDC's contract testing labs in New York accounted for 11% of our revenue for 2007.

We reported a gross margin of 5.5% of sales in 2008, compared with a gross margin of 5.1% in 2007, in spite of increases in the costs of our raw materials and the expense attributable to increased staffing dedicated to our manufacturing quality systems that began in the second half of 2007 and that we treat as a component of product costs. The margins we reported in both 2008 and 2007, however, are not typical of our expected future results because of the relatively nominal amounts of revenues and product quantities over which the quality systems costs and certain fixed expenses, like annual royalty minimum payments, have been allocated. Product costs in both periods are based on resource-constrained purchasing patterns and pilot-plant-sized production lots, and do not reflect the economies of scale that we anticipate when we achieve true commercial scale operations.

Research and development costs increased by $145,000 or 12%, from $1,260,000 in 2007 to $1,405,000 in 2008. Domestic R&D expense increased by $315,000 or 29% in 2008 compared with 2007 primarily due to salary, benefits and related employee expenses attributable to new R&D staff added during the second half of 2007 who remained employed until the middle of the fourth quarter of 2008, non-cash expense totaling $197,000 related to employee stock bonuses granted in the first quarter of 2008 and employee stock options granted in the second quarter of 2008, and costs incurred relating to patent and trademark applications for our AwareTM HIV-1/2 oral fluid rapid tests and our Aware MessengerTM sampling device. Offsetting these increases were reductions in expenses related to travel, clinical trials and both cash and non-cash consulting expenses. R&D expense incurred by our Beijing Marr joint venture decreased by $170,000 in 2008 compared with 2007.

Selling, general and administrative costs decreased by $547,000, or 9%, from $6,409,000 in 2007 to $5,862,000 in 2008. The primary components of the net decrease in 2008 include the following:

· a decrease of approximately $350,000 in salary and benefits expenses attributable to the elimination of certain senior administrative and sales management positions in the fourth quarter of 2007, resignations of officers during the second and third quarters of 2008, and the reduction in force that occurred during the fourth quarter of 2008;

· a decrease in non-cash expense of $100,000 attributable to stock grants to an officer in each year;

· a reduction in administrative consulting and public company-related expenses of approximately $230,000;

· a reduction in marketing and administrative travel expenses of approximately $325,000;

· a decrease of approximately $139,000 attributable to non-cash stock based compensation expense primarily related to the fair value of April 2008 option grants to employees, and subsequent modifications to them, and the November 2007 option grants to members of our Board of Directors; offset by

· a second quarter 2008 non-cash charge of $350,000 resulting from the modification of warrants as part of a severance arrangement in a management change;

· increases in consulting and occupancy expenses aggregating approximately $186,000 related to new representative offices opened in Dubai and Geneva during 2007; and

· an increase of $166,000 in marketing and administrative expenses incurred by our Chinese joint ventures as they expanded their marketing efforts.

In the fourth quarter of 2007, we recorded non-cash impairment losses aggregating $1,528,000 attributable to certain regulatory approvals, licenses and certifications included in the manufacturing assets acquired by Beijing Marr prior to the creation of our joint venture that we do not believe are recoverable in the future.

Our loss from operations for 2008, at $7,227,000 reflects a reduction of $1,940,000 or 21% from the $9,167,000 loss from operations reported for 2007.

We recorded net interest expense of $2,520,000 for 2008 compared with net interest expense of $235,000 in 2007. The increase in expense primarily results from the $2.3 million fair value adjustment in 2007 attributable to the accounting for the anti-dilution obligations related to our February 2007 and March 2007 private placements. Additionally, the decrease in expense upon completing the amortization of the discounts and deferred offering costs of the Convertible Notes transaction through the original April 2007 note maturity date was partially offset by the increased expense related to amortizing the discounts and derivative obligations arising from extending the term of the Convertible Notes and the Credit Facility until April 3, 2009 and subsequently modifying the conversion terms for the Conversion Notes held by Marr and the Credit Facility. The discounts attributable to extending the term of the Convertible Notes and the Credit Facility are being amortized over the period from March 2007 through April 2009. The additional discounts resulting from the December 2007 restructuring of the Convertible Notes held by Marr and the Credit Facility are being amortized over the period from December 2007 through December 2008. Interest expense for 2008 also includes $305,000 attributable to the write-off of the deferred offering costs related to our Equity Line arrangement with Fusion Capital as a result of the decline in the market price of our common stock and our expected inability to make further sales of our common stock to Fusion Capital under the arrangement.

The following table summarizes the components of interest expense (in thousands):

                                                                                   (Increase)
                                                 Year ended December 31,            Decrease
                                                2008                2007             Expense

Interest expense on debt instruments paid
or payable in cash                          $        (303 )     $        (315 )   $          12
Non-cash expense composed of:
Accrued interest on 8% Convertible Notes (paid by issuing
additional
Notes)                                               (453 )              (416 )             (37 )
Amortization of 8% Convertible Note
discounts and deferred offering
costs through original maturity date                    -              (1,208 )           1,208
Amortization of discounts associated with
March 2007 extension
and December 2007 restuctructuring of 8%
convertible notes and
Marr Credit Facility notes                         (1,372 )              (449 )            (923 )
Mark to market adjustment of and
intrinsic value of shares issued
under anti-dilution obligations arising
from the February and
March 2007 financings                                  32               2,281            (2,249 )
Write-off of deferred offering costs
related to Purchase Agreement
with Fusion Capital                                  (305 )                 -              (305 )
Expense attributable to extension of term
of August 2006
Additional Warrants                                     -                 (29 )              29
Expense attributable to dividends on
. . .